Australian Broker 13.24 by Key Media

NEWS Lenders begin interest rate hikes A result of ‘the Trump effect’? P8

OPINION Smoke and mirrors? Is Australian property market data accurate? P12

BUSINESS STRATEGY Step up and lead How leaders can enhance their ability to deliver progress P14

DECEMBER 2016 ISSUE 13.24

SPECIAL REPORT Making headlines

Australian Broker’s roundup of the biggest stories of 2016 P16

MARKET WRAP Sydney investors better off elsewhere?

Has the harbour city’s market topped out?

P18

BEAU BERTOLI Prospa’s co-founder and joint CEO on why disruption in the SME lending space has been a long time coming P10

CONSUMER INSIGHTS Gen Y leads the investment pack More millennials own an investment property than any other generation P24

AGGREGATOR SNAPSHOT 2

NEWS

ASSOCIATIONS

REGULATION

LENDERS

MFAA appoints new CEO

ASIC and Ontario Securities Commission boost support for fintechs P6

Lenders begin interest rate hikes P8

BROKERNEWS.COM.AU

BROKER LOWDOWN

EDITORIAL

September quarter 2016

Editor Madelin Tomelty News Editor Miklos Bolza

$48.58 bn

Journalist Maya Breen Production Editor Roslyn Meredith

Value of new home loans originated by finance brokers

ART & PRODUCTION Design Manager Daniel Williams Designer Martin Cosme Traffic Coordinator Freya Demegilio

SALES & MARKETING Sales Manager Simon Kerslake Account Manager Rajan Khatak Marketing and Communications Manager Lisa Narroway

CORPORATE Chief Executive Officer Mike Shipley Chief Operating Officer George Walmsley Managing Director Justin Kennedy Publisher Simon Kerslake Chief Information Officer Colin Chan

53.6%

Human Resources Manager Julia Bookallil

EDITORIAL ENQUIRIES

Percentage of new home loans originated by mortgage brokers

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

SUBSCRIPTION ENQUIRIES

Source: Comparator/CoreLogic

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

ADVERTISING ENQUIRIES

FINSURE MAKES TOP 10 IN BRW’S FAST 100 LIST Mortgage aggregator Finsure Finance & Insurance has ranked sixth in BRW Magazine’s Fast 100 list. This is the first time the company has been recognised on the list, having achieved a spot in BRW’s 100 Fast Starters list for the past two years. The 2016 Fast 100 list profiles Australia’s fastest-growing firms that commenced trading prior to 1 July 2012, ranked by average revenue growth. For Finsure, this was 191.2% in the 2015/16 financial year. John Kolenda, managing director of Finsure, said this acknowledgement recognised the rapid growth of the company, a trend that was marked

recently by the recruitment of the company’s 1,000th broker. The aggregator also recently surpassed $1bn in settlements – something that Kolenda said was the direct result of the hard work of the aggregator’s brokers and staff. “These have been fabulous accomplishments for Finsure to build up the business to this level in just five years. and we are determined to keep growing,” Kolenda said. “The ability of the company to increase its growth rate is a tribute to the talented and hard-working team at Finsure as well as our amazing broker partners.”

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, Toronto, Manila, Singapore 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

MFAA APPOINTS NEW CEO The MFAA has announced it has appointed Mike Felton as its new CEO, following a comprehensive search process. Felton has worked in the banking and finance industry for almost 30 years, and the board of the MFAA saw great value in appointing a CEO with a depth and breadth of perspective, but whose experience lies outside of the broking industry. According to the association, it is vital they are equipped with the right experience to enable

them to continue to respond to the inevitable and increasing changes facing the industry. “I am honoured and grateful to the board for the opportunity to lead the MFAA team, and excited about the challenge this role presents,” Felton said. “There is change on the horizon, with a mature trend in interest rates, proposed regulatory changes, ongoing adjustments to lending criteria and predicted volatility in housing markets, all of which will need to be navigated. Most of my

career has been in high-change environments and I look forward to working with the team to drive outcomes for the MFAA and its members in the coming months and years. “My first priority, however, will be to listen and learn. I’m looking forward to spending time with the board, the MFAA team, members and other stakeholders to understand and take stock of our current position,” Felton said. Felton commenced work with the MFAA on 5 December 2016.

WHAT THEY SAID...

Rob Ward “I believe that we are not seeing a true indication of how the Sydney property market is performing, and that there is too much focus on auction clearance rates in the media” P12

Mark Woolnough “[Younger generations] are still getting onto the property ladder, but they’re investing in areas they can afford, not necessarily areas they want to live, and often choosing to rent elsewhere for lifestyle reasons” P26

Damian Collins “Investors considering the Sydney market are likely to be better off looking at other Australian capital cities that are earlier in their growth cycle, are more affordable and offer higher yields” P24

A rundown of the next fortnight’s events

DECEMBER

What: MFAA webinar: All the things you wanted to know about diversifying into small business lending but were afraid to ask Where: At your computer Details: In this webinar, the MFAA will give members a comprehensive understanding of the small business market and how to diversify into this opportunity-filled segment.

DECEMBER

What: MFAA webinar: How to recognise cash flow needs in small businesses Where: At your computer Details: This webinar will impart ideas on how to help business owners better manage their cash flow so brokers can stay relevant and move up the value chain.

DECEMBER

14-16 What: Australasian Finance & Banking Conference Where: Shangri-La Hotel, Sydney Details: The AFBC is the most prestigious finance conference in the Asia-Pacific region, bringing together the world’s foremost leaders of thought from the financial community.

REGULATORY ROUNDUP 6

WORLD NEWS

SIGNIFICANT GROWTH IN BROKER-ORIGINATED CREDIT FRAUD A CONCERN

Proportion of fraud subtypes as % of all confirmed fraudulent credit applications

3.73%

Fabricated identity EUROPE EUROPEAN COMMISSION LAUNCHES FINTECH TASK FORCE The European Commission has responded to the worldwide fintech boom and the effects of digital innovations in the banking sector by launching a Financial Technology Task Force. The task force brings together services responsible for financial regulation and for the Digital Single Market, along with experts in competition and consumer protection policy. It will be co-chaired by DG Fisma and DG Connect. In a statement, the European Commission referred to the impact digital technologies are having on the way people interact with friends and colleagues, access content and consume, saying the financial services industry in particular was not exempt from the disruption of innovation. “All players of the financial services industry are indeed being disrupted, like in any other sector. Many financial services are already available online or on mobile apps. However, there is still substantial untapped disruption potential. It can affect the whole financial services ecosystem. More changes are on their way with the advent of new agile innovative players with new business models, user-friendly consumer interfaces, peer to peer services, or advanced automated tools. “The current transformation affects existing financial institutions, as well as the new players, such as fintech startups or large internet platforms. The challenge is both to lay down the right conditions to support innovation and for a future-proof environment to emerge,” the Commission states. “The Commission is working to keep on top of digital transformation across all sectors. We want to foster innovation, give businesses the space to adapt and make the most of it. But we need to monitor changes closely to keep our existing rules fit for purpose.” The Commission says the unit will work with market participants with a goal of formulating policy recommendations and measures “in the course of 2017”.

3.72%

Undisclosed debts

Fraud type as % of total fraud

70.96%

Falsifying personal details

19.16%

Identity takeover Channel source of fraud as % of all fraud

15.08%

3.74%

12.78%

0.03%

Broker

Branch

3.16%

Dealer

Channel source of fraud

Phone

4.02% Lender

3.95% Other

Mail

0.29%

56.94% Online

Direct marketing Source: VEDA

ASIC AND ONTARIO SECURITIES COMMISSION PARTNER UP TO SUPPORT FINTECHS ASIC and the Ontario Securities Commission (OSC) have signed an agreement that aims to increase the support each regulator lends to businesses seeking to enter the other’s market. Under the new arrangement, the regulators will be able to provide support to innovative businesses before, during and after authorisation to help reduce regulatory uncertainty and time to market. The agreement follows the creation of the Innovation Hub at ASIC in April 2015 and the OSC LaunchPad in October 2016, initiatives established to help businesses with innovative ideas navigate financial/securities regulation. The intiatives also enabled the regulators to support financial start-ups through the authorisation process and ease their engagement with the regulator. “ASIC is committed to encouraging innovation that has the potential to benefit financial consumers

and investors,” said ASIC commissioner John Price on signing the agreement. “Since we launched our Innovation Hub last year we have seen a surge in requests by fintech start-ups seeking assistance about how to navigate the regulatory requirements. These have covered a wide range of issues, as you would expect of such a young and exciting sector, but include robo or digital advice, crowdsourced equity funding, payments, marketplace lending and blockchain business models. “Some of these business concepts are already looking to expand internationally, and these agreements with like-minded regulators will be a significant factor in paving the way.” ASIC and the OSC have also committed to sharing information on emerging trends in each other’s markets and the potential impact on regulation.

