Australian Broker 13.08

NEWS ASIC targets Westpac’s “big short” ASIC commences legal proceedings against Westpac P8

ANALYSIS A shifting market Investors make way for refinancers P10

OPINION Keeping your edge Why brokers should be using data and market insights P12

APRIL 2016 ISSUE 13.8

BEST PRACTICE Engaging your top performers How to “check in” with staff and encourage internal career progression P18

MARKET TALK Stamp duty must go

Property and development lobby groups are divided over what should replace stamp duty P22

MARIO REHAYEM Pepper’s director of sales and distribution on the importance of knowing your products P16

FINANCIAL SERVICES Pressure mounts for royal commission

The Government has acknowledged the need to increase the resources of the banking regulators P24

BORROWER SNAPSHOT 2

NEWS

ASSOCIATIONS

REGULATION

LENDERS

Offer unqualified advice and pay up P4

Broker admits to home loan fraud P6

Westpac’s alleged “big short” P8

BROKERNEWS.COM.AU

AUSSIES’ FINANCIAL OUTLOOK IMPROVING?

EDITORIAL

According to the findings from Mortgage Choice’s 2016 Money Survey, 42.9% of Australians worry about their finances regularly. Overall, however, Australians seem to be less concerned about finances than they were in 2015.

Editor Madelin Tomelty News Editor Julia Corderoy

% 60 40 20 0

Journalist Maya Breen

2015

32.9

26.2

53.8

Australians who said job security is their biggest concern

34.4

53.6

Australians who said rising utility bills was their biggest worry

27

Production Editors Roslyn Meredith Moira Daniels

2016

Australians who said they were “uncomfortable” with their current financial situation

National % 35 30 25 20 15 10 5 0

18.3 17.6

21.9 15.0

21.3 16.8

24.6

27.9 29.7 21.9

19.5

23.3

NSW 28.0

21.9 20.5

VIC

SA 28.9 31.0

23.4

23.3

34.1

32.0

25.7

14.4

Weekly

Monthly

9.0

Account Manager Rajan Khatak Marketing and Communications Manager Lisa Narroway

CORPORATE Chief Executive Officer Mike Shipley

Design Manager Daniel Williams

Chief Operating Officer George Walmsley

Traffic Coordinator Lou Gonzales

WA

21.3 6.3

Daily

QLD

Sales Manager Simon Kerslake

ART & PRODUCTION

Designer Kat Vargas

How often do you worry about your finances?

SALES & MARKETING

Managing Director Justin Kennedy Publisher Simon Kerslake Chief Information Officer Colin Chan Human Resources Manager Julia Bookallil

EDITORIAL ENQUIRIES

Madelin Tomelty +61 2 8437 4792 madelin.tomelty@keymedia.com.au

5.5 5.5 5.0 6.4

Once a year

Only when I have a big financial commitment Source: Mortgage Choice

SUBSCRIPTION ENQUIRIES

tel: +61 2 8O11 4992 fax: +61 2 9439 4599 subscriptions@keymedia.com.au

ADVERTISING ENQUIRIES

TOUGHER LENDING RULES HURTING BORROWERS The tougher lending criteria being imposed by the major banks, particularly in regards to living expenses, is silly and irrelevant, the former CEO of the Australian Institute of Professional Brokers has argued.

Founder and owner of Melbourne-based Universal Wealth Management, Maria Rigoni, says the tougher rules are hurting prime borrowers.

“Lending criteria is getting harder and harder so really good, credit-worthy borrowers are being declined loans on the most simple and silly of reasons.

“What is happening is people are finding it harder and harder to borrow or refinance. You might have all these cheaper options out there, but with the way that [the banks] are squeezing down how much people can borrow, consumers are being stuck in high interest rate loans and you can’t move.” Rigoni’s argument comes just after ANZ announced in a note to mortgage brokers that it would change the way minimum living expenses were calculated when it decides on home loans.

The changes, which took effect from April 4, will reduce how much some prospective customers can borrow.

“That interferes with two things,” said Rigoni. “It interferes with a person being able to live their life and use their money as they see fit at a particular point in their life, and it stops lenders from being responsible for really making risk-based credit decisions.”

Rigoni says she also doesn’t believe verifying living expenses is appropriate and that relying on benchmarks is enough.

“I don’t see why you have to verify living expenses.

If you are a potential borrower, the bank is already pretending you are paying a higher interest rate.

“I’ve been in finance for a long time and if I don’t know at this stage who is a reliable potential borrower who is offering no risk to the lender, then what has happened to the industry? I am seeing prime borrowers declined based on idiosyncrasies which are irrelevant,” she said.

Simon Kerslake +61 2 8437 4786 simon.kerslake@keymedia.com.au Rajan Khatak +61 2 8437 4772 rajan.khatak@keymedia.com.au Key Media Pty Ltd Regional head office, Level 1O, 1–9 Chandos St, St Leonards, NSW 2065, Australia tel: +61 2 8437 4700 fax: +61 2 9439 4599 www.keymedia.com Offices in Sydney, Auckland, Denver, London, Manila, Toronto This magazine is printed on paper produced from 1OO% sustainable forestry, grown and managed specifically for the paper pulp industry Copyright is reserved throughout. No part of this publication can be reproduced in whole or part without the express permission of the editor. Contributions are invited, but copies of work should be kept, as Australian Broker magazine can accept no responsibility for loss. Australian Broker is the most-often read industry publication, according to independent research carried out by the Ehrenberg-Bass Institute for Marketing Science at the University of South Australia in December 2008. The research also found that brokers rate Australian Broker as the best for both news content and feature articles, followed by sister publication MPA. Overall, on all categories, Australian Broker ranks top followed by MPA. The results were based on a sample of 405 respondents who were the subject of telephone interviews.

ASSOCIATION HAPPENINGS 4

DATES TO WATCH

FBAA: DON’T GIVE UNQUALIFIED ADVICE The Finance Brokers Association of Australia (FBAA) has warned brokers about the dangers of offering unqualified advice that isn’t covered by their Professional Indemnity (PI) insurance.

This comes off the back of a recent case in which a broker was found to have breached his duty of care, costing the finance broker more than $115,000.

He was found by the Credit Ombudsman Service to have given incorrect and unqualified advice, which resulted in his client being forced to sell a property investment at a substantial loss.

The FBAA’s Peter White says in this instance the broker went outside the bounds of his role by providing property advice and

acting as a real estate agent when he did not have a licence to do so.

“This should serve as a warning to brokers. If you give unqualified advice, your Professional Indemnity insurance won’t cover you.”

He said the FBAA runs many financial education seminars and workshops which deal with these issues.

“I would plead for any broker who may have let their education slide to update their knowledge on the rights and wrongs when it comes to advice and insurance.”

White added that unqualified advice is potentially a growing problem as the line between financial planners and real estate property sales and other arms

of the broking industry become blurred in an endeavour to diversify revenue streams.

“If you are only a qualified finance broker, act as a broker and do your best to meet your client’s needs. If you also want to assist a client in other areas like property purchasing, get the necessary qualifications and training otherwise you may be at risk of a lifechanging personal payout.”

A rundown of the next fortnight’s events

APRIL

27 What: SMSF Lending 2016 Where: Online The particulars: This MFAA webinar will cover understanding the size of the SMSF lending market, what’s changed with Limited Recourse Borrowing Arrangements, and the additional opportunities within the SMSF space.

APRIL

28

WHAT THEY SAID...

Wayne Byres “Given our bank-dominated financial system, the soundness of the banking sector is critical to ongoing economic prosperity” P14

Scott Manning “Brokers are not only a high proportion of flow but they are a significantly higher proportion of new bank business” P10

Tim Brown “Brokers also have a small business mentality that banks just can’t compete with. They are integrated into their communities in a way banks can only pretend to be” P10

What: FBAA Open Forum Where: Novotel Darwin Atrium, NT The particulars: FBAA’s Peter White will conduct the Open Forum discussion on government, regulation and industry updates, while Digital File’s Jamie Wilson will discuss the smarter way to store, share and sign documents in the cloud.

MAY

5 What: Broker 2020 Series Where: Brisbane, location TBC The particulars: This one-day, state based conference will cover embracing opportunities and addressing local issues. Bespoke sessions will focus on young professionals, back office staff, technology, sole operators, business owners who manage staff and equipment and commercial finance followed by an awards night recognising local excellence.

REGULATORY ROUNDUP 6

WORLD NEWS

CHASING CREDIT

Overall consumer credit applications are up 4.7% since the March quarter 2015 1.20

UNITED STATES OF AMERICA SHODDY MORTGAGE BONDS Goldman Sachs will pay $5.1bn to settle a probe of its handling of mortgage-backed securities.

