Australian Broker 14.01

NEWS Non-majors increase market share Major-bank customers shop around amid surge in refinancing P8

OPINION Broken supply A lecturer in urban studies on the government’s proposed changes to foreign investment regulation P14

BEST PRACTICE Learning to love tech Why baby boomer brokers need to embrace technology P16

JANUARY 2016 ISSUE 14.01

TECH FOCUS Artificial intelligence the answer to rogue brokers?

New software may be able to stop bias in its tracks P21

CONSUMER INSIGHTS Millennials suffer over looming cash rate rise One in four ‘extremely concerned’ about

ability to repay loans P22

BRENDAN O’DONNELL Liberty Network Services’ managing director reveals the five pillars on which the aggregator was built, and how its brokers are walking the talk and reaping the rewards P10

MARKET WRAP Home prices will keep rising – DFA

The property market will not plummet in 2017, Martin North predicts P24

AGGREGATOR SNAPSHOT 2

NEWS

ASSOCIATIONS

REGULATION

LENDERS

MFAA concerned about broker ‘tax’ P4

Cash rate on hold, but for how long?

Non-majors increase market share P8

P6

BROKERNEWS.COM.AU

AFG REPORTS ‘RECORD YEAR’

EDITORIAL

$22.6m

Editor Madelin Tomelty

$120.4bn

EOFY16 net profit after tax – 15.1% ahead of prospectus

Residential and commercial loan book value in 2016

News Editor Miklos Bolza Journalist Maya Breen Production Editor Roslyn Meredith

2,400

$102.6bn Residential loan book 2015

Number of brokers with AFG in 2015

AFG manages almost one in 11 mortgages

$114.7bn

Traffic Coordinator Freya Demegilio

2,650 Number of brokers with AFG in 2016

$33.84bn

$2.76bn

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

EDITORIAL ENQUIRIES

Commercial settlements 2016, a growth of 15% from 2015

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

PURPLE CIRCLE’S SHARE-OWNING MODEL A SUCCESS Memberships available, we currently have 11 member businesses that have joined,” Stephens told Australian Broker.

“With four, we are in the final stages of completing contracts, while with several others we are trying to negotiate exits from draconian handcuff agreements.”

These member businesses were both individual brokers and broking firms, he added.

Foundation members will receive a one-off equity in the company as an added early-bird incentive.

Since its launch, Purple Circle has seen steady growth, welcoming brokers from WA, Victoria, NSW, Queensland and SA. Explaining how the ‘write loans, get shares’ model works, Stephens said: “The shares are

Sales Manager Simon Kerslake

Human Resources Manager Julia Bookallil

Source: AFG

Member-owned subaggregator Purple Circle has announced solid growth since its foundation in August 2016, settling more than $20m in loans in its first few months in operation.

Since its launch with a ‘write loans, get shares’ model, more than half of the company’s initial Foundation Membership shares have already been snapped up by brokers joining Purple Circle.

“The take-up of our offering has been nothing short of fantastic,” said CEO Michael Stephens.

“We were confident a non-aligned member-owned offering would resonate with finance brokers Australia-wide, but we couldn’t have envisaged such a positive and immediate response.”

“Of the initial 20 Foundation

Design Manager Daniel Williams Designer Martin Cosme

Residential loan book 2016

Residential settlements in FY16, an increase of 8% from 2015

ART & PRODUCTION

SALES & MARKETING

held by a unit trust which can issue an infinite number of units. The units are issued at the end of each year in proportion to the value added, so the ownership is kept in proportion to the value added over time.”

This model works to attract brokers who are disenchanted with large, institutionally manipulated aggregators, he added.

“What we keep hearing from brokers is that they’ve had enough of being played like puppets by their aggregator partners – from being used as guinea pigs for direct-to-consumer online platforms, which are also brokerexcluded, to being manipulated by white label loans and more, none of which have the broker’s interests at heart.”

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ADVERTISING ENQUIRIES

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

MFAA CONCERNED ABOUT BROKER ‘TAX’ The MFAA has expressed concern about a new industry funding model proposed by ASIC. The model, which is set to commence in the second half of 2017, hopes to draw funds for ASIC’s use from parties within the finance industry.

“ASIC has long believed that those who generate the need for ASIC’s regulation should pay for it, rather than the Australian public,” said ASIC chairman Greg Medcraft.

“An industry funding model for ASIC is about establishing price signals to drive economic efficiencies in the way resources are allocated within ASIC. Industry funding will also improve ASIC’s transparency and accountability.

That means business will better understand the job we do by having greater visibility of the

cost of doing that job.”

However, Cynthia Grisbrook, chairman of the MFAA, has warned that proposed changes will see licensed mortgage brokers and broker groups paying “up to seven times” the amount that lenders pay for each dollar of credit facilitated.

“We believe that this equates to a ‘tax’ on brokers. Unlike lenders, brokers are – in most cases – unable to pass this additional cost on down the value chain,” she said.

Under the current proposal, licensed brokers and broker groups would face a levy of $1,000 plus $1.14 per $10,000 of credit greater than $100m intermediated by brokers. This is in contrast to $2,000 plus $0.15 per $10,000 of credit greater than $100m facilitated by lenders.

“On ASIC’s current calculations

this could leave licensed brokers and aggregators (where applicable) each out of pocket in the amount of $39.90 on an average $350k mortgage given that the levy is charged at multiple points in the value chain. Lenders would be levied $5.25 on the same average $350k transaction,” Grisbrook said.

, DATES TO WATCH

WHAT THEY SAID...

Dallas Rogers “A regulatory environment that is sensitive to various investor groups is important in Australia because different investors impact their host cities in diverse ways” P14

To get a feel for any unintended consequences, the MFAA is talking to aggregator and member groups, Grisbrook told Australian Broker.

In December, the MFAA secured an extended deadline of 16 January 2017 for industry submissions on the industry funding model proposed by ASIC.