LENDER UPDATE 8

LENDERS BEGIN HIKING INTEREST RATES In what many have been quick to state is a result of ‘the Trump effect’, Australian lenders have stealthily begun hiking interest rates, with ME Bank announcing a rise in its variable rates by up to 10 basis points and fixed rates by up to 15 basis points, according to the Australian Financial Review. ME head of home loans Patrick Nolan said, “The increases were based on increasing swap rates – up 40 basis points since the end of August – and increasing cost of deposit funding. “Despite the increases, ME’s variable and fixed rates are some of the lowest in the market across both owner occupier and investor loans.” Bank of Sydney is also raising its five-year fixed rates by up to 60 basis points, and, according to Canstar, Bank of Queensland has hiked rates by 20 basis points. This latest set of rate increases follows a number of non-bank lenders discreetly raising their fixed rate mortgages in mid-November, as reported by the AFR. Firstmac raised its one- to three-year rates on owner-occupier and investor loans by up to 13 basis points to 4.09% and 4.34% respectively. “The increase was prompted by increased swap rates, which affect our funding costs,” a Firstmac spokesperson told Australian Broker at the time. “This has also driven increases from numerous other lenders and more are probably in the pipeline. That means that borrowers who plan to opt for fixed rates down the track would do well to instead lock them in at the time of application so they don’t get caught if swap rates continue to rise and their lender is forced to raise fixed rates.” The Firstmac-owned Loans.com.au also raised its one-, two- and three-year fixed rates by up to 13 basis points to 3.89% for both investor and owner-occupier loans. WA-based P&N Bank increased rates on its fixed two-, four- and five-year principal and interest loans as well as its interest-only products by up to 10 basis points. P&N Bank’s general manager of retail banking, Sean FitzGerald, told Australian Broker: “Similar to many other lenders, we’ve increased rates on our fixed rate book due to the rising cost of funds, an upward trend in swap rates and the need to monitor our capital requirements.” Illawarra Credit Union has raised its range of fixed rates by 10 to 45 basis points, Catalyst Money has increased its fixed rates by up to 30 basis points, and Beyond Bank has pushed them up by 10 basis points. Australian Broker expects more lenders to follow suit.

COMMERCIAL AND INVESTMENT LENDING TAKES THE LEAD IN AUGUST

September 2016 lending values, in trend terms

2.4%

0.6% Commercial finance commitments

Owneroccupied housing commitments

Commitments for the purchase of dwellings by individuals for rent or resale

0.5%

1.0% Personal finance commitments

Lease finance commitments

1.5%

Source: ABS

BANKS TARGET WEALTHY PROPERTY OWNERS IN RESPONSE TO RBA WARNING The Reserve Bank of Australia and the IMF have issued a notice warning households and governments to improve financial resilience in the face of increasing market volatility. Major banks have responded by imposing new assessments on the wealthiest property buyers in Australia, requesting more extensive information on their existing loans, according to the Australian Financial Review. ANZ has begun examining the loan terms and conditions of properties valued at more than $4m that are owned by buyers on the upper rungs of the property ladder. Meanwhile, NAB is also expected to set new lending criteria for property buyers or owners looking to switch loans to the major bank. ANZ’s Property Risk division has also placed certain blue-chip postcodes, such as the Sydney suburbs of Bellevue Hill, Double Bay and Rose Bay, under automatic review, to ascertain whether buyers of houses within these elite suburbs should be required to pay larger deposits.

The new assessment process will include a review of lending criteria, valuations, and risk decisions made. Lenders are also beginning to limit their exposure in the mass market to focus instead on the high-end market with bigger-margin property funding, according to analysis by JP Morgan. Martin North, principal of Digital Finance Analytics, explains: “Large loans are potentially more risky, as top-end property is likely to fall in value first in a downturn, together with inner-city apartments. But there is still a need to lend, as it’s the only growth engine in town; they need to drive on the accelerator and brake at the same time!” Westpac is another bank tightening its property lending rules. In a bid to improve the quality of its loan book as lending and regulatory costs cause profit pressures, under Westpac’s tougher rules Australians on permanent or temporary visas with a minimum of 12 months remaining on their visas will only be eligible “in certain circumstances”.

COVER STORY BEST OF BREED

Prospa’s co-founder and joint CEO Beau Bertoli tells Australian Broker why the banks have more to worry about than his trailblazing fintech, and about the opportunities that are waiting for brokers on the commercial side

IF THERE WAS ever going to be a fitting name for a company whose purpose is to make Australian small businesses thrive, it would be ‘Prospa’. The brainchild of co-founders and joint CEOs Beau Bertoli and Greg Moshal, the fouryear-old fintech has, without a doubt, pioneered the alternative SME lending space, having already lent more than $200m and continuing to stand head and shoulders above the increasingly crowded Austalian fintech space. But competition is nothing to be worried about, according to Bertoli, because competition is what pushes businesses to make better products – and at the end of the day, providing better products and better solutions for the two million small businesses around the country is the whole point. “One of the things Prospa’s done over the last few years is build the category awareness … the reality is that the customer acceptance of the fact

via third party partners, mostly made up of finance brokers. “We’re very much a channel partnership business, and that’s by design,” Bertoli says. “We’ve always believed that small business owners have networks of people they work with … and we want to work with those partners and enable them to provide products to their customers. And over the last four years we’ve seen a massive evolution in technology, so it’s gone from just the provision of product to actually trying to help these finance brokers,” he says. Making the cut As co-founder of a company that recently made number 31 in the 2016 Fintech 100 by H2 Ventures and KPMG – the highest-ranking Australian-only business – there’s no doubt Bertoli knows what he’s doing, and so when

“We’ve actually said to ourselves, ‘How can we be of value and help these partners of ours come on this technology journey that’s going to revolutionise their business in a couple of years?” that you don’t have to go to a bank to borrow money has now become almost mainstream,” he tells Australian Broker. The average loan size for a customer at Prospa is $25,000, and the average loan term 10 months. This is in stark contrast to the large commercial loans and terms you would find at the banks. “In Australia we have a situation where the big banks have never lent to small businesses, and in fact they define what we call ‘small business’ as a ‘micro business’. And as a result of that we’ve got two million small business owners in Australia and the vast majority have never had a financial solution,” Bertoli explains. So it’s no surprise that Prospa is, well, prospering. The market has been ripe for disruption for a long time, and Prospa is delivering. But they’re not doing it alone. Eighty percent of Prospa’s customer referrals come

he stresses numerous times throughout his interview with Australian Broker that brokers must evolve or perish, so to speak, one is inclined to listen. “The [brokers] that aren’t adopting and embracing technology, so for example the ones that don’t even have a website, won’t even exist three or four years from now,” Bertoli says. This is a scary thought for many brokers, but Bertoli has a point. The percentage of finance brokers who don’t have a website sits at 40%, according to research conducted by the SME lender, and there’s no denying that people are spending more and more of their precious waking hours online – and researching to find service providers. For this reason, Prospa is focused on assisting brokers in their technological education and growth. “We’ve actually said to ourselves, ‘How

can we be of value and help these partners of ours come on this technology journey that’s going to revolutionise their business in a couple of years?’ So we’ve done things around educating them about this change that’s happening,” he says. “Don’t just diversify for the sake of diversifying, but know what you’re diversifying into and why.” And the reasons for diversifying into SME lending should, by now, be pretty obvious. “[Brokers can] have a look through their customer database and what they’ll find is that a very high percentage … of their current customers are most likely self-employed sole traders or running their own business, and just because you provided a million-dollar mortgage for them to buy a house or investment property doesn’t mean you can’t have a conversation about their commercial financing requirements,” he says. It all comes back to profiling your clients, according to Bertoli, and finding “more hooks into your customers”. “It’s a very easy conversation,” says Bertoli. “You’ve helped them once; you’ve got that trusted relationship – now serve them in another way.” Every business in the next year will require some sort of finance, he says, and “you may as well be that person”. The importance of education Like any lender, Prospa offers broker partners an upfront and trail commission component of between 1% and 4%, depending on the product the customer is taking with each loan. But Bertoli is more interested in talking about what Prospa is doing differently – namely, educating brokers on SME lending and utilising technology. Prospa’s broker education is “pretty sophisticated”, he says, with a diverse training offering that ranges from structured, topic-led webinars including those featured on the MFAA’s website, to education on technology and the importance of having a Web presence, to the use of social media such as LinkedIn and Facebook. The fintech’s nationwide business development managers also conduct over-the-phone as well as face-to-face training in brokerages, and attend PD days and conferences in all states. He believes the customer is, rightly so, at the centre of any financial services business, and that