The United States Government had alleged that Goldman Sachs didn’t properly vet loans before selling them to investors as high-quality bonds, according to a Bloomberg report. Goldman Sachs will pay a civil penalty of $2.39bn, make $875m in cash payments and provide $1.8bn in consumer relief, according to the Justice Department.

“This resolution holds Goldman Sachs accountable for its serious misconduct in falsely assuring investors that securities it sold were backed by sound mortgages, when it knew that they were full of mortgages that were likely to fail,” Acting Associate Attorney General Stuart Delery said in a statement.

This resolution is the fifth multibilliondollar settlement with a big bank related to the United States Government’s effort to hold financial institutions accountable for their role in the 2008 economic meltdown, Bloomberg reported.

The settlement also includes a “statement of facts”, to which Goldman has agreed, according to the Justice Department. The statement describes how the bank “made false and misleading representations to prospective investors” about the quality of the loans it securitised and how it would protect mortgagebond investors from harm.

“Goldman Sachs had a fiduciary responsibility to its investors, which they blatantly sidestepped,” said Rene Febles, deputy inspector general for investigation at the Federal Housing Finance Agency’s Office of the Inspector General.

“They knowingly put investors at risk, and in so doing contributed significantly to the financial crisis. The losses caused by this irresponsible behaviour deeply affected not only financial institutions but also taxpayers, and one can only hope that Goldman Sachs has learned the difference between risk and deceit.”

APPLICATION VOLUME INDEX (OCT 02)

1.15

Personal Loan

1.10 1.05 1.00

Credit card 0.95 0.90

Mortgage 0.85 0.80

Mar

Jun

Sep

Dec

Mar

Jun

2013

Sep

Dec

Mar

Jun

2014

Sep 2015

Dec

Mar 2016

MONTH Source: Veda

FORMER MORTGAGE BROKER ADMITS TO HOME LOAN FRAUD Brisbane-based Emma Feduniw, a former mortgage broker with AHL Investments Pty Ltd (trading as Aussie), has admitted through her solicitor to eight charges brought by ASIC. The charges related to the falsification of employment documents to secure approvals for home loans, submitted to Westpac.

ASIC’s investigation found that between March 2013 and February 2014, Ms Feduniw submitted eight loan applications, totalling $2,720,400, containing false borrower employment letters.

Of the eight loan applications, five were approved and disbursed, totalling $1,608,400.

Ms Feduniw received commission on those five loans of $6,847.53.

The eight loan applications ranged in value from $250,000 to $480,000.

Ms Feduniw appeared before Beenleigh’s Magistrates Court and through her solicitor admitted to providing documents knowing they were false or misleading.

“The credit laws are designed to ensure borrowers do not take out loans they cannot afford. Actions by mortgage brokers to circumvent the laws, for their own financial benefit, erode trust and confidence in the mortgage broking industry and will not be tolerated,” said ASIC Deputy Chairman Peter Kell.

Ms Feduniw next appears in court on 3 June 2016 for sentencing, where the Commonwealth Director of Public Prosecutions (CDPP) will be prosecuting the matter.

LENDER UPDATE 8

wwTHE NUMBERS BY

FAST FACT

$32bn* * The value of home loans approved over the month of February Source: ABS

LENDER ROUNDUP

A rundown of the fortnight’s policy and price changes

RATES

ASIC TARGETS WESTPAC’S “BIG SHORT” ASIC has commenced legal proceedings in the Federal Court in Melbourne against Westpac Banking Corporation for unconscionable conduct and market manipulation in relation to Westpac’s involvement in setting the bank bill swap reference rate (BBSW).

According to the Australian Financial Review, Westpac managing director group treasury Colin Roden is named in court documents as being involved in allegedly conspiring to rig the rates to the benefit of the banking giant. Another banker, Sophie Johnston, who works alongside Mr Roden in group treasury, is also named in court documents.

The AFR report outlines how on 6 April 2010, Westpac faced a “short” exposure to an interest rate setting of $14bn which meant the bank would make money if the bank bill swap rate was set lower than expected.

In a recorded conversation, Roden explains how the bank made a $12m profit after he bought billions of dollars’ worth of one month bank bills, and three month bank bills which drove the rate setting down from 4.30% to 4.23%.

ASIC has therefore alleged that Westpac had a large number of products which were priced or valued off BBSW and that it traded in the bank bill market with the intention of moving the BBSW higher or lower.

The regulator also alleged that Westpac was seeking to maximise its profit or minimise its loss to the detriment of those holding opposite positions to Westpac’s.

ASIC has sought pecuniary penalties from the court against Westpac and an order requiring Westpac to implement a compliance program.

Bank of Queensland

-0.3%

The annual rate of growth of mortgages has now slowed from +13.6% in the June quarter 2015, to an annual rate of decline of -0.3% in the March quarter 2016.

Source: Veda

Non-major lender Bank of Queensland (BOQ) has increased variable rates on owner occupied and investment home loans. Variable interest rates have increased by 0.12% for owner-occupiers and 0.25% for investors. The bank’s Clear Path variable rate home loan has lifted to 4.72% for owner-occupiers and 5.14% for investors standard variable rate home loan have moved to 5.86% for owner-occupiers and 6.28% for investors.

PEPPER INVESTS IN INNOVATION Non-bank lender Pepper has committed US$1.25m in equity funding to a US based, global innovation network.

Founded in February 2013, and based in Washington DC, 1776 looks to foster start-ups seeking to disrupt regulated fields such as education, energy and sustainability, healthcare, transportation and city planning.

Pepper’s investment will allow the non-bank access to the business opportunities generated by 1776’s start-up companies, as well as the mentoring services provided by 1776 encompassed in a five-year partnership agreement.

Pepper’s Co Group CEO, Mike Culhane, said he believes the next big disruption in financial services is likely to come from outside the financial services industry.

“Through our investment in 1776, we are looking to support start-up businesses, and in turn, gain access to new and innovative ideas from a range of industries, not just financial services. The idea that the next ‘big thing’ in financial services will come only from another financial services player deserves to be challenged.”

In return for committing funding, Pepper’s CoGroup CEO, Mike Culhane, will join the board of 1776.

Pepper is 1776’s first Australian financial investor.

10

ANALYSIS REPORT PROVES THAT BROKERS ARE THE FUTURE The head of lending at Yellow Brick Road has backed the J.P. Morgan Australian Mortgage Industry report, saying it is another signal that brokers are the future of the mortgage industry.

The report highlighted that the broker channel was perfectly placed to capture greater market share, with 75% of refinancers expected to use brokers. It also revealed that ANZ had already been steadily reducing its branch presence since 2011, in favour of increasing its broker usage.

“If we look to trends overseas, a move towards utilising brokers for a larger percentage of lending has already been happening for some time. In the UK, 76% of loans are done through a broker and 87% of the actual loans are through mutuals, building societies or regional banks,” YBR CEO of lending Tim Brown said.

“That same trend is now beginning here as banks realise old ways of operating aren’t working.”

Brown says there is no doubt that the traditional bank structure plays into the hands of intermediaries.

“In this day and age, people want to have access to service providers outside the typical 9 to 5 business day. Our brokers at Yellow Brick Road and Vow Financial don’t work limited business hours; they are driven to take care of the customer’s desire for convenience, and that means being flexible with the time and place that suits the customer’s needs,” he said.

“Brokers also have a small-business mentality that banks just can’t compete with. They are integrated into their communities in a way banks can only pretend to be. They work harder because that way they build a reputation and make more money.

Running the bank’s capped income model is never going to be as popular with consumers long term as the alternative to a broker who is incentivised to give better service, work longer hours, bring more customers in and provide customer-centric service.”

A LOOK AT THE STATS

15%

Increase in owner-occupied refinancing activity

10% Fall in solo investor activity

15% Fall in portfolio investor activity

7%

Average reduction in maximum loan amount for owner-occupiers

13%

Average reduction in maximum loan amount for investors Source: J.P. Morgan and DFA

A SHIFTING MARKET: INVESTORS MAKE WAY FOR REFINANCERS A shift in the lending market is seeing investors make way for owner-occupiers looking to refinance, so how can banks and brokers adapt?

THE RESERVE Bank of Australia began its current monetary policy easing cycle in November 2011 when it cut the cash rate by 25 basis points to 4.5%. Since then, the central bank has made 10 cuts to the official interest rate, bringing it to a historic low of 2% in May 2015, where it has now held steady for 11 months.