Ranin Mendis “I believe that we will see a steady increase in mortgage rates in 2017 as banks face stiffer competition globally. This would have a flow-on effect to property prices” P22

Martin North “We think home prices will in most centres continue to rise.

We are certainly not anticipating a dramatic fall. This is because supply of new property is likely to slow in line with the fall in building approvals” P24

A rundown of the next fortnight’s events

JANUARY

31 What: The Forum Where: The Westin, Sydney Details: An industry calendar highlight that attracts a combined audience of more than 1,200 financial services professionals in Sydney and Melbourne. The speakers will give presentations on the economic outlook following the Brexit vote and the US elections, the effectiveness of the Central Bank’s policies in achieving growth and inflation targets, and 2017 predictions for property markets, currencies and interest rates.

REGULATORY ROUNDUP 6

WORLD NEWS

INTEREST RATES OVER TIME

Interest rates 1990–present 20%

15%

10%

5%

1995

2000

The US Federal Reserve has raised its benchmark interest rate by a quarter of a percentage point.

“In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 1/2 to 3/4%,” the Fed’s policymaking committee said in a statement. “The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a return to 2% inflation.”

The move in December marked the first interest rate hike for the US in 2016, with the last rate rise having occurred in December 2015. The Fed had tentatively planned on three incremental rate hikes throughout 2016, but planned hikes were continually stalled by less-than-stellar economic news.

Mortgage professionals are now widely expecting a rise in mortgage rate. Bond expert Bryan McNee, president of McNee Solutions, said: “The more rate hikes we see over two next year, the worse it’ll be for mortgage rates. The fewer that we see, the better. It will mitigate the sell-off.”

Ultimately, McNee said, mortgage rates were likely to head upwards regardless of the Fed’s actions, because traders are already acting in anticipation of President-elect Donald Trump’s economic policies.

“Bond traders have spoken. They’ve been selling off – not because of a perceived rate hike but because they don’t think they’ll be able to get out at these prices next quarter,” he said. “They expect tax cuts. They expect financial regulatory reform.

They expect pro-growth policies. And growth in the economy always equals inflation, and bonds don’t like inflation.”

2010

2015 Source: RBA/ABC

UNITED STATES OF AMERICA THE FED HIKES CASH RATE

2005

RBA LEAVES CASH RATE ON HOLD In its final board meeting for 2016, the RBA left interest rates on hold at a historic low of 1.5%, a decision unanimously predicted by economists.

“There are plenty of reasons why the RBA would keep rates on hold such as the rebound in housing market strength and housing investment activity, a surge in commodity prices, and potentially a lower Australian dollar as the US looks to increase interest rates,” said Tim Lawless, head of research at CoreLogic.

John Flavell, CEO at Mortgage Choice, expressed similar sentiments, saying that there was “no reason” for the RBA to change its current stance on monetary policy.

“According to the Westpac Melbourne Consumer Sentiment Index, confidence fell 1.1% in November to 101.3,” he said. “Meanwhile, property prices across the combined capital cities rose 0.2% throughout November, taking property prices 9.3% higher over the last 12 months.”

In a statement following the Reserve Bank’s decision, RBA Governor Philip Lowe said that while the global economy was growing, this growth was slower than what would be ideal.

“Labour market conditions in the advanced economies have improved over the past year.

“Economic conditions in China have steadied, supported by growth in infrastructure and property construction, although medium-term risks to growth remain,” he said.

“In Australia, the economy is continuing its transition following the mining investment boom,” Lowe said of the RBA’s decision. He added that conditions in the housing market had strengthened

overall but still varied considerably around the country. “Housing credit has picked up a little, although turnover of established dwellings is lower than it was a year ago,” he wrote.

“Supervisory measures have strengthened lending standards and some lenders are taking a more cautious attitude to lending in certain segments.”

The cash rate announcement came just a day before the Australian Government released its national accounts figures, which showed that in September the country experienced its worst quarter since the GFC. The national accounts showed economic growth had declined 0.5%, dragging the annual growth rate down to 1.8%, the first contraction in growth since March 2011. The September quarter was also only the fourth quarter in the past 25 years in which the economy had contracted.

Underemployment, rather than unemployment, continues to be a problem, with part-time as opposed to full-time jobs growing strongly.

In the lead-up to the release of GDP figures by the ABS in December, some economists predicted this contraction, saying the September quarter would likely be influenced by Brexit, the federal election and uncertainty about the US election.

In a note to clients, Craig James, economist at CommSec, said: “If the economy did go backwards, it will serve as a wake up call for Australia’s politicians,” according to the ABC. In December, the ABC also reported that the markets were currently pricing in a 12% chance the RBA would hike rates in 2017.

LENDER UPDATE 8

BLUESTONE APPOINTS GROUP CEO

NON-MAJORS INCREASE MARKET SHARE AFG’s latest Competition Index has shown that an increasing number of mortgage holders are leaving the country’s major lenders. According to the index, overall mortgage sales for the majors and their subsidiaries have decreased by 8.1% over the last quarter and are now sitting at 64.1% of the market.

Mark Hewitt, general manager of sales and operations at AFG, said this was a post-GFC low that had been driven mostly by refinancers. “The non-majors lifted their share of the refinancing market to 43.2% across the last quarter,” he said.

“Suncorp with an increase of 3.3% and AMP with a lift of 2.1% led the way with refinancers, largely at the expense of the Westpac stable.”

Westpac and its other brands, such as Bank of Melbourne, Bank SA and St.George, lost a combined 8.4% of its total market share for the quarter, the index has indicated. The market share for investor lending at the major banks also dropped by 7% during the same time period. “In the past week many lenders have been increasing fixed and variable interest rates. They have been targeting areas such as investment loans, and this is often a trigger to encourage consumers to shop around.

AFG has expanded its panel significantly over the past couple of years to provide additional choice, Hewitt told Australian Broker, and he said this trend would almost certainly continue into 2017.