Beau Bertoli and Greg Moshal, co-founders and joint CEOS, Prospa

is where the fintech’s focus will always be. No matter how good the broker commission is, he says, if you’re not adding value to the client they won’t stick around. “We’re not about having a one-product sale and paying one big nice rebate and … that’s kind of the end of it. We look at a customer’s lifetime, and we’re trying to build products and solutions that work for us and the customer, and by virtue of that, the partner in the long term,” Bertoli says. This relationship driver is what has led to Prospa’s retention rate of 80%. “Work with Prospa, you’ll make some commission up front, but then we’ll work with your customer through their lifetime to support them and their financing needs,” says Bertoli. “[For customers,] we fuel your ideas, we give you an easier and affordable way to access the finance, and for the partner we take away the pain of their typical experience with a finance company … We’re very much about the service level we provide to them every bit as much as to

the customer.” The threat of fintech The threat of fintech that has been looming over the banks for the past few years is no longer something that can be ignored. But Bertoli doesn’t see this threat as coming from a single company such as Prospa. “They’re not under attack from a few players; they’re under attack from hundreds,” he says. “And it just so happens that some of those players have bigger balance sheets than the banks.” Bertoli is referring to conglomerates like Facebook, Apple, Amazon and Paypal, all of which are in the process of rolling out working capital products for small businesses. “So the banks aren’t just under attack from the fintechs; they’re under attack from ‘the bank of tech’, he says, and the best strategy for these incumbents is partnerships. Prospa itself is currently enjoying a partnership with Westpac, and all of the major four banks have deals with

burgeoning game-changer fintechs, as well as tech incubator launchpads. “The smartest banks, I think, will get the partnership model going quickly so they can test and figure out what works and what doesn’t work. And then over time they’ll buy the right ones up,” he says. “Some of them are now starting to think, ‘Well, wait a minute, we don’t have to build everything; we can partner with the best of breed of companies and then plug them into the right tech layer to our cust omers.’” As for Prospa’s grand plans, Bertoli says the company does “have one eye on overseas certain markets”, but in the shorter term brokers and customers can look forward to the launch of a new invoice financing product, InvoiceNOW, currently in beta mode and designed to take the pain out of invoice financing. “We’re working with different partners to work out how to take this product to market, so watch this space over the next 12 months,” Bertoli says. “That’s going to be a key product for us.”

OPINION SMOKE AND MIRRORS? Rob Ward questions the validity of Australian property market data and asks whether or not we are seeing a clear snapshot of the nation’s hottest market, Sydney

THE WORLD’S worst-kept secret is that Sydney is going through a once-in-a-lifetime property boom, but how long can this trend keep going for? There are some aspects of this property boom that just don’t add up. Throughout the calendar year, the number of properties going to auction have been consistently low. On average, month after month we have seen stock levels down approximately 25%. However, according to the monthly stock on market report by SQM Research, the number of listings as at 30 September had risen quite sharply. The Sydney metro had 27,103 properties on the market compared to 23,533 at the same time last year – an increase of 13.2%. And yet according to the Real Estate Institute of New South Wales, the NSW government is facing a budget shortfall as land-related transactions and total stamp duty collected are below current budget forecasts for the 2016/17 financial year. In the first three months of FY17, the NSW government collected $138m less in land transfer duty compared with the $2.157bn in transfer duty it collected in the first three months of FY16. The total budget for FY17 for all transfer duty is $8.777bn, and at the current rate NSW is facing a budget shortfall. Filling in the gaps So, what are we missing? Let’s be honest here and admit the fact that the data surveys, polls and predictions have been more unreliable than they’ve ever been. We can start with Brexit. Every poll and bookie was forecasting a very clear win for the UK to remain in the EU after the referendum – in fact, the odds the bookies were giving were not worth betting on. Then we had the Australian federal election. The LNP at one point were $1.11 to win and the ALP were over $4, but as we know, it took over a week to find out the outcome of the election as it was so close. And of course there was the victory of Donald Trump over Hillary Clinton just last month. Trump had always been seen as a long shot in the media’s polls, and yet he won with an overwhelming majority. The point is that something is very wrong with the information we are receiving, and it might suggest that people are becoming reluctant to hand over information or even their opinion for the sake of predicting poll outcomes. Does this mean that the outcomes suggested by data and statistics overall are becoming questionable? The RBA, for example, finally expressed concern recently over the level of household debt, but data from the ABS shows that loan approvals are actually on the decline – so why the concern now, and not before?

Rob Ward is the CEO of Di Jones Real Estate

Misinformed? I believe that we are not seeing a true indication of how the Sydney property market is performing, and that there is too much focus on auction clearance rates in the media. Let’s be generous and suggest that there are 3,500 properties to go under the hammer next weekend. If we take the 3,500 properties from the total number of properties listed for the month (27,103), this only represents 15% of all property transactions. The pockets of Sydney that typically have properties that sell via auction campaigns are generally affluent areas. So I ask, is this really a true snapshot of the overall market? It is not uncommon in the industry to hear about ‘off market’ sales. In fact, over the past 24 months there have been plenty of off-market transactions, which do not get registered via the Office of State Revenue until settlement day. The need for new analysis When we look at all the data, we have a 13.2% increase in stock levels across the metropolis but a 25% decline in auctioned stock levels, with household debt increasing rapidly and housing loan approvals on the decline! Something tells me we need the methodology of all this data to be revisited. Should the property market no longer be self-regulated, and should we make the reporting of sales, withdrawn properties and unsold properties compulsory? Should an industry as big as the property industry – the country’s biggest industry, making up over 11% of GDP – be self-regulated? If it is not compulsory to report the outcome of a marketing campaign for a property, then how could we possibly have an accurate snapshot? Property is not deemed to be an investment class, which is why the industry is not governed by ASIC. However, if I were to purchase the same property through my SMSF, it would come under the derestriction of ASIC. The Reserve Bank takes into account all of the property data that is provided to them, but they’ve recently questioned the methodology of a certain research house. Surely the data provided to the RBA should be as accurate as possible given that they make monetary policy decisions based on this information? Shouldn’t the consumer be able to access the same information given the fact that purchasing a home is typically the biggest investment a family will ever make? One thing’s for certain: the figures are not adding up, and it’s hard for people to make confident, informed decisions about property without accurate information at their disposal.

HOUSEHOLD FINANCES

Percentage of household disposable income* %

Debt

Interest paid**

175

150

125

100

1992

2004

2016 1992

2004

2016

* Disposable income is after tax and before the deduction of interest payments ** Excludes unincorporated enterprises Sources: ABS, RBA

TECHNOLOGY UPDATE

NEXTGEN.NET TALKS EFFECTIVE SUPPORTING DOCUMENTS CONTROL by Jill Fraser

NextGen.Net’s ApplyOnline Supporting Documents service pinpoints the documents required by each lender and provides a checklist for brokers. Recent enhancements to the service now deliver increased benefits to lenders and brokers. “The new Supporting Docs offers a lot of enhanced functionality and gives more power to lenders to better configure the service to get further efficiency gains,” says Tony Carn, sales director at NextGen.Net. The update delivers a refreshed state-of-the-art, condition-driven user interface (UI) and user experience, which allows brokers to review lender requirements then bulk upload documents to meet the specific requirements. Lenders are now able to request documents at different stages in the process, with the ability to ‘hard-gate’ (enforce) mandatory document requirements at application submission, dramatically improving processing efficiencies. “The new UI enables brokers to identify exactly what documents are needed, when, and then upload them easily and securely into the application.” NextGen.Net continues to invest an enormous amount in ensuring data privacy and security, and the ApplyOnline Supporting Documents service continues to be the most secure method of transmission of documents. “The new UI means lenders can move to a situation where all documents are uploaded securely when they need them. The fact that documents are still being emailed would absolutely horrify many applicants,” Carn declares. Lender document requirements are now even clearer and easier to understand, with OCR (optical character recognition) providing the ability to read and prepopulate certain fields, helping users verify that important documents adhere to policy.  A key benefit for lenders is that they can now also configure their Supporting Docs Checklist so it becomes an excellent tool for managing regulatory obligations in real time going forward. “We expect to see more demands from regulators in this space, and

Tony Carn

Supporting Docs is a really powerful platform for helping lenders and brokers meet their obligations,” Carn says. For many years, lenders have been empowered to deliver rapid change within ApplyOnline, allowing a broad range of changes to be effectively managed by lenders in real time. “ApplyOnline has embraced real-time change capability for a long time, including Supporting Docs,” Carn stresses. “NextGen.Net is always engaged in delivering enhancements. We initiated regular broker workshops so we could get broker feedback, and to a large extent we evolve the service based on this.” The next round of improvements of the Supporting Docs service in 2017 will leverage new functionality in the ApplyOnline App and revolutionise the way brokers interact with applicants in the loan application, submission and approval process. “In 2017 we will see some real game-changing enhancements that will reframe how brokers can choose to engage and interact with their customers. Watch this space!” Carn says.