There has always been a strong historical correlation between the cash rate and housing loans outstanding as a percentage of disposable income. With interest rates steadily declining over the past four and a half years, the number of people taking out residential mortgages – and the amount they borrow – has been steadily increasing. This has led to a boom in property investment as Australian households rush to take advantage of low rates and an invigorated housing market.

This boom in property investment caught APRA’s attention, however, and the regulator responded by enforcing a 10% annual growth limit on investment lending in December 2014.

As a result, in the last six months, average borrowing amounts have cooled despite the cash rate remaining at

its record low of 2%. Banks have passed on out-ofcycle rate rises to dwarf the appetite for increased borrowing.

So, despite the fact that macroeconomic policy hasn’t changed, the credit landscape is changing. A report produced by J.P. Morgan in partnership with Digital Finance Analytics (DFA) has investigated this changing mortgage landscape and revealed what brokers and banks can expect in 2016.

A shift from investors to refinancers Investors have seen the sharpest reduction in intention to transact, according to the Australian Mortgage Industry Volume 22 report. Property investor activity has reduced from 50% to 40% for solo investors, and from 75% to 60% for portfolio investors since early 2015.

A key driver of the decline in investor appetite has been lower expectations of house price appreciation.

The number of property investors surveyed for the report who expected house prices to rise in the next 12 months reduced from 90% to 70%.

In addition, investors

cited potential budget changes and access to financing as key barriers to transacting in the current environment.

Getting access to financing is indeed becoming more difficult for investors. Ac cording to the report, results from a recent APRA disclosure show the average reduction in maximum loan amount for owner-occupied loans was approximately 7% over the last 12 months. By contrast, the average reduction for investor loans – which have admittedly seen a stronger regulatory focus – was approximately 13% over the same period.

With that as a backdrop, J.P. Morgan and DFA have identified a noticeable shift in the market from investors to owner-occupiers looking to refinance. In fact, the report shows the number of borrowers intending to refinance has continuously increased from early 2015, rising from 10% to almost 35%.

Owner-occupier refinancing activity has also been increasing across the board, with differing drivers behind the boost in activity for the various loan categories.

In the typical $250,000

11

the top end of the spectrum, however, for loans greater than $750,000, refinancing activity is being driven by the demand to release equity for other investments as house prices have risen.

Brokers will be major beneficiaries

to $300,000 mortgage range, the main driver of refinancing activity has been to reset mortgage terms – taking advantage of the competitive owneroccupied interest rates being offered by banks. At

According to J.P. Morgan banking analyst Scott Manning, brokers will be key to success in capturing the surge in refinancing activity this year, with the report suggesting around 75% of refinancers expect to use brokers versus other channels.

This means, he says, that in order for the banks to capture the refinancing tailwind, they will have to invest in their third-party channels – a trend we are already starting to see among the major banks.

ANZ, according to the report, is the most well placed to capture this shifting market. Since 2010, the major bank

not only a high proportion of flow but they are a significantly higher proportion of new bank business. They are very

where you can bank cash and bank deposits without going into a branch. They have kiosks with after-hours access where you can get

“I think [brokers] are here to stay and I think that proportion will continue to improve over time” Scott Manning, J.P. MORGAN has been increasing its broker usage while simultaneously decreasing its branch footprint.

Broker originations have risen over the period from approximately 40% of flow to 50% of flow for the lender.

However, this is a trend that J.P. Morgan and DFA believe will continue across the banking landscape over the next five years.

“Certainly, brokers are

important for banks to try and grow their book, so I think [brokers] are here to stay, and I think that proportion will continue to improve over time,” Manning told Australian Broker at the release of the report.

“If you look at what the banks are doing, they are reducing the size of their footprint in terms of square metres by moving banks.

They are using smart ATMs

coin change for SMEs. “They are migrating their footprint off branches already. I think ANZ has just been a bit more aggressive on that path …

We can see that in Westpac as well. Their branches were down last year in particular, and they have renegotiated the new deal with Australia Post to do more of the dayto-day banking in remote areas through the post office.”

12

OPINION

Matt Carlson is the head of broker solutions at CoreLogic RP Data

in real time and puts the broker in the expert position, ensuring that communications are aligned in a personalised way.

Brokers who use data insight tools such as alerts when clients list their property for sale, suburb reports, and market statistics will hold a better, more in-depth understanding of what may be motivating a customer.

KEEPING YOUR EDGE Matt Carlson outlines why brokers should be using data and market insights to stay a cut above the rest FOR LENDERS, insurers and regulators the mortgage market continues to be filled with challenges and changes, and across the mortgage broker channel we continue to see an increase in the share of home loan origination. Clearly, the value proposition for a broker is connecting with the consumer.

The growing slice of the mortgage market also means increased focus, scrutiny and more competition within the market segment, and so now more than ever brokers need to keep their edge.

brokers are vast. Based on CoreLogic’s research that looked at what successful brokers do, want and need, here are a few simple and effective strategies that can help to drive more business.

More effective communication Endless volumes of information are pushed daily into the public arena from a myriad of imaginable angles. But the average consumer is typically not as tuned into the specifics as a broker is, and therefore doesn’t have the financial experience to translate what all the noise really means for them.

Using real time market and property information helps build trust and makes sure that an application has the best chance of settlement Australian mortgage originations are dominated by refinance activity. CoreLogic estimates it is as high as seven out of every 10 events when looking at the averages across the country. Even though the auction markets and purchases continue to get the high level media attention, and are often seen as the health barometer of the property market, the truth is that people with existing lending are seeking more, and they are prepared to move around based on the advice and guidance provided by their broker.

Price sensitivity is regularly viewed as the main lever, and whilst we agree that price is always a factor and there is a tipping point, consumers are expecting more from a broker/lender relationship.

The tools and information available to mortgage

Misinformation can impact client confidence and cause unnecessary alarm or delay around making important decisions about future goals.

Mortgage brokers have a greater understanding of the industry they operate in and can be the conduit between the richness of information that exists in the market and the information that is specifically relevant to the borrower.

Knowing what the client’s or prospect’s property goals are, for example, is highly valuable. Are they looking for a property upgrade in a certain area or with certain attributes? Is he or she looking for a renovation project? Is building a new home a goal? What is their investment property plan?

What rental yield are they looking for?

All this information is available to be presented

More retention Successful brokers look to build customer loyalty and profitable loan portfolios. We see the refinance statistics and we know that businesses have to work hard to retain and grow the size of their valuable loan book.

Brokers will typically have good relationships with their clients and try to keep in contact with their prospects but unfortunately that communication does not always run both ways.

Monitoring the property transactions (sale and rental listings) on clients and prospects in real time across a portfolio is important for acquiring and retaining valuable customers, but creating sustainable and scalable processes without good tools can be difficult and expensive to manage.

Successful brokers are using our tools to alert them when important events occur such as when their clients or prospects are likely to transact, when a property is listed for sale or rent or when the equity has potentially increased.

By investing in the processes, setting up the right activities within a business, and using the tools available in the market to feed these processes, a broker can obtain real time actionable insights – the challenge is to fit the actions into a long list of competing priorities.

More growth Every business wants to grow, and there are numerous lead generating and referral models in the market for brokers. Some are successful, some less so, but referrals from existing clients and connections are always of the highest value.

We are able to help brokers looking for other ways to grow in a targeted and pro-active program. Leveraging our insights to identify those who are transacting or show a high propensity to transact in a local area provides a compelling alternative to existing propensity or lead gen models.

Knowing what is occurring in the target market is very important too. Insights into things such as the type of transactions in a specific region can help support marketing programs. For example, are there more investors or owner occupiers there?

Is activity in units up or down? Are houses taking longer to sell or is vendor discounting increasing?

We also provide insights at a local market level that can help brokers identify how they are performing compared to the competition.

Every application that doesn’t convert costs a broker time, money and can potentially damage a relationship. An increase in the use of products that can help manage the client’s expectations, such as an estimate on the value of a property, can provide an early indication about the security value which can help with the structuring and submission of a loan application. Using real time market and property information helps build trust and makes sure that an application has the best chance of settlement.

14

ANALYSIS BASEL 4: LEVELLING THE PLAYING FIELD Under the Basel 4 framework, the major banks will see a neardoubling of portfolio risk weights, particularly in the 60–80% LVR range. The risk weights for non-major banks will remain relatively unchanged; however, they will be rewarded for lower LVR lending.