“I think some of the majors have looked at this year and are reasonably satisfied where they are at the moment,” he said. “That creates the opportunity for growth to come from the non-majors who are keen to write business and grow their market. It’s all about competition and there’s more competition than there’s ever been.”

In November, the AFG index revealed that the non-majors with the largest market share for mortgages in general were as follows: • AFG Home Loans (8.23%) • Suncorp (4.80%) • ING (4.05%) • AMP (3.34%) • ME (2.99%) • Macquarie (2.13%) • Liberty (2.27%) • Bank Australia (1.83%) Other non-majors were found to have less than 1% market share each.

Peter McGuinness has been appointed group CEO of international financial services business Bluestone Group, while Alistair Jeffery, founder and executive chairman of Bluestone, will continue to be engaged in the business on a part-time basis.

His responsibilities will be split between Bluestone’s head office in the UK and its regional head office in Sydney.

Jeffery praised McGuinness as the ideal candidate for the role due to his high-level accounting and structured finance skills as well as his operational experience in specialist lending. He comes from a background in investment banking, and moved to Bluestone in 2003, where he established the equity release business before taking up the role of CFO. In the aftermath of the GFC, he stepped into the role of CEO – APAC. In 2012 McGuinness joined Jeffery and helped lead the firm’s expansion in car and equipment finance in Ireland as well as mortgage lending in the UK. “Under Alistair’s leadership, Bluestone has developed a clear vision for the next five years’ growth, and I am looking forward to drawing on my 13 years’ experience with Bluestone and taking on the challenge of executing that plan,” McGuinness said.

Bluestone has experienced substantial growth and the company is now larger than its pre-GFC peak, with a global workforce of more than 260 employees in four countries, net assets of $68m

and normalised earnings of over $13m per year.

Since 2000, it has lent more than $6bn in the specialist lending market.

“Between 2000 and 2008, we really had a very strong run as a specialist lender, with total originations in excess of $5bn. We were a very regular participant in the capital markets,” Jeffery told Australian Broker.

While the lender removed itself from the lending market between 2009 and 2012, Bluestone Mortgages has since been growing at a rate similar to that seen in the early stages of the business, he said, with the lender doubling its loan originations year-on-year.

“They’re really strong growth rates and we’re finding conditions quite attractive for further expansion at the moment.”

Over the next year or two, Jeffery said, Bluestone would be involved in two main areas.

“I think we’ll remain core to financial services or a fintech-style strategy. Because the funding markets are opening really nicely at the moment, I think that’ll support an expansion potentially into other product types, including commercial, construction lending, auto finance and reverse mortgages.”

Campbell Smyth will hold on to his position of CEO for APAC, running regional operations and reporting to McGuinness.

“Campbell and I have worked together previously, and I am confident that he will continue to deliver the strong growth trajectory for Bluestone in Australasia,” McGuinness said.

ME TURNS FIVE, REACHES LOAN BOOK MILESTONE

As at December 2016

$1bn

Value of home loan applications

$640m Value of loan settlements

Source: ME

10

COVER STORY THE PILLARS OF SUCCESS

Brendan O’Donnell reveals the five pillars on which Liberty Network Services was built, and why the aggregator believes in walking the talk when it comes to diversification

2016 WAS was always going to be a big year for non-banks. After APRA tightened bank lending regulation in 2015, non-banks were suddenly in a prime position to take a bigger piece of the property market pie – and it wasn’t just investors unable to get a loan who flocked to non-banks.

As the awareness of specialist lenders among consumers has increased, more house-hunters who don’t fit the banks’ rigid lending criteria are turning to non-banks to provide a solution.

excited about that,” he tells Australian Broker.

LNS relaunched its brand a little over a year ago, the result of which was a new identity and new positioning in the market. For the first time, LNS also actively took the brand direct to consumers through advertising, after four years of relying on the brand’s distribution channel.

“Up until a year ago, Liberty was well known amongst industry and brokers, but not that well known in the consumer space,” O’Donnell explains.

“We believe our offer is the most competitive retail-branded offer in the country. You can check the rest, but it certainly is” Liberty Financial has since become one of the biggest home loan lenders in the country, reporting a doubling in loan originations, an increase of 46% in total assets, and an 11% rise in before-tax profits in 2016.

It’s therefore no wonder that Liberty Network Services (LNS), the non-bank’s branded distribution arm of the business, “continues to go from strength to strength”, as the aggregator’s managing director, Brendan O’Donnell, puts it.

LNS has had another year of excellent growth. At only five years young, its loan book now exceeds $1.2bn – a figure O’Donnell says is growing exponentially – and the aggregator now has over 120 Liberty advisers, the number of which O’Donnell expects to grow in line with the increasing awareness of the LNS brand in the market.

“We’re looking to get to between 175 and 200 advisers over the course of the next two years, so that’s a good indication of where we’re heading there, and of course, with that, obviously to see a significant growth in our book, in our volumes and of course profitability going forwards. I’m very

But while it’s all well and good that non-banks have had their time in the sun, it’s not quite so simple in the aggregator market. Competition is hot, and snagging broker share comes down to having an appealing proposition. Lucky for O’Donnell, this is something he believes LNS has down pat.

“The key to our success over the past five years has really been ensuring that we consistently deliver on our value proposition, which is highly unique to the market,” O’Donnell says.

The five pillars LNS was built upon five key pillars that have not changed since the business’s inception, and these continue to be a big draw card for new brokers joining the LNS network.

“One is economics,” O’Donnell explains, “ensuring that our advisers can maximise their income and minimise their costs. We believe our offer is the most competitive retail branded offer in the country. You can check the rest but it certainly is – it’s a very attractive model when it comes to economics.”

O’Donnell cites technology as being the second key pillar of LNS. In particular, the award-winning Spark platform – which is mobile and runs off Apple tablets – has been particularly successful for the aggregator. “We were an early fintech provider moving away from traditional Web-based broker platforms and building an end-to-end broker platform that operates within the Apple iPhone and of course off the iPad,” he says.