BUSINESS STRATEGY STEP UP AND LEAD Change and leadership expert Michelle Gibbings on how leaders can enhance their ability to deliver progress within a company

TURN PEOPLE INTO YOUR SECRET WEAPON FOR BUSINESS SUCCESS Dushyant Sukhija, author of The Cisco Way: Leadership Lessons Learned from One of the World’s Greatest Technology Services Companies, on valuing your employees Companies must adapt, or risk withering away, according to Dushyant Sukhija. “You just have to look at Google, Twitter, Uber and see how they’re extending their reach, growing their business through new services.” But it’s crucial for businesses to understand that a services economy is about people, he says, and the people who are key to making success happen are the managers and employees within the business itself. “Employees are the true intellectual capital of the company, and that means businesses must invest in their people,” Sukhija says.

He suggests at least four ways businesses can “turn people into your secret weapon”:

Align employees to a common goal No organisation works well if everyone is a maverick, going off in his or her own direction. It’s important to communicate what the goal is and make sure everyone is on the same page.

Create a nurturing environment Any business should want to motivate its employees to excel. One way this can be done is through reward and recognition, so that employees know that their hard work and efforts are appreciated.

Harness employees’ intellectual horsepower

It’s important to get the most out of

employees, and that can be accomplished by helping them build their skills.

Drive exceptional thought leadership It’s critical to hire the right leaders because so much else can hinge on how they perform. Sukhija says companies should look for people with a command and understanding of the business’s mission; who have stellar reputations and ability to attract new talent; and who have the potential to grow to the next level of leadership. “When products are a company’s focus, it’s important to invest in research and development, and product innovation,” he says. “But when it is services that drive a company’s success, then the investment should be in people. Get them inspired, because inspired people make the difference.”

CONSCIOUS CHANGE leaders are not one-dimensional. They work across boundaries, embrace new ideas and learnings, and are innovative, authentic, compassionate and resilient. They challenge dominant paradigms, and lead and support others to thrive through change. Most importantly, they accept the notion that successful organisational transformation involves personal change for them. Start from the inside out It’s much easier for a leader to sit back and identify how team members or colleagues need to change than to identify how they might need to change themselves. To effectively lead change and make it stick, leaders need to firstly understand themselves and then be open to shifting their mindset, operating style and behaviour to suit the context of the change. Uncover the bias Bias pervades decision-making, and most of it happens at the subconscious level. This is because people don’t make decisions on facts alone. They make decisions on hunches, feelings and gut reactions. That’s not to say that all these decisions will be bad. However, the brain discards information that doesn’t fit with its world view. It takes shortcuts when it makes decisions, and it can be easily influenced. As humans we are constantly looking for ways to rationalise and substantiate our opinions, and so it’s easy to be blind to the obvious and closed to other people’s opinions. Conscious change leaders are aware of this challenge and look out for influencing factors and potential blind spots. They invite diversity of thought, and welcome challenging ideas and dissenting opinions as they know they will lead to more informed discussion and, ultimately, more progress and better business outcomes. Adopt a growth mindset A leader’s mindset will impact on how the change is initiated, implemented and sustained, depending on whether they are adopting a ‘fixed’ or ‘growth’ mindset. These terms were coined by the world-renowned Stanford academic, Carol Dweck. People who have a fixed mindset see intelligence as static – a fixed trait. Consequently, they want to always look smart and have all the

answers. They believe that success is based on talent alone, not work. They ignore feedback and struggle to cope when things don’t go to plan. In contrast, people with a growth mindset believe that intelligence can be developed through effort. They are therefore more eager to embrace learning, take on challenges and persist despite setbacks. They love learning, often display higher resilience, and are more willing to learn from others and receive feedback. It is the growth mindset that helps the leader be best positioned to support their team through change, and to navigate the inevitable complexity and ambiguity that arises. Adopting a growth mindset is a conscious decision. It creates a leadership approach in which the leader is more: • open to feedback and able to hear difficult messages from people at all hierarchical levels • willing to reflect on situations and to examine how an event unfolded so they can better understand their and other people’s reactions • comfortable trying new things, which is important as circumstances may require them to step up in a different way Define moments of truth A leader’s brand is defined by the actions they take and how those actions are perceived by their colleagues, peers and team members. People notice what a leader does and doesn’t do, particularly when there are variances between what a leader espouses as their leadership values and their actions. Key defining moments, or leadership moments of truth, for leaders include: • what the leader pays attention to and prioritises • how the leader reacts when things go wrong and when they are under pressure • what they say and don’t say, and what they do and don’t do • how they allocate resources and rewards, and recruit and promote During a change, perceptions of inequity, unfairness, poor or absent leadership become intensified. A leader’s leadership is constantly on display, and so this is the time when conscious leadership really needs to come to the fore.

Roll with it It’s easy to get excited about a new change initiative. A leader can get swept up in the initial enthusiasm for the change and then be overly optimistic about delivery timelines and benefit schedules. But as the work starts, challenges will inevitably be encountered. Obstacles and roadblocks that weren’t expected will arise, making progress slower and more difficult than planned. What looked easy in the beginning seems much harder in the middle. It is at this point that project deliverables start to be descoped, activities repriotised and resources shifted. The leader has two options: lose their nerve, or confront the challenges head-on. Conscious change leaders are ready to step up to this challenge. They focus on: • eliminating the friction in the system that makes the change harder than it needs to be. This may involve removing bureaucratic processes and unnecessary activities • being clear about the project’s goals and what every person in the team needs to do to get there. They don’t get sidetracked by interesting but irrelevant matters • problem-solving and looking for different ways to make the change happen • the progress that has been made and keeping it visible. They celebrate this progress in a way that is meaningful to team members and stakeholders, without ignoring the challenges that lie ahead • the work necessary to deliver the most effective results – quickly Step up and lead And lastly, conscious change leaders are curious and open to how the change may unfold and the role they and their team need to play. They know their role and its importance. They don’t delegate it to others, and they accept they can’t do it alone. If leaders want to accelerate their progress in complex environments they embrace their role in the change and empower those around them to act. They step up and lead. Michelle Gibbings is a change and leadership expert and founder of Change Meridian. www.michellegibbings.com

COMMERCIAL COMMERCIAL PROPERTY PRICES WILL FLATTEN – PWC The Australian commercial property market may be nearing its peak, according to PricewaterhouseCoopers’ latest report RETAIL AND INDUSTRIAL ASSETS DOMINATE COMMERCIAL AUCTIONS

Ray White Commercial nationwide results June–Sept 2016 85.37% Auction clearance rate $71m Value of commercial sales 43.9%* Auctions in Queensland 97.6% Auction success rate for retail assets Source: Ray White Commercial

COMMERCIAL BROKERS should expect a levelling off in commercial property prices over the next year, says PricewaterhouseCoopers. Following the election of Donald Trump as president of the US in November, PwC partners James Dunning and Tony Massaro told the Australian Financial Review that the response by the market reflected the property trends found in PwC’s latest report. Trump’s initiatives are likely to create inflation, causing rates to rise and putting pressure on values, according to Dunning. “We are getting pretty much near the top of the cycle in terms of values,” he told the AFR. “It’s been an incredible run but it does suggest we are getting near the top of the cycle.” But Dunning believes that while the commercial property market will level out, there won’t be a dramatic reversal in cap rates for commercial property, which would signal price falls. Rather, we will see the progressive tightening of cap rates over the next 12 to 18 months. There will still be a number of active investors before the tightening begins, he said, with many wanting to seal some of the major deals in the local market and take advantage of the low interest rate environment, the weight of capital that has flowed into commercial property – especially from Asia – and the relative scarcity of prime assets. According to NAB’s third-quarter property survey, the sentiment among commercial property developers in NSW continues to be strong: its findings show that

sentiment is up 17 points to 55 in NSW, with a slight improvement in sentiment also occurring in Victoria. Rob De lure, NAB senior economist, said: “Confidence levels are high (in the east), with gains in the central business district hotels, office and industrial sectors offsetting lower confidence in retail, which is likely driven by weaker retail business conditions and subdued consumer spending.” PwC’s report mirrors NAB’s conclusions on the Sydney and Melbourne CBD markets, stating that strong rental growth is underpinning property returns and Sydney is again leading the Asia-Pacific region with a forecast annual rental growth rate of 3.8% over the next four years. “Office has moved back more into favour,” Dunning told the AFR. “A lot of interviewees said they liked office in Australia. It’s their preferred investment choice. “That is driven by the expected rental growth that is going to come through, mainly in Sydney and Melbourne.” However, Dunning added, this peak will not last forever. “There is a level of expectation that the level of incentives will fall from where they are at.” The intense competition in the hot markets of the Sydney and Melbourne CBDs is starting to push out investors, who are diversifying into other markets, including other sectors of the property market. Data centres, student accommodation and seniors housing are all being flagged as the next destination for investment, according to PwC.