MAJOR BANKS NON-MAJOR BANKS MORTGAGE RISK WEIGHTS – BASEL 3 80%

75%

70% 60%

50%

50%

43% 40%

39%

35% 35% 35% 32%

WARNING: FINANCIAL CRISIS APPROACHING Both the global banking regulator and the Australian banking regulator have claimed another financial crisis is imminent.

What now?

30% 20% 10%

15%

15%

16%

9%

0%

0%- 40%- 60%- 80%- > AVG 40% 60% 80% 90% 90% Source: BIS, APRA, Company data, J.P. Morgan estimates

MORTGAGE RISK WEIGHTS – BASEL 4 80%

75%

70%

62% 60%

56%

50% 40% 30% 20%

46% 44% 34% 32%

42%

29%

26% 26% 21%

10% 0%

0%- 40%- 60%- 80%- > AVG 40% 60% 80% 90% 90% Source: BIS, APRA, Company data, J.P. Morgan estimates

IT HAS been eight years since the GFC and over 25 years since the early 1990s recession – known as Australia’s worst recession since the Great Depression in the 1930s. Now, both the global banking regulator and Australia’s banking regulator have warned that another financial crisis is imminent.

Speaking at the Australian Financial Review Banking and Wealth Summit in Sydney, Bill Coen, secretary-general of the Basel Committee on Banking Supervision – the global banking regulator – said another global financial crisis was “statistically certain”.

“I’m an optimist by nature, but maybe a pessimist by fact and experience. We know with statistical certainty there will be another financial crisis,” Coen stated.

Echoing Coen’s warning, Wayne Byres, the chairman of Australian banking regulator APRA,

said it was not a matter of if, but when.

“When adversity arrives – and it will, it is not ‘if’ it will – to the extent [it’s] possible we want the banking system to help alleviate rather than exacerbate problems.”

In fact, Byres said regulators were even monitoring similar

So, with a financial crisis inevitably on its way, what does that mean for the Australian economy, banks and brokers?

Be prepared According to Byres, building strength and resilience in our financial system now is crucial while we are experiencing

effective” way of dealing with periods of stress.

“The message here is caution against complacency,” he said.

Building resilience is exactly what APRA has been doing on its recent capital raising tangent, which has seen home loan rates hiked as banks seek to boost

“We know with statistical certainty there will be another financial crisis” Bill Coen, Basel Committee on Banking Supervision concerns now to what they were a decade ago.

“If you go back and read my predecessor John Laker’s speeches in 2006 and 2007, many of them are kind of almost eerily similar to some of the things we’ve been saying recently.

“The issues that were on the radar screen then – buoyant housing lending, commercial property lending standards – are all things that are on our agenda again.”

economic growth.

“The main message I want to talk about today is it is better we continue to invest in building resilience now when it can be done in an orderly manner from a position of relative strength than try to do so in more difficult times,” he told the summit.

Coen expressed the same sentiment, saying increasing bank resilience in good times was the “most efficient and

the amount of capital held as a buffer against residential mortgages.

However, Byres hinted that capital requirements were likely to continue to move higher in 2016, to ensure our Australian banks are “unquestionably strong”, as recommended by the Murray Financial System Inquiry.

“Given our bankdominated financial system, the soundness of the banking sector is critical to ongoing

15

economic prosperity,” he said.

While APRA’s consideration of what constitutes “unquestionably strong” in an Australian context will need to wait until around the end of the year, Byres did say the regulator’s intent was clear.

“The direction is pretty clear – no one should be planning for capital requirements to decline – but as Australian ADIs start with a relatively strong capital position, the actual implementation of any changes should be able to be managed in an orderly fashion.”

How much capital?

From the Basel Committee’s viewpoint, the global banking regulator does not intend to significantly increase overall capital requirements this year.

However, Coen said there were “still some gaps” in the framework, which the regulator would bridge by year-end.

In particular, Coen said the Basel Committee would propose greater restrictions on the use of internal ratings-based (IRB) approaches, whereby major banks are allowed to use their own estimated risk parameters for the purpose of calculating capital buffers.

Specifically, Coen said the regulator had recently proposed to adopt floors to ensure a minimum level of conservatism where internal models remain available, as well as limit the range of practices regarding the estimation of risk parameters under the IRB approaches.

What does this mean?

This means brokers and consumers can expect further interest rate rises, according to a major mortgage broking network.

“We could again see banks increasing rates outside of the Reserve Bank of Australia’s deliberations,” said

1300HomeLoan managing director John Kolenda.

According to Kolenda, variable rates rose by up to 29 basis points last year, due to additional capital requirements, while investor loans rose by up to 49 basis points.

“There are likely to be similar increases across the board for owner-occupier and investor loans in the months ahead, so consumers should be preparing for that possibility.

“While the RBA also has plenty of room to cut its cash rate again, its actions are expected to be made redundant by the banks lifting their rates out of cycle.

“APRA wants to make our banks the safest in the world by enforcing new regulatory requirements that will increase the cost of providing mortgages.”

Extending beyond capital buffers However, increasing capital requirements alone is not enough.

According to Coen, the strength and resilience of our banking sector extends beyond capital buffers.

“Regulatory capital is critically important, but it is not our sole focus as regulators,” he said.

So what else is needed?

Coen told the summit that the foundation of a resilient banking system also required improved corporate governance and culture, better IT systems and more effective stress-testing.

“High-quality capital and robust capital ratios have always been, and will remain, the keystone in the Basel framework.

But high-quality capital must be complemented with effective governance and appropriate culture; strong risk management processes and internal controls; and a broad view of risk that encompasses all of a bank’s activities,” Coen said.

TECHNOLOGY UPDATE

MY LOCAL BROKER’S TECHNOLOGYPOWERED EXPANSION PUSH

Jaci Smith

My Local Broker is powering ahead with its national expansion plans.

The Challenger aggregator unveiled its growth strategies earlier this month, central to which is its new CRM purpose-built ‘Chief Software’ that integrates directly with the NextGen.Net ApplyOnline platform.

My Local Broker CEO Jaci Smith says the key to her words at the launch was the message: “We’re now able to deliver exactly what brokers have said they want.”

“We engaged NextGen.Net to create our own ApplyOnline ‘Broker Centre’ to allow us to be fully stand-alone and enable full integration into Chief for seamless transmission to ApplyOnline and subsequently transition through to lenders,” says Smith.

NextGen.Net was the obvious partner for My Local Broker in terms of an electronic gateway to the lenders.

“NextGen.Net is the expert in the market and essentially we’ve taken all their years of hard work and engineered that within our own framework, which means full seamless transmission,” she says.

Smith stresses how simple the process was for NextGen.Net to integrate with My Local Broker’s CRM system. The advantage is that they can now plug into NextGen.Net’s API service and gain access to all lenders’ serviceability calculations in real-time.

“In short, what this means is that broker groups no longer need to maintain all the serviceability calculations of every lender in their CRM system,” says NextGen.Net Sales Director, Tony Carn.

“The old, out-dated method generally utilises an Excel spreadsheet calculator, reprogrammed for the respective CRM systems. That slows down the process and inevitably led to a time-lag.

“With NextGen.Net’s API, My Local Broker just calls our service, and we calculate assessment and maximum

Tony Carn

borrowing capacity and send the answer straight back,” says Carn.

The service has been piloted, industrialised and is now in production with a couple of broker groups, with others planning to go live shortly.

Acknowledging the triumph of the My Local Broker partnership with NextGen.Net, Smith points to the significance of taking full advantage of NextGen.Net expertise.

“We had no desire to recreate the wheel,” she exclaims. “The crucial element is how a broker’s CRM and a third-party, like NextGen.Net, come together.

“Together we have cleverly re-engineered the process to leverage what NextGen.Net has done brilliantly for more than 10 years.”

Access to ApplyOnline means My Local Broker also has access to other tools such as the ‘ApplyOnline App’.

The ApplyOnline App provides a onetouch visibility tool for the broker to see their entire pipeline. They can search for specific loan applications and keep up-todate with push notifications for real-time status updates.

In February, Tyler Smith was appointed My Local Broker’s Head of Innovation to work in conjunction with CEO Jaci Smith in the on-going integration and developments.

My Local Broker plans to implement a number of further integrations over the next 18 months to take full advantage of NextGen.Net’s sophisticated and smarter solutions.

“My Local Broker had the benefit of starting with pretty much a blank slate.

Therefore they’ve been able to consume a lot of the ‘smorgasbord’ of ApplyOnline services that NextGen.Net provide,” says Carn.

As part of its national launch agenda, My Local Broker will be visiting all major cities in conjunction with the MFAA ‘Broker 2020’ series.