The beauty of Spark lies in its synchronicity with Apple’s own enhanced functionality. As Apple improves the customer experience, LNS improves and enhances Spark. “It really does create an exceptional user-friendly environment for our adviser network which is quite unique,” O’Donnell says. Brokers can process a loan end to end through ApplyOnline and through the aggregator’s panel of 20 lenders using Spark, drastically improving productivity.

“We know that broker productivity has improved by at least 25% on average by using our platform, which obviously frees up the adviser to focus on dealing with more customers rather than being bogged down with the process and paperwork that happens in a day’s work.”

Embracing new income streams Something LNS is a strong advocate of is diversification – another one of its five pillars of success – and this is apparent in something as seemingly menial as the fact that LNS refers to its distribution network as ‘advisers’ and not ‘mortgage brokers’. In addition, on visiting the Liberty Network Services website, it is immediately evident that the aggregator can help borrowers with services ranging from car loans to business loans and even personal loans.

According to O’Donnell, to offer a diversified proposition was a decision the company made in the early days of the business, which at the time was questionable for many in the industry.

However, as the theme of diversification has become more and more prominent over the past

11

Brendan O’Donnell

few years, LNS’s strategy has paid off.

“There were some questions around whether [it] made sense, but actually it’s playing into our hands as the industry matures and evolves. So whilst all our advisers are very active in home loans, we also have 55% of our advisers on motor loans, which is I think very unique amongst mortgage brokers.”

And he’s right. According to the MFAA’s Stephen Hale, just over one third of the association’s mortgage broker members (36.3%) have indicated that they deliver services in equipment and commercial finance loans in addition to home loans.

O’Donnell reiterates: “I know there’s a lot written about diversification, but very little is really acted out. There’s very little to demonstrate that it’s really happening. So for us, in terms of motor business being written, insurance business … that, specifically, for us, is very encouraging and that diversifies our advisers’ interest income, it diversifies our own income as a business in terms of lending origins, and of course as a result we’ve made some good profit over the years.”

Fifty-five percent of LNS brokers write car loans, 62% write mortgage protection insurance through LFI Group – another business within Liberty Financial – and 28% write commercial

loans. Seventy-four percent of LNS brokers also write specialty custom loans, a result of working under the Liberty Financial umbrella. “Given that they are within the Liberty fold, [our advisers] have become specialists within the custom business as well, so that’s really encouraging.”

The necessity of marketing O’Donnell is passionate in informing brokers about the power of, and indeed the necessity of, marketing and sales – the fourth pillar of the LNS model. This encapsulates the need for brokers to secure strong referral partners that will provide a consistent flow of leads to brokers. LNS offers a

12

COVER STORY Loan Insights Tool on its website that facilitates and simplifies this process. “Our advisers are benefiting from increased leads, which are in many cases prequalified through our Loan Insights Tool and also our strategic forum partners who provided a boost to the advisers’ business,” he says.

LNS has a dedicated marketing team that provides personalised and localised marketing support to the broker network, as well as a market store with over 70 marketing and sales creative and tactical tools that advisers can choose from.

“We pride ourselves on tangible stuff that the brokers and advisers can use out there,” O’Donnell says, “and the uptake is excellent.

We’ve got, in any given month, between 20 and 50 marketing requests that we’ve received from our advisers to customise those on the store and drive it out for the adviser network.”

LNS’s emphasis on its strength as a fintech provider has also led to the aggregator’s focus on strong digital content that advisers can access and use to engage with customers. “Our lead flow, as a result, has increased significantly over the past year due to all the investment remaining digital and, of course, taking the brand to the market.”

O’Donnell adds that LNS also contributes 50% towards any local marketing initiative made by the advisers. “So if the adviser were to invest $3,000 in a local marketing action, we would contribute $1,500 of that, for example.

That is also very unique in the marketplace.”

High touch ‘High touch’ – what O’Donnell deems to mean support for brokers – is the fifth pillar of the

ALL ABOUT LNS

LNS has

121

8%

23%

are new to industry

are new to broking (from finance background)

brokers

LNS has

20 lenders on its panel

Source: LNS

“robust” one-on-one coaching occurring every four months. “We would sit down with every single adviser to reflect on what they’ve achieved in the last four months, what they’re looking to achieve in the next four to 12 months, how we can help them get there, where the gaps are, and so on,” O’Donnell explains.

“Whilst all our advisers are very active in home loans, we also have 55% of our advisers on motor loans, which is I think very unique amongst mortgage brokers” LNS company model. “I’m always amazed at how many businesses in our industry claim to have a high-touch support for brokers… ‘Oh, we’ve got high touch for brokers. We look after them. We do all these things for them’, and I guess one can define high touch in many ways, but from an LNS perspective we pride ourselves on delivering genuine high touch, and this begins with ensuring that we have no more than 25 advisers per network sales manager.”

The eight sales managers provide much of the usual BDM support, such as business marketing and sales programs, and the aggregator provides the expected national and state forums, monthly webinars, educational seminars, and national conferences. However, O’Donnell says that for LNS, the relationship between the sales manager and their brokers is unique, with

39 %

of the loans went to Liberty Financial as at Dec 2016

This regular, intensive check-in with the advisers has now become institutionalised in the network, he adds. “Our network know that this is what we do. It keeps them honest. It keeps us honest,” he says.

A softer year Looking to the year ahead, O’Donnell predicts that 2017 will be a slower year of growth for the mortgage industry, in light of the ‘Trump effect’ and what many see as a cooling market amid rising interest rates.

“I think there will be a slowdown in terms of property growth, and obviously there will be a slowdown in terms of apartment growth in the near term, but I’m still optimistic. I don’t think that there will be anything coming off the cliff,” O’Donnell says.

But that’s not to say that broker market share will suffer as a result, he adds. “Brokers are tenacious, and we’ve stood the test of time through many difficult environments – the GFC being one – and have proved that if you do the right thing by your customers and provide the right service, you’ll continue to grow.”