DEVELOPERS STRUGGLE TO SOURCE CAPITAL FOR NEW PROJECTS It is becoming increasingly difficult to source capital for new property development projects, according to developers and others involved in the commercial sector. Rob De lure, NAB senior economist, told the Australian Financial Review: “Funding conditions were more difficult during the third quarter.” About one in four property developers who responded to NAB’s third-quarter property survey said it was harder to obtain debt funding – the worst result in four years – and equity was also harder to source than at any time in the past four years. “Despite more difficult debt funding conditions, property developers on average said the pre-commitment required to meet their external debt funding requirements for new developments fell to about 55% during the third quarter, down from the previous three months but well above last year’s 52 per cent.” However, demand for residential development remains strong in Sydney and parts of Melbourne, with approximately two thirds of those developers who are planning projects considering residential projects. About one in three expect to commence projects in the next six months, while fewer than 20% are looking to start a development in 18 months. The drop-off in project commencements in 2018 may suggest developers’ growing caution about high-density projects amid warnings of oversupply in the Melbourne and Brisbane CBDs. Nearly half of the developers were unsure about their spending plans over the next 12 months, an increase of more than 30% during the quarter. NAB’s survey also found a “noticeable” increase in the number of developers planning residential property in the next six months. More than 60% said they were optimistic about the sector, while 7–15% were considering building offices, retail or industrial buildings.

SPECIAL REPORT

MAKING HEADLINES It’s been a momentous year: 2016 has perhaps been one of the most politically and socially charged years in a long time – a tumultuous 12 months most aptly summed up by the recently announced word of the year: ‘post-truth’. But while people have been reeling from the surprises of Brexit and the American presidential election result, the Australian mortgage industry has had its own news to ponder. Australian Broker looks in the rearview mirror as 2016 disappears from sight, and pinpoints the top stories that have made this year so eventful for brokers

DECEMBER MADE THE NEWS M ichelle Middlemo appointed head of aggregation services at My Local Broker A MP returns to SMSF investment lending

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ASIC SOUNDS OFF ON LIVING EXPENSES CONTROVERSY To end 2015, ASIC’s senior executive leader – deposit takers, credit and insurers, Michael Saadat, confirmed that brokers and lenders would not be required to obtain bank statements and credit card statements to verify the living expenses of their clients. The statement to Australian Broker came following a review conducted by ASIC which revealed that, in some instances, reasonable enquiries were not being made in regard to a consumer’s living expenses. According to Saadat, ASIC accepts benchmarks as a reasonable method of verifying living expenses. However, the regulator suggested at the time that brokers and lenders use scaled benchmarks. Where additional enquiries would be required in some cases, such as obtaining bank statements and credit card statements, Saadat said it was important that brokers and lenders documented it in the consumer’s file. “We are not saying that brokers need to obtain bank statements for every customer … But it is important that in the right circumstances that the additional steps are taken, but also very importantly that the outcome of those additional steps are recorded on the file. That is one thing that we have noticed which is a bit of a weakness,” Saadat told Australian Broker. “… That is a risk because it means that the lender and the broker may have trouble demonstrating that they have made those enquiries and that they have met those obligations if there is nothing on the file to show that they have done it.”

BANKS RESTRICT LOAN AMOUNTS OFFERED TO BORROWERS In the first month of 2016, leading brokerage Home Loan Experts revealed an analysis that showed major banks had significantly reduced the amounts they were prepared to lend homebuyers. According to the report, published by the Sydney Morning Herald, a couple with a combined income of $120,000 purchasing an investment property could borrow up to $80,000 less from a major bank than they could a year before. Similarly, the same hypothetical couple, but this time owner-occupiers, were shown to be entitled to loans that were up to $65,000 less than they would have received in 2014 and 2015, according to the Sydney-based brokerage’s calculations. The comparison covered Commonwealth Bank, National Australia Bank and Westpac, and the report stated that CBA would have lent $640,000 as a housing investment loan in December 2014, compared with $560,000 in December 2015 – an $80,000 reduction. Westpac would have lent the couple buying an owner-occupier home $645,000 in 2014, but only $580,000 in 2015. Home Loan Experts mortgage broker Christina Parnham told the Sydney Morning Herald at the time that the maximum loan amount had been reduced because banks were requiring borrowers to be tested against how they would cope with higher interest rates. “You’re going to have to be able to service the loan at about 7.5 to 8%,” she said. Parnham said that at the same time banks were adopting more conservative assumptions about living expenses.

FEBRUARY MADE THE NEWS ASIC bans broking firm director Craig Eric Lynch W estpac appoints Warren Shaw to head of Westpac broker distribution

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JANUARY MADE THE NEWS BOQ appoints Adrienne Smith as new GM of third party distribution uncorp announces major S rate cuts

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SHORE FINANCIAL UNDERGOES RESTRUCTURE Leading brokerage Shore Financial announced a major restructure in February, including the appointment of Theo Chambers, who co-founded Shore Financial with Alex Nochar in 2013 as CEO. The appointment marked the transition of Shore Financial from a small Sydney-based brokerage to a large interstate financial services organisation. Speaking to Australian Broker, Chambers said the decision to create a CEO role was a strategic one to help the business capitalise on its impressive growth over the previous three years. “The problem previously was that Alex and I were both trying to manage the business whilst both also still broking … But it came to the point where we decided to take myself off as being the number one loan writer to then actually teach other people all the ways of integrating our services into real estate which I learnt myself,” he said. “Long term we are trying to move from a small brokerage culture to a large organisational structure.” Chambers said his main focus for 2016 would be to deepen the brokerage’s referral relationships and improve Shore’s business infrastructure and processes. “Our goals this calendar year would be to really increase our penetration of the real estate industry… We feel with the right integration and focus we can not only significantly improve our loan volumes but more importantly generate reciprocal business for our real estate partners in the form of listing opportunities and property management referrals.” Shore Financial broker Thomas Hawley was also promoted to director and partner.

SPECIAL REPORT ASIC SHEDS LIGHT ON FOCUS OF REMUNERATION REVIEW The deputy chairman of ASIC, Peter Kell, announced in March that mortgage introducers would be a key focus area for the regulator as a part of its review into the mortgage broking sector. In February, ASIC had conducted roundtables with key industry stakeholders to consult on the mortgage broker remuneration review. Speaking at the ASIC Annual Forum in Sydney, Kell said: “One area we have realised that possibly does need some vision or focus is the growth in so-called ‘introducers’ in the mortgage broker space, who seem to have a less formal role in helping to bring customers to brokers and lenders. “There are potentially some conflicts of interest there that need to be looked at.” Kell also commented on the accusations that the regulator had preconceived biases about the mortgage broking sector. “There seem to be a lot of people in the sector who believe ASIC – without even really commencing the whole review – has already made its mind up on exactly what it is going to find and what recommendations it is going to make. I ensure you this is not the case. This will be a very open and transparent review. “It is not an investigation as such; it was a recommendation coming out of the Financial System Inquiry that ASIC undertake a review of mortgage broker remuneration and the industry structures in the sector,” Kell said.

APRIL MADE THE NEWS irgin Money unveils unique V new home loan product Q ueensland mortgage broker Emma Feduniw admits to defrauding Westpac

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YBR ANNOUNCES MAJOR ACQUISITION Mortgage and wealth franchise Yellow Brick Road announced its acquisition of privately owned South Australian non-bank lender Loan Avenue for $4.1m in May. YBR executive chairman Mark Bouris said it would help the YBR franchise diversify its mortgage book geographically, diluting its reliance on the Sydney and Melbourne mortgage markets. “This acquisition allows us to quickly build more scale in South Australia, diversify and deepen our distribution network and funding relationships and increase our management capability,” Bouris said. Loan Avenue founders and vendors Paul and Michelle Collins agreed to stay on following the acquisition, to assist in maintaining and driving existing aggregator and broker relationships as well as supporting integration. The maximum aggregate consideration agreed to be paid for Loan Avenue was $4.1m. The $2.6m cash component of the acquisition was likely to be funded out of the company’s existing cash reserves and undrawn portions of its CBA facility. The remaining was to be funded by a deferred cash consideration and the issue of YBR shares.

MARCH MADE THE NEWS Advantedge reduces interest-only rate reductions epper announces big fee P promotion for broker clients

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START-UP AGGREGATOR MY LOCAL BROKER LAUNCHES Challenger aggregator My Local Broker officially launched its technology-driven retail and aggregation business in April after signing an aggregation agreement with Vow Financial earlier in the year. The event, which gave people a first look at retail brand My Local Broker and broker brand New Age Broker, was live-streamed nationally and hosted by Vow’s head of commercial and leasing, Glenn Mitchell. The event also unveiled the new ‘Chief ’ CRM software for the first time, which was purpose built by My Local Broker for its mortgage brokers. “It’s taken eight years, millions of dollars of investment and plenty of hard work to get to this point,” My Local Broker CEO Jaci Smith said. “I’m thrilled to finally deliver what brokers have been asking for.” Following the official launch, My Local Broker embarked on a national roadshow as part of the MFAA Broker 2020 series to launch the aggregator business nationally.