16

COVER STORY THE YEAR OF CONVERSION

BROKERS BECOMING AWARE

35% Increase in mortgage broker utilisation of a Pepper product from 2014 to 2015 (excluding Direct and White Label)

THE NON-CONFORMING CUSTOMER

Reasons a borrower is deemed non-conforming

33%

Pepper’s director of sales and distribution, Mario Rehayem, explains the dangers that lie in favouring lenders, and how brokers can bolster their value proposition in 2016

Unusual income

20% Credit impairment

18% Self-employed

15% Need a high loan-to-valuation ratio

14% Non-genuine savings

14%

The struggle of the broker According to direct feedback from Pepper’s third-party channel, the biggest challenge mortgage brokers face day-to-day is the running of their businesses.

Requires loan for debt consolidation

14%

“[Brokers] owe it to themselves and to their customers to come up to speed with what alternate products are available”

Uncommon employment

11% Alternative documentation

5% Uncommon property 0

20

40

hosting another Insights Roadshow dedicated to equipping brokers with the tools they need to become better brokers.

But growing their businesses also involves brokers waking up to the areas of the industry

60

80

100

Source: Independent research for Pepper carried out by Fifth Dimension

“These guys are great at what they do,” said Mario Rehayem, director of sales and distribution at Pepper. “A lot of them are subject matter experts in dealing with customers’ financial needs, but running a business they struggle with.”

To assist brokers in this area, Pepper offers all of its brokers free access to a variety of business development video modules through its online Better Business portal, and this year it will be

that hold the greatest opportunities.

“We will offer any broker the service of education, but there’s a responsibility for brokers to put their hand up and take their business to the next level,” said Rehayem.

One such area that has the potential to bolster business, he says, is specialist lending.

“The beauty of the [specialist lending] segment of the market is it is so underserviced

17

said Rehayem, adding that brokers now need to recognise this learning curve and use hindsight to drive foresight and build a safeguard for their businesses.

“This was a wake-up call for brokers,” he said.

“The elastic bank of what is deemed ‘prime’ is changing on a daily basis … is their business ready for it?”

It’s no surprise, then, that this shift in the lending landscape has opened up massive opportunities for non-bank lenders like Pepper.

In 2015, the number of brokers that assisted

down for a loan, they were 100% sure that the customer was not eligible for a specialist product.

This comes after a survey last year revealed that six in 10 customers whose applications were rejected were in fact eligible for an alternate product. This is particularly damaging for both the customer’s financial confidence as well as the broker’s business.

“It takes an average of 2.8 years until that customer will apply for credit again, after they are turned down,” said Rehayem.

It’s therefore in the broker’s best interest to

“The elastic band of what is deemed ‘prime’ is changing on a daily basis … is their business ready for it?” customers in finding an alternative lending solution through Pepper, and the number of new customers to the non-bank lender, reached a 15-year record high.

But rather than Pepper experiencing one sharp spike in the uptake of their products following the changes in regulation, the lender’s growth has in fact been building over the past five years, and continues to grow as more and more brokers familiarise themselves with non-bank lending products. Since 2011, the utilisation of Pepper products by brokers has averaged 42% per year.

“What is driving volume is more and more brokers are now offering an alternative to their customers than ever before,” said Rehayem.

“Our product has not changed, and yet we have significantly grown for five years in a row.”

the opportunity it has is second to none. It is the market that has the most potential to grow, and the only reason behind its lack of growth is a lack of awareness of what specialist products can do for the customer,” he said.

It all comes down to knowing your products, and brokers were very quickly forced to familiarise themselves with non-bank lending products after the regulatory changes that occurred in 2015 dramatically affected many customers’ eligibility for bank loans.

According to Rehayem, following these regulatory changes, those brokers who were already using Pepper and other specialist lenders “didn’t even flinch”, while in contrast those who were unfamiliar with non-bank products were pushed into a corner.

“Those that had never used a specialist lender had a dip in business, were clutching at straws and were forced to come up to speed overnight, which I believe is wrong because they’ll then be making uniformed decisions about products,”

Maximising opportunities And yet despite the obvious growth in broker utilisation of non-bank lenders, third-party awareness of specialist products is not anywhere near where it should be, and this is what Rehayem believes is one of the “biggest threats” in the industry.

By “beholding” themselves to a small number of bank lenders, Rehayem explained, brokers are pigeonholing themselves and stunting their businesses’ growth.

“You go into any aggregator group and unfortunately they tend to write the bulk of business with one or two lenders … That’s a big risk. [Brokers] owe it to themselves and to their customers to come up to speed with what alternate products are available.”

And offering multiple lenders isn’t just good customer service, Rehayem added. Favouring a handful of lenders calls into question the entire value proposition of the mortgage broker, whose job is to be the gatekeeper to what should be upwards of 20 lenders that their customers can have access to.

“What they should be doing is ensuring they have the skill set to not only offer one or two products at time of interview, but have an understanding of what multiple lenders have to maximise every opportunity that comes through the door,” he said.

Rehayem elaborated that brokers also needed to ensure that when they turned a customer

ensure they don’t make the mistake of neglecting the non-conformist customer.

“If non-conforming does not represent at least 10% of every broker’s business,” Rehayem said, “they’re missing out on a lot of customers.”

If it’s not personal, it’s not good business Being aware of all opportunities and familiarising themselves with all segments of the market is the best way for brokers to create a safety net as headwinds gather speed in the mortgage industry in the year ahead, according to Rehayem.

“I believe we’ve got some big dramas coming into this industry, and it’s more than just regulatory changes, because all these big companies with access to more data than anyone else in the country can rely on their data and the banks’ low rate, and this will squeeze out the broker,” he said. “You’re not going to compete against them if you don’t bring a personal touch … Brokers need to stop treating the interview as a transaction and think long and hard about what their true value proposition is in the market.”

And this means leveraging off the reason the mortgage industry opened up in the first place, which Rehayem believes was the failure of bank servicing. The lack of rapport banks now offer is their Achilles heel, and if brokers are smart they will use this to their advantage.

“The value proposition of the broker should be first and foremost the service. The second thing is their personal touch and skill set they have so they can tailor by customer.”

Rehayem suggests that if brokers combine a comprehensive knowledge of all lending products with an empathetic attitude towards all customers from the very beginning – the interview stage – a broker’s value proposition will never be in jeopardy as regulation chops and changes, and with it the bank’s appetite.

“What we try to tell the brokers is if you want to be controlled by bank appetite, go for a bank … If you’re serious about customers, the core of any sustainable business, then you will get off your seat and realise you need to understand what products outside of what you already know will allow you to say yes to more clients,” Rehayem said.

“You watch, it’s the year of conversion. They’re going to hunker down.”

18

BEST PRACTICE HOW TO PUT THE BRAKES ON AN AUTOPILOT MENTALITY The CEO and founder of PlanDo, Anne Moore, on the importance of checking in with staff STEP 1: If you’re stuck or not sure, ask “what if?”

Are you treading water? What are your work goals that you haven’t yet achieved? Can you imagine a new way of achieving those goals? If you answer, “I can’t”, then it’s time to reframe how you think. “I can’t” predetermines unaccomplished goals, but asking the question, “what if?” is the first step to opening the door of possibility.

STEP 2: Start making the ‘what ifs?’ real within your team Schedule a meeting and start with a silent warm-up ideation period of three minutes, and then write down as many ‘what if’ ideas as possible. Let people come up with ideas at the same time and write them down so more vocal people don’t have an advantage. Share the ideas with your team. Lather, rinse and repeat the process for more ideas.

STEP 3: Follow good response practices when ideas are shared There are helpful guidelines when responding to a group. Saying “plus one” means you have a similar suggestion to one being shared. It streamlines the process and strengthens bonds between those with similar ideas. “Plus love” is a good way to express that you wish you came up with the idea. Hearing “plus love” on a crazy idea encourages you to come up with more crazy ideas and enables the group’s creativity.

“I’m good” is a nicer and more positive way of saying “I don’t have any more ideas”.

STEP 4: Filter your ideas How much do you love an idea? Does it solve a real need? Will the idea save money and is it feasible? You may have 50 ideas, which you’ll want to whittle down to a single digit. Refine the evaluation by asking how easy or difficult an idea would be to execute. Then consider the ‘wow’, meaning how much this would impact on one’s life, or how much a client would like it.

“It’s one thing to offer a client fresh ideas, but it’s much better to teach them how to discover new ideas for themselves,” Patel says.

MENTALLY CHECKING OUT 76% of Australian workers are either in two minds about their jobs or, worse still, are completely disengaged

24%

60%

16%

are engaged

are not engaged

are actively engaged Source: Accumulate

AT WHAT COST?