In fact, O’Donnell, like many in the industry, believes that broker market share will cross the 55% threshold in the near term, with a trajectory towards 60% in the not-too-distant future.

What this means is that, along with obvious competition the third party channel has with the banks and online fintechs – something O’Donnell does not believe to be a threat, for the time being anyway – there will be greater competition among brokers themselves. More than ever, it’s important for brokers to stand out from the crowd, O’Donnell says.

“More and more there is a dynamic emerging where brokers are competing more with brokers.

It’s more about how can you differentiate yourself as a broker from the broker around the corner? So that’s going to create a whole new dynamic within the industry moving forward, and I believe our Liberty advisers – given that they’re not mortgage brokers, they’re advisers – they’re well positioned to differentiate themselves in that environment.”

While 2017 may be a softer year than those that have passed, this is not shaking O’Donnell’s resoluteness that it will be another successful year for LNS. “We are emerging as a stronger, more recognised brand and I think we’re going to have an exceptional year.”

14

OPINION BROKEN SUPPLY Dallas Rogers on why changes for off-the-plan foreign buyers rely on a ‘broken supply argument’

THE GOVERNMENT is proposing changes to the foreign investment framework that will allow a foreign real estate investor to purchase an off-the-plan dwelling when another foreign investor has failed to reach settlement.

In announcing the changes, Treasurer Scott Morrison deployed a familiar narrative about foreign investment increasing housing supply and making “housing more affordable for more Australians”.

This idea is in keeping with property development lobbyists, who are focused on getting government to release more land to solve the complex long-term housing affordability problem in cities.

However, researchers have debunked this idea before. Their conclusion is that government cannot supply its way out of the housing affordability problem in major Australian cities.

The government’s focus on the concerns of the property industry renders invisible a broader set of interested parties and a much more nuanced suite of contributing factors and solutions.

The current foreign investment rules are a

A regulatory environment that is sensitive to various investor groups is important in Australia because different investors impact their host cities in diverse ways blunt set of regulatory tools, held captive to the housing supply and global competitiveness debates.

Not all foreign real estate investors are the same There are important differences between individual foreign real estate investors, which are regularly conf lated in foreign investment policy, and the public debate.

In broad terms, there are four investor groups. A class-based distinction defines people from the expanding middle class in countries like China. They are called the new middle class.

A disposable asset distinction, which excludes primary residences, separates the three remaining groups. High net worth individuals have disposable assets that exceed US$1m. Ultra high net worth individuals have asset holdings in excess of US$30m.

Ultra, ultra high net worth individuals have a minimum of US$50m in disposable assets in a wealth management fund.

In the absence of fine-grained data about which groups are investing and their differential impacts on cities and housing, the treasurer has opted to protect the development industry rather than the people and places within cities.

15

Dallas Rogers is a research member of the Institute for Culture and Society, and lectures in the Urban Research Program at Western Sydney University

A regulatory environment that is sensitive to various investor groups is important in Australia because different investors impact their host cities in diverse ways.

Regulating foreign investors, sales or capital How foreign capital intersects with local real estate markets depends on who is investing capital, the properties in which the capital is being invested and the

be) devoid of people. Local businesses in these suburbs have become untenable as local patronage declines.

New middle class and high net worth investors might change the social fabric, educational institutions or employment landscape of a neighbourhood or city through habitation, for good or ill.

International evidence shows that some investors will occupy their property, others place it on the rental market, some buy multimillion-dollar trophy homes, while

Housing supply and global competitiveness arguments have captured the foreign real estate investment debate. Both are too simplistic and need to be augmented with additional voices, policies and data investment vehicles through which the capital is being transferred.

The arrival of foreign capital is not always accompanied by the arrival of new permanent residents for the city.

Therefore, the investors interact with local infrastructure and shape housing supply in diverse ways.

There is a big difference between the impacts of new middle class and high net worth investors in cities compared to ultra and ultra, ultra high net worth investment.

Ultra, ultra high net worth individuals can be ‘free-floating’ investors who travel around the world, purchasing real estate in various global cities. Rowland Atkinson argues this group has little allegiance to the host neighbourhoods.

Ultra high net worth investors might move between multiple residences and have attachments to the neighbourhoods their properties are in. The new middle class and high net worth investors might live in, or send their spouse and/or children to live in, the house they have purchased. They often have an allegiance to the cities or neighbourhoods their properties are in.

The personal motivations of foreign investors are important too. They can extend far beyond financial considerations.

Foreign investors are motivated by the opportunities that exist in Australia and how these relate to their own migration plans, their children’s education and the financial security that Australian real estate supposedly guarantees.

Therefore, who is investing and their residency status will shape the neighbourhood, city and perhaps even the country into the future.

Neighbourhoods with high concentrations of ultra high net worth investors in London appear to be (or may

others increase the housing supply in a neighbourhood of absentee owners and fading businesses.

Therefore, the impact of foreign investors on housing supply is related to the investment practices of each investor, the amount of capital they bring into Australia and how they invest it.

More dynamic foreign investment rules needed Housing supply and global competitiveness arguments have captured the foreign real estate investment debate. Both are too simplistic and need to be augmented with additional voices, policies and data.

Governments justify their pro-foreign investment and business immigration policies through ‘financial benefits’ arguments in times of prosperity and ‘economic necessity’ arguments in times of hardship.

These top-down narratives position foreign real estate investment as good for the local economy, with secondary benefits such as increasing housing supply and jobs growth through targeted skill migration and business development.

The government needs to understand how foreign investment is shaping cities from the ground up. This includes: how foreign investment impacts people in the local neighbourhoods where these properties are located; how developers change the dwellings they build to suit foreign investors; how changing educational institutions are shaping foreign student investment; and the experience of first home buyers who are looking for a home in the same property markets.

This article was originally published online at The Conversation in November 2016.