MAY MADE THE NEWS R ichard Branson formally launches Virgin Money Australia M ortgage brokers caught up in bikie fraud

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JUNE MADE THE NEWS SIC reprimands mortgage A brokers for misleading advertising FG shuts down A commission fears

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NON-BANKS ANNOUNCE MAJOR MERGER In July, two leading non-bank lenders – Homeloans Limited and Resimac – announced a major merger deal. Under a Scheme Implementation Agreement (SIA), Homeloans would merge with Resimac through the issue of new Homeloans shares to Resimac shareholders and the acquisition by Homeloans of all of the shares in Resimac. The SIA would merge the Homeloans brand, existing wholesale funding arrangements, and third party broker relationships with Resimac’s established securitisation capabilities, strong product development and distribution channels. Homeloans said the merger would create one of Australia’s largest non-bank lenders with a combined loan portfolio of over $13bn and combined new originations exceeding $3bn in the 12 months to 30 June 2016. “Homeloans and Resimac have highly complementary businesses and strategies; Homeloans has a strong brand in the Australian mortgage industry and a national distribution network, while Resimac has well established securitisation and product development capabilities,” Homeloans chairman Robert Scott said.

AUGUST

In June, the Mortgage and Finance Association of Australia announced the sudden resignation of Siobhan Hayden as its CEO. The association’s board accepted Hayden’s resignation effective immediately and told Australian Broker the decision was based on “strategic differences” between the board and the CEO. In a statement, Hayden thanked the board for the opportunity, and thanked the members “who are the lifeblood of this organisation”. “I’m proud of what I’ve achieved in the role and think the mortgage broking industry is well positioned into the future,” she said. The MFAA told Australian Broker it would commence a search both internally and externally for a replacement CEO once the board had defined what it was looking for. In the interim, the management of the association would be guided by its COO, Evan Thomas, and its head of finance and HR, Stephen Bisgrove, and head of marketing and communications, Stephen Hale.

JULY MADE THE NEWS ussie broker admits to A $5m fraud ank branches face B commission review

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EX-ANZ HEAD OF THIRD PARTY KEIRAN EVANS JOINS AFG

MADE THE NEWS B anks overwhelmingly cut rates in response to RBA decision F ederal court rejects dodgy broker Rudy Noel Frugtniet’s appeal

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SIOBHAN HAYDEN STEPS DOWN AS MFAA CEO

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Ex-ANZ head of third party Keiran Evans joined ASX-listed aggregator AFG in August as its new general manager of commercial. At the time of the announcement, the aggregator said the appointment of Evans to the newly created role demonstrated its active push into the commercial broking market. “The introduction of a GM commercial role to AFG’s management team will further expand our capacity to focus on the growing commercial lending market,” AFG COO David Bailey said. “Working with AFG’s national manager of commercial, Bob Whetton, and national sales manager leasing and personal loans, Cristian Fedrigo, Keiran will enable AFG to expand its footprint in a market that is currently underbanked.” Prior to the appointment of Evans, AFG announced a partnership with technology platform Biz2Credit in a bid to help brokers increase their penetration of the SME market. “The addition of Biz2Credit to AFG’s commercial lending suite is an exciting evolution for the company, its brokers and for Australian business operators looking for finance,” Evans said. Evans started at AFG in September.

SPECIAL REPORT NAB LAUNCHES OVERHAULED BROKER OFFERING In September, major bank NAB revealed an overhaul in its broker offering that would mean NAB borrowers introduced through the broker channel would have the same access to NAB services and products as any other customer. Through the NAB broker platform, brokers now have access to four more home loans: NAB Choice Package, NAB FlexiPlus Mortgage, NAB Tailored Home Loan and NAB Base Variable Rate Home Loan, as well as 10-year interest-only periods for investment loans. Upfront and trail commission is now offered on the expanded suite of home loan products, while brokers also have access to a wider range of credit card offerings. Steve Kane, general manager of the NAB broker offering, said the launch was a significant step for the bank and signified the final step in an ongoing process to strengthen the connection between NAB and the broker network. “We had the Homeside brand that didn’t really resonate and put a hurdle in front of brokers when they were talking to their customers … This is the final stage of that journey, which is really about using the full power of the NAB brand, all the process and services of NAB and all the channels of NAB to support brokers. This is really as much a statement about launching NAB back into the broker market,” he said. To help achieve that goal as well as reduce channel conflict, NAB also introduced a new initiative in which select NAB branches would have staff dedicated solely to broker-introduced customers.

OCTOBER MADE THE NEWS C hoice Home Loans announces partnership with real estate network PRDnationwide M ark Davis is crowned Australia’s Broker of the Year at the AMAs

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SEPTEMBER MADE THE NEWS SIC permanently bans A finance broker Jennifer Farias B roker network MoneyQuest acquires franchise Citiwide Home Loans

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SURVEY REVEALS MORTGAGE FRAUD RAMPANT AMONG BROKER CLIENTS The biggest headline of October was the release of the results of a survey by UBS, which showed that 41% of people who had secured a mortgage through a broker had said their broker encouraged them to misstate information in their application. The UBS report showed that this was a large proportion compared to those who had secured their mortgage through the banks. Of this group, only 13% said their banker had suggested they misrepresent their details. Looking at the types of mortgage holders, the report found that credit card revolvers were more prone to providing false information, spend a larger proportion of their income, or face an unresolved financial challenge. UBS analysts found that there were similar levels of misrepresentation from 2015 to 2016. This was also true when comparing whether the buyer was an owner-occupier or an investor, or the different ratios of house prices versus disposable income. This “suggests to us that misrepresentation of mortgage applications is not contained to a particular part of the Australian housing market, and may be systemic,” they wrote. The survey caused massive uproar in the broker community. However, UBS analysts stood by their findings. “It is difficult to reject these findings, in our view,” they said. “It is highly unlikely that the respondents would have stated they misrepresented their mortgage documentation when they were in fact truthful. “If anything, we believe it is more likely these figures may understate the level of misrepresentation in mortgage applications as some respondents may not want to state they were less than completely accurate despite anonymity.”

MYSTATE ANNOUNCES APPOINTMENT OF PAUL HERBERT AS HEAD OF BROKER CHANNEL Last month, Paul Herbert was named MyState’s head of broker channel after two years as CEO of The Rock in Central Queensland, a division of MyState. He will continue in this role while assuming his new national broker relationship responsibilities at MyState Bank. MyState’s general manager of sales and distribution, Huw Bough, said Herbert’s 23 years of experience in the financial services sector made him well qualified for the job. “Paul knows MyState Bank well, has extensive experience in the mortgage broker industry, previously as state sales manager for Queensland and NSW with GE, and most importantly he understands brokers’ needs. “This will help Paul to hit the ground running, quickly establish key relationships and maintain our mortgage business growth momentum. “To assist him, we have recently almost doubled our number of broker relationship managers around the country and are looking at other ways to strengthen broker relationships and enhance the way we work with them,” Bough said. Brokers helped MyState increase its home loan book by 30% from $2.8bn to $3.7bn in the two years prior to 30 June 2016, as well as diversify its geographical footprint to lending outside of Tasmania.

NOVEMBER MADE THE NEWS FAA appoints Mike Felton M as new CEO AB introduces restrictions N for older homebuyers

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THANKS FOR A GREAT YEAR The team at Australian Broker would like to thank all the readers, contributors and advertisers who have supported us this year.

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MARKET WRAP SYDNEY INVESTORS BETTER OFF ELSEWHERE? A property investment company has released a report that says the Sydney market has reached the top of its cycle and investors should look for opportunities in other capital cities

NEW RESEARCH conducted by investment specialists Momentum Wealth has concluded that Sydney’s property growth has passed its peak and investors would be better off investing elsewhere. Looking to other state capitals that are earlier in their growth cycle would be the best strategy, the research suggests, as the Harbour City is cooling and short-term growth prospects are waning. Sydney’s median house price has increased by an alarming 46.7% since the start of the current upcycle in January 2012, and the average price is currently sitting at about $880,000. The research report, Property Market Spotlight: Sydney, examines the city’s key demand and supply indicators and concludes that conditions are easing as a well-publicised apartment oversupply looms. “It can be acutely detrimental to buy at the peak of a market upcycle as the ensuing downturn can have a severe setback on investors’ finances and investment goals,” Momentum Wealth managing director Damian Collins said. “While it’s impossible to predict how much longer Sydney’s upcycle will continue, our research report highlights an easing in several key market indicators suggesting the strongest

capital growth in the current upcycle has passed.” The research report reveals that properties are now taking longer to sell, the number of properties selling has dropped, and dwelling approvals have plateaued at record levels, which indicates that the Sydney market is running out of steam. The NSW capital’s lack of affordability is also a factor that is pricing some buyers out of the market, the report says, while the threat of an oversupply of apartments looms in some innercity locations. Both factors are likely to weigh on short-to-medium term capital growth prospects. “While the long-term outlook for the Sydney property market remains positive, the short-tomedium term view isn’t as rosy,” said Collins, adding that investing in a city in the earlier stages of its growth cycle would be a smarter move. “The research report explains that investors considering the Sydney market are likely to be better off looking at other Australian capital cities that are earlier in their growth cycle, are more affordable and offer higher yields. “While Sydney’s time will come again, for the time being better investments can be made elsewhere,” he said.