$54.8bn

The cost of workplace disengagement on the national economy each year Source: Accumulate

ENGAGING YOUR TOP PERFORMERS IN 2016 AND BEYOND

The CEO and founder of PlanDo, Anne Moore, on checking in with staff and encouraging internal career progression CEO AND founder of PlanDo Anne Moore believes it is becoming harder than ever to motivate talent and keep them engaged.

With the changing work environment, the casualisation of labour, the increase in contractors rather than employees, and the millennial mindset

to consider the following questions: How often do you ‘check in’ with your team members?

Instead of having to make team members wait for 12 months for their review, smart organisations will provide more feedback

That way a more complete picture can be built of the individual’s progress, and a different perspective can be provided.

Are the individuals that work for your business self-directed?

Has your business given

The younger generation of workers coming through want to take control of their own careers and not have an organisation dictate to them the path they need to take to progress of wanting to work in a number of different organisations rather than sticking with one over the long term, professionals need new tools to motivate talent in 2016.

If you want to engage your top performers, you need

more often. This feedback shouldn’t just come from ‘managers’, or ‘leaders’, as they should be known. It should be from more than one person – peers, mentors, whomever the individual chooses.

your team members an opportunity to talk about their career goals and what they want to do? It’s important for leaders to set goals and objectives together with individuals. Ask them how they can

19

contribute to achieving the goals your company has set. Again, it comes down to ownership and accountability, and if the individual has suggested a goal or objective, they’re much more likely to achieve it than if they’re given one. The new world of work demands a responsiveness and agility that’s internally derived.

Does your performance review process need an overhaul?

Is it too long? Too cumbersome? A box-ticking exercise?

Some organisations such as Accenture and Deloitte are scrapping them altogether.

There are cloud-based career management systems available, such as PlanDo, that are more intuitive, less expensive and really help professionals retain their key talent.

It’s about professionals and leaders across the business having access to the right tools for the changing work environment.

Are you having quality career conversations?

Ask yourself if the tools you’re using today encourage quality conversations between ‘leaders’ and ‘individuals’ in your business. Standard performance systems encourage managers to only talk to their people about growth once or twice a year.

Most organisations in Australia have invested in expensive outdated ‘talent management’ systems that reflect what the organisation wants from its employees, to ‘manage’ them. Today this approach simply doesn’t work. ‘Talent’ can’t be managed. The younger generation of workers coming through want to take control of their own careers and not have an organisation dictate to them the path they need to take to progress.

Managers are rapidly evolving into leader coaches, and therefore also want easy access to simple and effective tools that facilitate great conversations.

Finally, helping your team members with their career progression is not all down to you. Competition is fierce in many industries in Australia to attract the best talent, and then, once you have those individuals, it’s a common misconception that it’s down to HR professionals to nurture individuals and outline a path for progression. Wrong.

Today this is a shared responsibility. It’s about co-careering, which means aligning values, purpose and goals. Building strengths, skills and ensuring there’s a great ‘fit’ is what matters more and more. At the end of the day, the individual is responsible for their own career, and ensuring their experience and skills are documented and taken with them to their next employer.

20

COALFACE

BRINGING IN THE BUSINESS Two top brokers, the directors of Expert Finance Group, discuss the business benefits and challenges of establishing a call centre abroad DIRECTORS JOEL Lockwood and Gareth Robinson founded Melbourne brokerage Expert Finance Group two and a half years ago and now have an established call centre in India sourcing about 30% of their business.

“We decided to make a go of setting up our own call centre,” said Robinson. “We didn’t outsource it – we actually set the whole thing up ourselves.

We knew that if we were going to make it work we couldn’t rely on a third party.

Lockwood previously worked for small credit unions before taking on management roles at ANZ and GE Money in Tasmania and country Victoria.

He then opened his own financial services business while contracting for a financial planning firm, where he met Robinson.

One of MPA’s Young Guns for 2015, Robinson worked in finance and commodities in America before returning to Australia to start his own business. He says one of the challenges in starting

“It’s something that shouldn’t be taken lightly.

You can sink a lot of money into it if you’re not careful about the outcomes” Gareth Robinson “It was an interesting learning curve because in reality there are a lot of things about the way business is done in India that differ greatly from the way things are done over here. So you learn a fair bit about those different cultural shifts,” he said.

“We took a very strict model with ourselves where we accepted that we weren’t going to be paying ourselves a lot of money at the start,” said Lockwood. “You’ve gone from being a one-man band with no overheads to essentially creating overheads to build a scalable model.”

Their brokerage wrote over $100m in loans in its first year, and this year they are aiming to hit $150m or more.

the brokerage was in trying to replicate himself – finding people that have the same motivation, drive and ethics.

“It’s no different from any other business – availability of funds and good people are the two biggest challenges you’ll ever run into.”

They initially got up and running through a strong referral network, having connections to companies selling off-the-plan properties, and building a reputation of getting difficult loans through.

When they decided on establishing a call centre, although they considered other countries they chose India because they had a trusted source there.

Initially starting with a team of 14 staff, the centre is now 30 strong, employing marketers, appointment setters and a number of managers.

“In Australia, you might have one or two managers for 30 staff – over [in India] you’ll have six or seven.

“The labour cost is actually one of the cheapest aspects of the process,” Lockwood said.

Robinson added that costs such as leases and taxis are the most expensive, so driving numbers up ends up being more economic across the board.

For brokers considering offshoring a part of their business overseas, Robinson said the venture is only worthwhile if they have team of at least four brokers in Australia. Lockwood added that a call centre shouldn’t be relied upon as the sole source of appointments.

“It’s a source, not the source,” said Robinson.

“It’s something that shouldn’t be taken lightly. You can sink a lot of money into it if you’re not careful about the outcomes. Make sure it’s a ‘paid per qualified appointment’ scenario.”

Lockwood added that it’s “an expensive lead source, so you need to know that you’re able to convert from a cold appointment fairly strongly”.

But the hard work has paid off now, and the call centre is not taking up much of their time these days. “We’ve streamlined the process fairly well.”

They both pointed out the invaluable resource that is their aggregator Finsure, which helped them move their business on an upward trajectory in a short space of time.

“Instead of trying to reinvent the wheel, try to utilise those relationships,” Robinson advised. “We learnt pretty fast there’s no point trying to figure it out on your own – we may as well give [Finsure] a call first.”

Along with their call centre abroad, their Melbourne team is also growing. With three brokers who are currently finishing their Certificate IV and another senior broker on board, they aim to have a team of six full-time brokers by the end of April.

“We’re looking at probably opening our second office on the east coast in the next six months, and from there we’ll look at expanding our presence to Sydney.”

22

MARKET WRAP MARKET TALK

STAMP DUTY MUST GO Two of Australia’s biggest property and development lobby groups are at odds over how the government should go about replacing stamp duty LOBBY GROUPS Urban Taskforce and the Property Council of Australia are in agreement when it comes to the idea that stamp duty should be scrapped; however, the two groups disagree on the viability of replacing it with a broad land tax.

Urban Taskforce CEO Chris Johnson has accused state governments of complacency when it comes to stamp duty, claiming they would prefer to pull in the revenue it generates rather than address the impact it has on the nation’s real estate market.

“State governments have become comfortable with the large income they get from stamp duty on the purchase of homes, but they must look at better, more efficient ways to raise funds,” Johnson said.

“Sydney’s housing is among the most expensive in the world, and this is partly driven by the various taxes and levies required by governments.”

Johnson argues that current stamp duty levies should be replaced by a broad-based land tax, which he claims is a more equitable

form of raising revenue and would also promote more sustainable development.

“A broad-based land tax would spread the income base across all landowners, rather than only focusing on the sale of homes,” he said.

“This tax encourages a more environmentally sustainable urban form.”

Ken Morrison, Property Council of Australia chief executive, backed Johnson’s call for stamp duty to go; however, he warned that a land tax may not be feasible in the current political environment.

“By scrapping stamp duty and replacing it with efficient taxes we could boost Australia’s GDP by $3.3bn and increase real consumption by $9.7bn,” Morrison said.

“Stamp duty is an inefficient tax that costs jobs, hurts the economy, makes our cities less efficient, and is an unpredictable tax base for state governments.”

“In putting the case for reform, we also have to look at what is politically feasible.”

Morrison said replacing stamp duty with a land tax would likely have an adverse impact

on businesses, while households are unlikely to react positively to a new levy.