16

BEST PRACTICE LEARNING TO LOVE TECH

Lorraine Pirihi, founder of Relaunch Your Life, on why baby boomer brokers need to stay up to date with technology, which is easier than it sounds

archiving and sharing facilities. It is a great online one-stop-shop.

Trello Also known as Asana, this tool organises all your tasks into visually appealing, easy-to-use boards.

It will make sure you keep on top of those lengthy to-do lists.

Be Focused This tool is great if you work from home – it is a timer and goal app to keep you on track. It’s easy to get distracted at home or lose track of time, which can result in spending too long on one task. This cool app splits the working day into chunks and includes breaks so you can be more productive.

LastPass LastPass remembers the passwords you don’t, even creating random passwords to make your accounts more secure. Its ‘Manager’ function makes it easy to access accounts without compromising your online security, and it can be accessed on the move from any device.

With so much information being pushed online, it’s becoming more and more important to ensure you have the tools you need to continue growing, staying productive and on top of your game REMEMBER THE old-school days of running a business? Using a pen and paper, picking up the phone to talk to people, and using carbon paper if you wanted more than one copy of a document?

Many baby boomers started business this way, but times are changing. Nothing stays the same, and with each year there are more ‘newfangled’ ways of doing business. If you blink, you will be left behind, and no one wants that.

Some people embrace change. Others have to be dragged, kicking and screaming. But you must keep your finger on the pulse when it comes to running a productive business and realise that, whether you like it or not, some ways of doing business have to be left in the past.

With so much information being pushed online, it’s becoming more and more important to ensure you have the tools you need to continue growing, staying productive and on top of your game.

As the mortgage industry is so competitive, it’s really important to keep up to date with current market and finance trends, but it’s also important to keep on the ball with the evolving and developing mortgage technology landscape.

When it comes to technology, there are countless simple online tools and apps you can sign up to to help you modernise your business proposition.

Unroll Me How many newsletters have you subscribed to over the years? Chances are, half of them don’t even interest you any more and all they are doing is overloading and bogging down your email account. That little number showing your unread emails that keeps on rising can soon become overwhelming, but with this amazing tool it will bulk unsubscribe you and for those subscriptions you still enjoy, categorise them and even collate them into a single daily roundup email for easy digestion!

Here are a few to give you inspiration...

Google Alerts This is a wonderful tool. It monitors Web-based content created by your keywords and automatically sends alerts linking to relevant stories. It’s easy to set up, and once you do this, take a seat and let this tool send all the latest broker news straight to your inbox.

Slack Slack is a cloud-based team collaboration tool, allowing instant messaging between you and your colleagues or clients. It also includes file

LinkedIn If you’re not on LinkedIn by now, it’s time to jump on board the Web’s best professional networking tool. Networking doesn’t have to just come from breakfast events or networking lunches; with this online tool you can connect to whoever you want and open up a dialogue with key contacts. There is also a section offering free online courses – a good way for baby boomers to stay ahead of the times.

It’s natural to feel buried under tasks and to-dos, but it’s lucky we have technology saving the day.

Even if the baby boomer generation is known for having an uneasy relationship with technology, these top eight online tools and apps are sure to make a difference to your business life.

THE CHOICE IS YOURS

MAGAZINE The only independent magazine dedicated to mortgage industry news, opinion and analysis

WEBSITE Breaking news, in-depth profiles, features, online forum and Australian Broker TV

ENEWSLETTER Daily news service delivered straight to your inbox every morning

FOR MORE INFORMATION, PLEASE EMAIL EDITOR@BROKERNEWS.COM.AU

18

COMMERCIAL RESI DEVELOPMENT DOWN 26%

A leading property consultancy has revealed its latest research that shows a downturn in Australian residential property development

CONSTRUCTION COSTS KEEP CLIMBING

Growth in cost of construction Indexed, 100=Mar 2011 116 114 112 110 108 106 104 102 100 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16

“Only one year ago, many developers were faced with the hurdle of sites selling at a premium to foreign investors, the ongoing rise in the cost of construction, and apartments selling to a frenzy of fear-of missing-out (FOMO), off-the-plan, buyers.”

A year later, while sales volumes continue to be high, they show that there has been less urgency among buyers.

“Over the year to June 2016, the average sales rate of residential sites with potential for higher density development continued to diverge.

Premium prices were achieved for sites ticking all the right boxes in superior locations, while at the lower end of the range, gaining traction in growth proved to be more challenging,” said Michelle Ciesielski, director of residential research at Knight Frank, Australia.

Unsurprisingly, Greater Sydney continues to achieve the highest volume of sales by value, totalling $4.6bn over the year to June 2016; however, this is down a massive 26.9% since the peak in 2014/15.

In Brisbane, sales volumes have decreased by 35.5% to $571.5m over the year, while Greater Melbourne and the Gold Coast began to experience downward growth in sales as far back as EOFY15.

Sep-11

research report, the Australian Residential Development Review: H2 2016, which suggests the slowdown in high-density residential development may have begun.

For the year ending June 2016, the volume of sales of higher-density residential development sites totalled $7.1bn, down 26% on the previous year across the five major cities following a steep upward trajectory since mid-2011.

Over this time, average site sales (ex. CBD) ranged from $20,000 to $450,000 per apartment, with an indicative average rate of $103,470 per apartment. There were 74,650 new apartments under construction throughout the five major cities in Australia as at 30 June 2016, and a further 54,820 apartments being marketed.

According to the report, foreign buyers were responsible for the purchase of 46% of development sites in the five major cities, a figure that again is down from 51% for 2014/15.

“When the Federal government outlined the desire for ‘30-minute cities’ across the country, this amplified the need for more higher density living along infrastructure corridors and around established community hubs,” the report states.