MEAGRE LENDING GROWTH A CONCERN – DFA The ABS has released its latest set of lending data, which shows weak growth in overall lending across the nation. With the exception of investment housing lending, which has grown by a massive 1.3% to $12.2bn, all other lending growth has been meagre or lower than previous cycles. Lending to owner-occupiers fell by 0.5%, and there was only a small rise – housing apart – in commercial finance. Commercial lending to investment property purchasers currently makes up 18.3% of all lending, with lending to owneroccupiers down to 30.2% and for nonhousing commercial up a little at 28.6%. According to Digital Finance Analytics principal Martin North, this latest data indicates that without the recent surge in investment lending, total lending would have fallen. On a macro level, investment lending rose from 37.2% to 37.6% of flows, while refinance fell slightly to 20.8% ($6.7bn). Funding for new buildings for owneroccupiers and construction rose 0.4% ($2.8bn), while purchase of established dwellings fell 0.8% and refinance ($6.7bn) fell 0.5%. Unsurprisingly, the lending momentum was strongest in NSW and Victoria; however, North believes this represents a “dilemma for the RBA”. “The main growth engine in terms of credit is investment lending, yet this is the higher risk and more concerning area of lending because if capital growth were to slow or reverse many investors would vote with their feet,” he said. “We are on the edge of a precarious ridge; on one side is the slide into risky lending, on the other is the need for growth (at any cost). The pathway appears to becoming narrower, and the room [to grow], smaller. It is ‘the sharp edge’ of policy.” North added that looking at ways to bolster business lending was vital, and slashing interest rates would no longer have the desired effect. In fact, he said there was a greater chance that rates would increase at the final RBA cash rate meeting of the year. “We need to find a way to boost business lending, other than for investment housing. Current settings do not help. Cutting rates further will not either, and in all likelihood the next turn in interest rates will be higher.”

A RISKY RELIANCE ON INVESTMENET LENDING

All finance Sept 2016 – Flows – Trend $80,000,000

33%

$70,000,000

31%

$60,000,000

29% 27%

$’000s

$50,000,000

25%

$40,000,000

23%

$30,000,000

21%

$20,000,000

19% 17%

15% Dec-2012 Jan-2013 Feb-2013 Mar-2013 Apr-2013 May-2013 Jun-2013 Jul-2013 Aug-2013 Sep-2013 Oct-2013 Nov-2013 Dec-2013 Jan-2014 Feb-2014 Mar-2014 Apr-2014 May-2014 Jun-2014 Jul-2014 Aug-2014 Sep-2014 Oct-2014 Nov-2014 Dec-2014 Jan-2015 Feb-2015 Mar-2015 Apr-2015 May-2015 Jun-2015 Jul-2015 Aug-2015 Sep-2015 Oct-2015 Nov-2015 Dec-2015 Jan-2016 Feb-2016 Mar-2016 Apr-2016 May-2016 Jun-2016 Jul-2016 Aug-2016 Sep-2016

$10,000,000

Secured housing – Construction and purchase of dwellings Personal – Revolving credit Commercial housing investment lending % Investment housing of total

Secured housing – Alterations and additions Commercial – Revolving credit Commercial business net investment housing % Owner-occupier housing of total

Personal – Fixed loans Lease finance commitments – total Commercial % non-housing Source: DFA/ABS

TASSIE’S TIME TO SHINE The Real Estate Institute of Tasmania’s (REIT’s) Tony Collidge has said that Tasmania is “well and truly” becoming a seller’s market, following two strong quarters, according to The Mercury. While the island state’s property market’s September quarter results showed a slight decline in the number of sales despite a critical shortage of property listings, the last two months were particularly strong, Collidge said. “There is an increasing number of investors trying to get into the market but they will be fighting with first home buyers for properties and that will put pressure on the lower end of the market,” he said. “Anything under $300,000 at the moment is really saleable.” The median price for Greater Hobart houses has increased annually

by 7.8% to $385,000 and houses are selling much faster, according to Collidge, who said the city of Launceston is becoming the “investor capital of Tasmania”. “Increased investor activity in the area has seen more sales in the lower price ranges and this has been largely responsible for a decreasing in Launceston’s median price,” he said. The average number of days on market for properties in Launceston has also dropped from 67 days to 57. The majority of property sales in the September quarter were to local Tasmanians, with approximately one in five (21%) sold to interstate buyers and only a handful sold to foreign buyers (five properties). Collidge said there was strong and growing demand for property in the state and rental properties were experiencing very low vacancy rates and excellent rates of return.

CONSUMER INSIGHTS GEN Y LEADS THE INVESTMENT PACK

More millennials own an investment property than any other generation, and ‘rentvesting’ is becoming a popular way to get on to the property ladder BROKERS VSBY INVESTORS LENDERS STATE

Proportion of residents who own at least one investment property in 2016 20%

National NSW

22%

22% 21%

VIC 17%

QLD SA

11% 5 10 15 20 25 30 35

9% of WA residents own two investment properties – the highest percentage in any state MORTGAGE BURDEN WEIGHING HEAVILY ON AUSTRALIANS Of mortgage holders surveyed by UBank for its Home Truths survey: THE ABS has released its lending finance data for the month of September, which shows that the upswing in investment lending is continuing. According to ING DIRECT, part of this momentum is thanks to Generation Y. The branchless bank’s Financial Wellbeing Index has found that one in five (or 20% of) Australians own at least one investment property, and that demand has grown by 3% nationwide, with younger generations more likely to invest. The Index found that among Gen Ys (18- to 34-year-olds), 22% own at least one investment property. This is followed by 20% of Gen Xs (35- to 49-year-olds) and 19% of baby boomers (50- to 64-year-olds). “What’s interesting is that while there are continued questions around affordability and the challenges for younger generations in getting on to the property ladder, it’s actually Gen Y that is leading the property investment pack,” said Mark Woolnough, head of third party distribution at ING DIRECT.

The results indicate that, overall, Australians still have faith in the long-term benefits of investing in property, he told Australian Broker. “I think property will always play a key role in our investments – whether that’s for our own home or as part of an investment strategy.” The higher proportion of Gen Y investors also shows that the Australian dream of owning your own home is alive and well, Woolnough said, but there’s no denying that these younger investors are also facing challenges as a result of affordability pressures in the national housing market. As a result, Gen Ys are having to be more creative, with more and more first home buyers choosing the ‘rentvesting’ option, rather than being owner-occupiers. “What we are seeing are younger generations taking a different approach; they are still getting onto the property ladder, but they’re investing in areas they can afford, not necessarily areas they want to live, and often choosing to rent elsewhere for lifestyle reasons,” Woolnough said.

56%

said they skip spending time with family in order to work more to pay the mortgage

54%

said they have foregone a family holiday because of financial pressures

59%

said they have cut short a holiday due to mortgage payment considerations

50%

said they are seeing repayments take a toll on their social life, declining at least two social outings a month in order to meet their mortgage repayments Source: UBank

NINE TRENDS WILL DISRUPT THE HOUSING MARKET, SAYS CBA Over the next 15 years, what it means to buy a home in ‘the lucky country’ may change dramatically as new ways of funding home ownership emerge amid an evolving economic, cultural and demographic landscape, according to the Commonwealth Bank. CommBank’s Future Home Insights Series has identified nine key existing and emerging trends that are predicted to significantly influence the Australian housing market from now until 2030, including population growth, urban living trends and the rise of multi-unit dwelling construction. Its research also found that Australia’s society will encompass a broader collection of social groups, which will influence how Australian property is built and sold. “We know these trends will significantly impact how Australians live, buy and sell property. At the same time, these trends could change how lenders meet the needs of Australian home buyers in the future,” said Dan Huggins, executive general manager of home buying, Commonwealth Bank. “It is important to look at current trends and insights and have a clear idea about home ownership,” he told Australian Broker, adding that how these will change the industry depends on how established they are now. CommBank outlined the following nine key trends:

Collaborative buying

Homes or apartments are separated into smaller-sized dwellings with shared common areas, causing houses to be smaller – and therefore more affordable. Co-housing also reduces the overall physical and environmental footprint per household through more efficient land use.