“The reality is that businesses already pay very high levels of land tax, and there is a political limit to what homeowners are likely to accept,” he said.

“Adding a new $16bn annual land tax on the family home is not likely to pass the pub test.

“There are very strong reasons for abolishing stamp duty, but we have to be realists in this debate – replacing stamp duty with a new broad-based land tax on every family home is unlikely to be politically palatable.

“As well, the commercial sector already pays significant land taxes, and we question if businesses across the economy can absorb a higher land tax. A shift to higher land taxes will simply increase this burden – and significantly reduce the economic benefits of moving away from stamp duty.”

Morrison said removing stamp duty needed to part of a “holistic reform” of taxation, rather than just swapping one levy for another.

THE SHARP SLOWDOWN

-1.2%

Demand for mortgages cooled for the third consecutive quarter in the March 2016 quarter 6 3

+5.9%

+2.5%

+1.6%

+0.5%

0 -3 -6

-1.2%

-10.8%

-13.9%

-13.9%

NSW

TAS

WA

NT

-9 -12 -15

VIC

SA

QLD

ACT

The sharpest slowdown in mortgage application growth was seen in NSW, from +21.7% growth in June quarter 2015 to -1.2% in March quarter 2016 Source: Veda

23

RESIDENTIAL PROPERTY APPROVALS ENTERING DOWNWARD CYCLE?

Building Approvals – Australia No. of approvals 12,000 11,000 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 Feb 06

07

08

09

s.a. Detached s.a. Multi

10

11

12

13

14

Trend – Detached Trend – Multi

15

16

Source: HIA

COOLING TEMPERATURES WON’T AFFECT MARKET ACTIVITY The head of one of Australia’s biggest real estate franchises believes the Australian property market will remain relatively active through autumn 2016.

Angus Raine, executive chairman of Raine & Horne, believes a combination of the upcoming federal election and the end of the financial year will see continual movement from buyers and vendors.

“With the end of the tax year fast approaching, many investors and self-managed super funds will be weighing up whether to rebalance in or out of real estate assets, and will act well before the June 30 cut-off,” Raine said.

“Throw in the threat of a July federal election and we expect appraisal, listing and sales numbers to hold their ground in the lead-up to the end of the financial year.”

While the cooler months have traditionally been the ones when buyer activity falls off, Raine doesn’t believe that is particularly the case any more.

“Buyers are driven to secure a property for a wide variety of reasons, whether it’s to secure a tax-effective investment for a self-managed super fund, or a home to live in – and the season makes little difference to them,” he said.

“An autumn open home … can present a more pleasurable experience for buyers, who will be more likely to poke around properties with more inviting external spaces for longer than they might at the height of the summer.”

According to Raine & Horne figures, there were around 20% fewer homes for sale in March compared to September 2015, which will likely keep buyer competition strong through the cooler periods of the year.

“The reality is there will be fewer properties for sale in autumn than in the traditional springtime selling months between September and December, when many owners list properties for sale.

“If there are fewer properties for sale in April and May than September, and more or less the same number of buyers, it stands to reason that an autumn sale can make plenty of sense.”

24

MARKET WRAP REDUCING BROKER COMMISSIONS COULD COST BORROWERS: AFG As ASIC continues its review of broker commissions, AFG has warned that borrowers could be hit by higher interest rates as a result of any changes.

According to AFG, changes to broker commissions could result in “a significant reduction in competition in the mortgage sector … every mortgage customer will pay for reduced competition throughout the life of their loan”.

ASIC is concerned that mortgage broker commissions “are a form of conflicted remuneration”, which could lead to worse results for borrowers.

The watchdog has been consulting brokers and lenders to see how commission works and whether alternative models – such as upfront ‘fee for service’ models – could work better for consumers.

However, AFG claims that undermining brokers could reverse a trend which has seen the average variable rate come down from 4% above the cash rate in 1994 to 1.75% in 2010.

Critics of commission have argued that, while borrowers may not need to pay an upfront cost, commission is factored into the loan, thus making it more expensive and potentially preventing borrowers from accessing the most suitable loan for their situation.

But AFG says “not all potential borrowers recognise the discounts that brokers can secure for them”, noting that a “discount of 0.4% on a $450,000 25-year mortgage advertised at 4.8% would see the consumer pay off their loan 21 months early and save approximately $54,000 in interest”.

Whether brokers do make finance cheaper for borrowers will be examined in a wider look at lending data

by ASIC, which will report its findings to the government in December of this year.

AUSSIE BUSINESSES LOSING FAITH

87%

The percentage of Australia’s small and medium-sized businesses that now think the economy is either slowing or standing still Source: Sensis Business Index survey

FINANCIAL SERVICES

PRESSURE MOUNTS AS MORE BACK ROYAL COMMISSION The Australian Government has addressed the need to increase the resources of the banking regulators, following Labor’s call for a royal commission TREASURER SCOTT Morrison has acknowledged there are problems in the financial services that need to be addressed, and said the government would work with banks on improving their culture, the Australian Financial Review has reported.

This comes following Labor’s call for a royal commission into banks, after 13 serious incidents of financial services misconduct in the past two years alone.

The Opposition has dismissed Morrison’s assurances, however, drawing attention to the fact that, in its first budget, the Abbott Government slashed funding to ASIC by $120m over four years.

Labor also noted that a further $47m was lost due to enforced “efficiency dividends” across the public sector.

Within the Coalition, six backbenchers are at least open-minded about the royal commission, with a few of these publicly supporting it and the idea gaining momentum among the public.

While Morrison stated that the banks were already well regulated by bodies such as ASIC, the RBA and APRA, he also acknowledged there were things that needed to be done to ensure these bodies were adequately resourced.

“Of course there are issues that need to be addressed in the banking and financial industry. That’s why we initiated the financial systems inquiry. That’s why we’re acting on its recommendations,” Morrison said.

“We’ll continue to work with ASIC and APRA and the other players that are involved in these issues to ensure that Australians can have confidence about the integrity of how they do business with banks.”

Morrison also said the government would “continue to work with the banks who have to deal with the culture issues that exist”.

Prime Minister Malcolm Turnbull, however, suggested that the onus was on ASIC chairman Greg Medcraft to identify the under-resourced areas of the regulatory body.

“If ASIC needs to do more then it’s up to Greg Medcraft to identify where he needs more resources,” Turnbull said.

Both Turnbull and Morrison have also argued that ASIC in fact has greater powers than a royal commission.

“ASIC already has the powers of a royal commission and more. I mean, ASIC can actually do more than a royal commission can right now,” Morrison said.

“ASIC can do the job right now and is doing that job right now and we’ll continue to work with them to see what additional matters they’d like to see addressed to enable them to do the job any better.”

However, Shadow Attorney-General Mark Dreyfus said ASIC could only look at the banks on a case-by-case basis when what is needed is an examination of the entire system.

Simon Longstaff, executive director of The Ethics Centre, disagreed, saying a royal commission was not necessary.

“I don’t think that there is something so systemically rotten in banking and finance in Australia that it would be justified,” Longstaff said.

Rather, he advocates for regulators to continue working on encouraging bank boards and managers to develop ethical cultures within banks, ensuring that it is not only treated as a matter of compliance.

26

SPOTLIGHT VIDEO SPOTLIGHT

ONE YEAR ON

DRIVING DEBT DEEPER What a difference a year makes … or not. Australian Broker reflects on the punditry, news and trends that made headlines over the past 12 months

31 MARCH 2015 Figures released by the Reserve Bank of Australia indicate the household debt servicing ratio is at an 11-year low, with the value of assets purchased outweighing the debt load and suggesting wealth is at record highs

19 JUNE 2015 Sydney mortgage broker Leon Vrontamitis goes on the record stating the majority of borrowers are prepared to handle a modest increase in interest rates, and most variable rates would have to increase by around 2.5% before clients could potentially struggle to make repayments

5 APRIL 2016 Mortgage Choice’s 2016 Money Survey reveals almost half (49.8%) of Queenslanders worry about their finances on a daily or weekly basis, and 42.9% of Australians worry about their finances regularly

13 APRIL 2015 AMP chief economist Shane Oliver says Australian households are “vulnerable”, following the 2015 Demographic Housing Affordability Survey results that show the median multiple of house prices to household income in Australia is 6.4 times 4 APRIL 2016 Latest figures released by the RBA reveal the ratio of housing debt to disposable income has exceeded 2015’s figures, reaching record highs.