Mar-11

KNIGHT FRANK has released its latest

Sydney Melbourne

Brisbane Perth Source: Knight Frank Research, Rawlinsons

19

RESI DEVELOPMENT DROPS

Site sales volume Potential higher-density development

Bn $7.0 $6.0 $5.0 $4.0 $3.0 $2.0 $1.0 $0.0 2011/12

2012/13 Sydney Melbourne

2013/14 Brisbane Perth

2014/15

2015/16

Gold Coast Source: Knight Frank

AFG BOASTS ‘EXCEPTIONAL YEAR’ FOR COMMERCIAL LENDING At its recent AGM, the mortgage industry’s largest aggregator, AFG, announced an “exceptional year” for commercial lending, along with a record year by volume for EOFY16.

The aggregator’s residential and commercial loan book reached $120.4bn for the year, with residential settlements up 8% to $33.84bn for FY16.

Chairman Tony Gill attributed the results to strong sales of AFG’s white label products, an increase in settlements, and improved securitisation margins.

“This result was supported by an exceptional year for the commercial lending business,” said Gill.

“Our Commercial loan book grew steadily during the year as more small to medium-sized businesses recognised the value a commercial broker can deliver.”

AFG managing director Brett McKeon added that asset finance was a big factor contributing to this success.

“Our commercial book is showing solid growth,” he said. “Commercial settlements grew by 15% year-on-year to reach $2.76bn, exceeding the prospectus FY2016 target of $2.45bn.

We expect this trend to continue,

predominantly in asset lending.”

The results come following AFG’s strategic alliance with leading international fintech company Biz2Credit Inc in August 2016. When rolled out, the exclusive agreement will leverage Biz2Credit’s patented analytics and financial services technology to provide small business borrowers with a broad range of options and deliver faster access to capital, according to McKeon.

“This new platform is a first for Australia and will not only enable existing lenders to reach their target audience in the small to mediumenterprise (SME) market faster, but will also open the door to more choice for consumers,” he said.

AFG’s white label products also exceeded expectations in FY16, with $1.44bn in settlements driven by the move from a soft launch to full rollout of the Edge product, and the more recent addition of the Icon home loan, according to McKeon.

“These have been well received by our broker network with the products delivering more choice, competitive pricing and excellent service to our brokers and their customers; we expect further growth from this business line in future years.”

20

TECH FOCUS FHBS AVOID ONLINE LENDING New research has suggested that first home buyers are overwhelmingly opting to deal with their lender face-to-face, rather than through technology SOUTH AUSTRALIAN lender HomeStart Finance has conducted a survey examining borrowers’ behaviour during the home loan process, revealing that first home buyers are avoiding technology when it comes to buying their first property.

Seventy-four percent of all first home buyers surveyed would prefer to communicate with a lender or broker face-to-face than via technology, according to the recently released report entitled HomeStart Finance First Home Buyer Index. The remaining 26% is made up of borrowers more comfortable with high-tech solutions than meeting in person – 16% prefer online written applications, 6% prefer telephone applications and 2% choose online applications via Skype.

The findings suggest that either first home buyers don’t value digital disruption in the mortgage space, or that present-day disruptors are failing to deliver on their needs, said Deb Dickson, head of retail at HomeStart. “Many of the industries where digital disruptors have had cut-through are where there is a low cost or value to the transactions,” she told Australian Broker. “Buying a home is the largest financial decision that most people will ever make, and if customers choose the wrong loan product it could cost them many thousands of dollars to rectify.”

Because of this, consumers may be willing to

overlook accessibility and convenience, placing greater value on being able to talk to someone about the transaction, she added. “It is likely they feel there is an increased level of trust and expertise when they meet face-to-face with a lender or broker, compared to not knowing who or what is behind the computer screen.”

A general lack of knowledge about the home loan application process and the details of what is involved may also lead the majority of first home buyers to seek answers to their questions face-to face.

The confidence and reassurance that comes with building a relationship with their lender or broker in person may also be a strong contributing factor.

“There is a comfort of knowing their broker can facilitate the process and is only a phone call away when another query arises,” said Dickson.

The survey’s results show that both brokers and home lenders have a clear advantage over existing digital options. HomeStart CEO John Oliver also said that traditional home loan application methods were more popular even among Generation Y, who are known to be the generation most reliant on technology.

“Even though meeting the mortgage broker or bank lender may take a few hours, first-time buyers clearly value the face-to-face meeting over convenience when applying for a loan,” he said.

ONLINE BANKING STILL THE FAVOURITE

Most-used fintech services*

17.6%

Money transfer/ payments such as Use of non-banks to transfer money Online foreign exchange Overseas remittances

7.7%

Insurance such as Car insurance using telematics Healthcare using telematics *Percentage of digitally active customers who have used each product

16.7%

Savings/ investment such as Online stockbroking/spreadbetting Online budgeting/planning Online investments Equity and rewards crowdfunding P2P

5.6%

Borrowing such as Borrowing via P2P websites Source: Ernst & Young

P2P LENDERS TO CREATE ‘PROFOUND DISRUPTION’ SocietyOne’s chief executive, Jason Yetton, has said peer-to-peer lenders will drive “profound disruption” to the big banks over the next 10 years as more business customers are wooed by large interest margins on personal loans and an absence of pricing based on borrowing risk.

According to Yetton, many people are finding the discrepancies of the big banks’ rates, such as between a 12-month term deposit rate of 2.4% and a personal unsecured loan comparison rate of approximately 15.5%, “not fair”.

“That’s a massive spread, and a lot of people say that is not fair,” he told the Fintech Summit at law firm Ashurst recently, the Australian Financial Review has reported.

Personal loans comprise around 4% of big-bank balance sheets but around 10% of their net profits. By contrast, SocietyOne is offering high-creditworthy borrowers interest rates of 9.65%, delivering SocietyOne a margin of 1.65%.

Investors in their loans get a return of 8%.

Since its launch into the financial services landscape four years ago, the fintech has matched $180m worth of loans on its platform, with over 66% of those ($120m) during the last 12 months.