Group loans

Analysis by CommBank shows that the number of applications with two or more applicants is trending up, from 64% in 2014 to 67% in 2016, while the number of single applicants for mortgages is slowly trending down.

Communities in common

To compensate for smaller private living spaces, many developers and architects are designing communities that encourage people to share generous common spaces with like-minded people in their building.

Joint ventures and syndicates

Group development models

Guarantor loans

Crowd housing

Staircasing

Guesthousing

Pooling funds to gain greater buying power is becoming more common in Australia. Increasingly, all kinds of people, from siblings to cousins and friends, are coming together to enter the property market as a group.

People buy and develop blocks of land collectively, which also delivers economies of scale. It can be far cheaper to build several properties at once than one dwelling at a time.

These loans help young people get into the housing market sooner by allowing parents or family members to use their own property as additional security.

Online crowd-housing platforms are connecting homebuyers who share common interests with property developers and architects, giving groups of people more say in the kinds of homes they’d like to see built.

Moving up the property ladder by buying more shares in an individual property, and hopefully one day attaining full ownership, is known as ‘staircasing’. Instead of buying a house outright, homeowners are buying a share in a property and gradually increasing this stake as their savings grow.

Online portals such as Airbnb that connect homeowners looking to monetise their spare bedrooms or couches provide additional income for the homeowner to put towards their mortgage and other bills, and it offers the tenant accommodation for the short or long term. “Some of these pathways to home ownership already exist, such as guarantor loans, group loans and guesthousing, so will not require any change,” Huggins said. “Others, including crowd housing and staircasing, may be more prevalent in the future.” Huggins concluded by saying that both brokers and lenders would need to have a good understanding of the latest products to adequately meet their clients’ home buying needs.

PEOPLE THE JOURNEY TRUMPS THE FINISH LINE Mortgage Professional Australia’s Top 100 broker Peter Gwynne may be a cycling gold medallist, but he’s not resting on his laurels yet

and now has three others in his broking team, and together they settled $105m in loans last year. “It turns over good numbers, but we’ve just got a really good team and good processes, which you’ve got to have, otherwise you’re a slave to it; you never get away. You want to work hard to enjoy life, not to keep working,” he says. “If [the business] is set up well and you’ve got good systems, you should fit in time to do things you love … The other thing is I think you’ve got to have a release because broking is a people game, and if you don’t have a release, you don’t get away from it and it can really consume you.” The Varsity Lakes brokerage also became a major sponsor of the Tour de Valley this year, an individual and team time-trial event held every year on the same course that will host the Commonwealth Games cycling time trial in 2018. Gwynne was the champion of the event’s 36km solo time trial in 2015.

ROAD-RACING solo against the clock, Queensland cyclist and Choice Home Loans Varsity Lakes managing director Peter Gwynne took home gold in his category at the Australian National Time Trial Championships on 3 October. With a winning time of 24.00 minutes, Gwynne has now won two medals at the Griffith University cycling event, having claimed the silver in 2015. “It was tough work but I got there in the end and I couldn’t be happier – hard work definitely pays off,” he tells Australian Broker. Competitive by nature Competitive sport has always been a part of Gwynne’s life, and he has challenged himself and taken his body to the limit by participating in triathlons for many years. The toughest event he has competed in, he recalls, was “brutal” – the World Ironman Triathlon Championships in Hawaii, which he completed in 1997 and 2000. “That’s a 3.8km swim, 180km ride and 42km run in stifling conditions – 40-degree heat and winds,” he says. “It’s a hard race to even qualify for. I actually ended up on an IV drip after both of those races for about two hours – it’s just brutal. That’s probably the hardest event I’ve ever done.” After Gwynne started his Choice Home Loans mortgage business in Varsity Lakes he decided to hone in on cycling, and over the last two years he has been putting in upwards of 15 hours of training each week. “I do a lot more training now and do a lot more things that I love, which is good,” he says. Gwynne has raced all over the world, including in Japan, the US, France, the United Arab

“You want to work hard to enjoy life, not to keep working” “I’m a big believer in businesses getting behind community events, and it’s only natural to support an event that I am personally very passionate about. I just think to put a bit back into the community … put a bit back into local sport. It’s been good to me. I think it’s good to promote events in your local area, showcase your area – this is where your houses are, where you live, where your business is.”

Emirates and throughout Australia, while Italy and Spain are top of his bucket list. Pedalling in the business As an MPA Top 100 broker for the last five years running, Gwynne describes how his passion for cycling has also driven new business to the brokerage. “It’s very social. I’ve done a lot of business from cycling … If you look back, [the business] is all related to someone I’ve met through cycling,” he says. Gwynne established his brokerage in 2006,

Sights set high Gwynne’s win in the Australian Time Trial Championships has qualified him to race for Australia at the World Masters Championships in September 2017 in Alba, France – this will see him completing one of his biggest cycling goals. The 6-Hour World Time Trial Championships in the US in 2017 is another of his goals. With the endurance time trial championship set to take place in Death Valley in Eastern California – the lowest, driest and hottest part of North America – the race is bound to be a massive challenge. “I’ve been getting coached for 12 months, and I want to keep racing quite hard now and try and get quite high up in some world events, if I can, and also race well in open events in Australia … That’s the goal for next year.”

CAUGHT ON CAMERA NextGen.Net recently held its end-of-year ‘thank you’ celebration. The event was held at the iconic Museum of Contemporary Art in The Rocks Sydney and was attended by lenders, aggregator groups, brokers and other industry partners from across the country. The fabulous Anh Do, who was a guest speaker, shared his moving success story: from his perilous journey as a refugee to becoming one of Australia’s most loved comedians as well as an author and artist.

PEOPLE HOT SEAT

STUART STYLES

Arthurmac & Co’s Stuart Styles tells Australian Broker about the challenges involved in securing loans for friends and family, and why he wishes he could have a meal with Albert Einstein

Who or what inspired you to become a mortgage broker? I was in car sales originally and bought and A sold vehicles whilst also arranging finance for purchasers as a way of ensuring the sale. The finance side of the business really piqued my interest and I found that part of the transaction much more satisfying than the actual sale of the motor vehicle. I then left the motor trade and embarked on a career in financial planning with Westpac, then circled back to working in the motor trade before eventually being offered a role as a mortgage broker with Faraday & West. I jumped at the chance and loved it immediately.

What will be the biggest innovation in the broking industry in 2017? I think it will be the digital disrupters. This A also includes the electronic titles system and e-conveyancing, which is changing the way we do business presently. It is difficult to gauge the extent and how we will be affected by the digital platform disrupters; however, we are currently seeing reasonable-sized corporations invest in this area. There is going to be natural pushback by the traditional broker community (which includes me!). However, it is up to us as brokers to take that challenge on and provide even better service to our customer base.

What was your most memorable client experience? There are many which I am grateful for, but A handling family and friends is always a challenge as there seems to be more on the line because of that close relationship. It is always a great day when you get those loans formally approved. I have recently received an approval for a friend of many years to purchase their new home. The file and application was akin to unravelling an onion, in the sense that what was thought to be a simple situation turned out to be more complicated than the client actually realised. Fortunately, all’s well that ends well and we will be settling this in the coming days.

What has been the toughest or scariest decision you have made in your life? My life decisions always seem to come at A junctions when everything is happening at once. When I decided to leave the car industry, my wife had just become pregnant with our first child and I was currently taking a 12-month sabbatical, or so I thought! It was then that I decided to change career direction and enter

financial planning with Westpac. When I decided to start Arthurmac & Co in 2005, my wife had just gone on maternity leave with our second child for 12 months. Starting my business, especially with the timing, was definitely the biggest decision I had to make. That took a bit of negotiating with Mrs Styles! If you could have dinner with any three people (dead or alive, excluding family or friends), who would you invite and why? Firstly, Gerry Lopez – Mr Pipeline – to get A some tips on surfing and lifestyle. To this day he is a bit of an enigma and lives a well-planned life of surfing, snowboarding, yoga and meditation,

and has a unique outlook on health and wellbeing. Plus, it would be interesting to see if he eats anything other than brown rice! I also surf and kitesurf/windsurf, so getting some tips from Gerry would be invaluable. Secondly, James Hunt, F1 driver, as he is the epitome of a life well lived, albeit short. I believe he would be the most entertaining of dinner guests and would provide endless stories of debauchery and excess, not to mention getting the inside run of his exploits on the race track. Lastly, Albert Einstein, as he would, no doubt, provide great conversation, but I might also finally get an understanding of his famous theory of relativity!

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