However, as in 2015, the value of household assets is significantly greater than the value of the debt, according to RBA’s data

5 APRIL 2016 58% of those surveyed by Ipsos and MLC believe the next generation will be forced to rent all their lives and will never own their own home as a result of increased housing prices over the past five years. A further 17% indicated they would be relying on family inheritance to pay off their mortgage or ensure their financial security, while 76% agreed their mortgage had a big impact on their lifestyle, regardless of their wealth or location

Alt-Fi Australasia Summit

ALTERNATIVE FINANCE ON THE RISE At the Alt-Fi Australasia Summit held in Sydney last month, nearly 300 delegates learned about the alternative finance sector.

Lisa Jacobs from Funding Circle told Australian Broker that while the tendency was often to think about these new players as competing ruthlessly with the existing financial infrastructure, there was actually huge opportunity on both sides for partnering and cooperating. Toby Triebel from Spotcap agreed that collaborating with banks and big financial institutions would be one of the biggest innovations in 2016, and that Australia could learn from the UK and US alternative finance sectors when it came to creating a legal framework that fostered credibility and trust among target client bases in Australia. David Goldin from Capify elaborated on regulation, stressing the importance of responsible lending in the alternative finance sector.

“Anyone can originate, anyone can fund businesses. The real challenge and the real talent is having the underwriting model and discipline to make sure that you’re helping business owners … and not hurting them, by providing the correct amount of capital and correct repayment terms,” he said.

The Australian alternate finance sector is still in its infancy compared to its global counterparts, but a recent report released by KPMG shows Australia’s alt-fi lending market is the third-largest in the Asia-Pacific, and experienced growth of 320% in 2015.

Ultimately, though, it comes down to the customer’s willingness to adopt a new, online method of obtaining a loan product and getting comfortable with not going to their traditional bank.

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FORUM

FOLLOW OUR LEAD, SAYS FLAVELL The chief executive of Mortgage Choice has said the mortgage broking industry would benefit if it adopted the Mortgage Choice commission structure ANSWERING QUESTIONS after the franchise’s FY2016 half-year results presentation, CEO John Flavell told Australian Broker that he welcomed ASIC’s upcoming regulatory review into mortgage broker remuneration – and brokers should too.

“As far as commissions are concerned, I think realistically the shape of the commissions that we have within the mortgage broking industry … and the quantum of commissions, I think is appropriate.”

However, Flavell said that if the regulator had an opportunity to improve the commission structure, the industry would benefit from following Mortgage Choice’s lead.

“Actually, I think if there is any opportunity to improve in terms of commissions then the industry would benefit if they adopted the approach that Mortgage Choice takes – that is, regardless of which lender the customer goes to, the broker receives the same amount of commission. It is a weighted average commission.”

But there was little support for Flavell’s comments, with brokers on Australian Broker Online quick to air their downright horror at the suggestion of a weighted average commission structure.

“The mortgage choice commission model is anti-competitive and provides no incentive for a broker to look beyond a couple of lenders that ‘they’ prefer to deal with. Mortgage Choice only maintains a limited/very small panel; which is what

is required to managed such a flawed commission model,” said Paul Gollan.

Level playing field went so far as to liken the idea to something a dictatorship regime would suggest.

“What rubbish. So if I go to see a lawyer; will they now be regulated to ensure they receive less income than they would have in 2006? Or is it just brokers that can never get pay increases? Not sure why the obsession with governments to remove the free enterprise system in favour of something more akin to a dictatorship or communist regime.”

Robert B agreed. I thought we, the capitalists, won the cold war? The West is stronger when we let competition do its thing. Too much meddling by Governments is doing great damage to our country and unfortunately consumers are the ones who suffer.”

And Sceptic warned that if flat fees were introduced, it would be all downhill from there. “Come on Mortgage Choice, don’t we need competition and incentive?

Really, next thing is that Mortgage Choice negotiates the same rate and offer across all lenders and then ... why use a broker?”

OzBoy questioned the CEO’s willingness to put himself in the average Australian broker’s shoes. “Mr Flavell, care to tell us the difference between your pay last year and this year? Did it increase? It should have as you have provided a better result, now imagine if the board said to you they are going to decrease your pay. Not a nice thought is it?”

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PEOPLE

KEEN FOR A SPIN IN A KART? Former broker Maria Vukmirica swapped the fast-paced broking world for an even faster one – taking on a go-kart raceway venture PREVIOUSLY A broker for 18 years, Maria Vukmirica changed to a track less travelled – a go-kart racing track no less.

Although she has stepped away from writing loans now, Vukmirica was a broker at Gladiator Home loans, which she founded in 1998 and of which she is still director.

She is also a licensed real estate agent.

Today, she has changed track – so to speak – by running the family business, Luddenham Raceway. The concept was borne from an idea her son thought of and it was established while he was studying a construction management degree.

The raceway is situated literally in the family backyard, situated on the 100-acre Luddenham

property. Since it opened in late 2014 it has proven to be a great success with over 26,000 members.

“That’s how many people have come through our doors. It’s just amazing,” says Vukmirica.

“Our oldest client was a lady who had a bucket list and she was 84.

She came out and had a go” “We got approval for it on our property here at Luddenham and it’s just taken off.”

She noticed there was a niche for hosting corporate events, team building and seminars and combining them with something fun.

The plan is to offer paintball activities

alongside the go-karting, which they plan to have operational by June this year. In addition, a 1.4km circuit is in development to offer a motorsports facility for driver training and car/motorbike racing. It’s hoped this will be operational by 2017.

Vukmirica says a go-kart centre is difficult to obtain approval for but the family travelled to many other centres to ensure they were modelling Luddenham Raceway on the best.

“I think that’s the struggle, and maybe that’s what’s kept people from doing it [in Australia].

But in Europe, each city might have 10-12 go-kart centres in them – and they’ve got the best karts, the best set-ups. That’s what we’ve modelled this one on.”

Go-karts are shipped from Germany where they have been specially made with added safety features for the Luddenham Raceway. “You feel very secure when you’re in them,” Vukmirica says.

Almost anyone can have a go on the racetrack – although seven years of age is the limit at the lower end of the age spectrum.

“Our oldest client was a lady who had a bucket list and she was 84. She came out and had a go.

She was awesome,” Vukmirica says.

The karts reach a speed of 75km/hr.

“You’re sitting down low to the ground, so you feel like you’re flying when you’re in them,” says Vukmirica.

“I’m having a lot of fun here!” she says, when asked if she’d ever go back to broking. She adds that she sometimes sees a broker colleague having a go on the track and it offers them a nice contrast from the fast-paced broking world.

“You can get out there and have a bit of fun and take your mind off the stress and the pressures,” she says, adding that she gets enjoyment from seeing the transformation when corporate clients let loose on the track and have some fun.

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CAUGHT ON CAMERA Yellow Brick Road recognised its top branches and brokers at its 2016 national conference held in Adelaide earlier this year.

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PEOPLE HOT SEAT

TOMMY LIM The founder and managing director of SF Capital, Tommy Lim, on serenading his client and why he wants to have dinner with Usain Bolt

What is your most memorable client experience?

I personally delivered 20 pizzas to A a client’s workplace as part of a competition we ran on Facebook and other social media. Along with the pizza, we also organised a guitarist who serenaded the office with sweet tunes. While a little embarrassing, it was memorable for both the client and me!

Q

What will be the biggest innovation in the mortgage industry in 2016?

Mobile phone lending will continue to A drive innovation in the mortgage industry. This includes integrating any part of the loan application or settlement process into mobile devices. For example, initial enquiries, servicing assessments, completion of fact finds, approval updates and signing of application forms and loan documents.

Q

What will be the biggest challenge for brokers in 2016?

Increasing policy and product A complexity will be the biggest challenge, as banks respond to higher capital requirements and regulatory changes imposed by APRA. Keeping up to date with these changes and clearly articulating the differences in requirements to clients in owner-occupied versus investment will continue to be a challenge for brokers.

Q

If you could have dinner with any three people (dead or alive), who would they be and why?

Mark Zuckerberg for his leadership, A vision and philanthropy.

Warren Buffett for his mindset, business acumen and longevity.

Usain Bolt for his competitiveness, results, and sense of humour.

Q

When you were a kid, what did you dream of being when you grew up?

This will reveal the nerd in me – I A dreamed of making video games for Nintendo and other game creators. In particular, I dreamt of contributing to the Super Mario and Donkey Kong series of games.

Q

“Mobile phone lending will continue to drive innovation in the mortgage industry”

Rachelle Eyndhoven Sphere Finance Australian Young Gun of the Year 2015

FRIDAY 21 OCTOBER 2016 | THE STAR SYDNEY www.australianmortgageawards.com.au

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