Yetten said the digital revolution “represents a strategic crisis for banks and financial services organisations – it’s a different one to the global financial crisis, but a crisis and burning platform nonetheless”. A big part of this, he added, was the fact that customer expectations had been forever changed since companies like Apple, Amazon and Uber had brought ease, convenience, speed, personalisation, transparency, trust, accessibility, security and mobility to consumers through technology.

His comments follow the uptake of Apple Pay by 31 customer-owned banks who are clients of payment provider Cuscal. Four million cardholders now have access to Apple Pay, including People’s Choice Credit Union, Credit Union Australia and Teachers Mutual Bank.

Steve Laidlaw, the CEO of People’s Choice, said many of his 348,000 members “expect up-to-date technology in all aspects of their lives, including their banking, so we are proud to meet these expectations by being among the first financial institutions in Australia to offer Apple Pay”.

ANZ is currently the only one of the big four banks offering Apple Pay to its customers. Westpac, National Australia Bank and Commonwealth Bank of Australia are all involved in a dispute with Apple at the ACCC.

21

AI THE ANSWER TO ROGUE BROKERS? A new prescriptive algorithm has been created which could one day be used by ASIC to catch out brokers behaving badly

ARTIFICIAL INTELLIGENCE could be the answer to both conscious and subconscious bias by brokers towards certain lenders, according to new technology start-up Veriluma.

Already being used by the Department of Defence, the prescriptive algorithm can be embedded behind any sort of interface or technology – such as an aggregator’s CRM system – to track important data such as client details and product information.

It is able to assess both quantitative and non-quantitative data, meaning that not only statistics but also human behaviour can be analysed, allowing it to spot any subconscious bias brokers may exhibit when delivering their services to clients.

“Bias can be by omission; bias can be hindsight; bias can be familiarity,” Richard Howard, advisory board member for Veriluma, told Australian Broker.

“What happens if I have dealt with a particular bank several times? Bang, bang, bang – three loan successes. Immediately I throw the next loan to that bank, but is that the suitable product?”

The firm has already talked to ASIC about the new technology that would give the regulator better oversight over the 23,000 brokers and advisers in Australia, said Veriluma CEO Elizabeth Whitelock.

This would ensure advisers are acting in the best interests of clients at all times, allowing ASIC get on top of individual brokers before they go rogue, she added. “From a strategy perspective, we may not know who the rogue individuals are, but what we might be able to spin up is a model which actually shows us what the behaviour may look like.

“We can take real data and ingest that from different scenarios. This might start to give us a flavour so that when we start to see that behaviour coming through, we can stamp down on it before it gets out of hand. That way, we can be more proactive.”

The algorithm may also help brokers find the best products for clients by feeding information about the individual and certain products into the system, Whitelock said.

“That could sit in the background doing a quick assessment based on what we know about the client and what they’re looking for – are these the right fit?”

This means the broker no longer has to sift through hundreds of individual loan products one by one, Whitelock added.

“It’s not only the suitability of the product,” Howard said. “That’s an idealistic scenario – which products am I most suitable for – but then what’s my probability of approval?”

The background assessment would be looking at both of these factors, he added, and would compile

ROBO-ADVICE IS NO THREAT

How can automated advice tools benefit a financial planning business?

83% of financial planners believe robo-advice is NOT a threat to the financial planning industry and/or has a place in the planning practice

43% by allowing them to service more clients

a list of suitable products ranked by the likelihood of approval. “That’s a process which could take a broker days,” he said.

However, this system is not meant to be a replacement for broker-led decisions, “but it can be a check”, he added, a tool that will assist brokers with their decision-making. Ultimately, the AI tool will actually increase brokers’ value proposition and help them to get more leads as a result of the fact that they will always provide the right solutions to their clients’ needs.

Veriluma tackles individual problems – such as which loans will be most suitable for a client – and then examines what those problems look like.

“What’s the question you want to answer, and what are the elements that make up all of that?” said Whitelock. “Underneath all of those elements,

53%

41%

by helping financial by lowering the cost planners to focus on of advice providing strategic advice

Source: Investment Trends

there may be a dozen further elements, so we may end up with a hundred different issues that become information points. That’s where we start.”

The flexibility of Veriluma’s prescriptive analytics allows it to be tailored to the needs of each broker’s clients. “The algorithm is already patented so we don’t touch that. The only thing that changes is the clothes that you want to wear,” Whitelock said. “It becomes a layer on top of the engine.”

This means that, for mortgage brokers, Veriluma could train some of the firm’s analysts to build a model specifically for the types of clients being catered to. The company is currently gathering research in the financial services sector by talking to brokers, aggregators and other parties in the value chain to see how the algorithm can be used in the mortgage space, Howard said.

22

CONSUMER INSIGHTS MILLENNIALS SUFFER OVER LOOMING CASH RATE RISE New research has revealed that a quarter of Australian millennial mortgage holders are extremely concerned about the impact a potential 1.5% interest rate increase would have on their ability to service their loans

RFI’S LATEST research, commissioned by Australian credit bureau Experian, surveyed over 1,500 Australians and has found that younger mortgage holders are far more worried about a rate hike than other generations.

The research was released a day after the OECD announced the findings of its latest Global Economic Outlook. It indicates that the OECD sees considerable trouble ahead, and states that governments around the world need to focus on making better use of fiscal initiatives “to push the economy out of today’s low-growth trap”.

Twenty-six percent of millennials (18 to 34 years old) and 26% of Gen X (35 to 55 years old) responded to the hypothetical scenario of rates rising by 1.5% by saying they would be ‘extremely concerned’ about their ‘ongoing ability to make mortgage repayments’, according to RFi’s findings.

By contrast, only 10% of baby boomers mirrored this response.

Managing director of Experian Australia/ NZ Suzanne Steele told Australian Broker that the results were of particular concern, especially given millennials as a group were the generation struggling most to get into the property market.

“There’s no doubt that a rate rise will make

things trickier for those looking to get their foot on the property ladder, and we may see fewer mortgage applications from young individuals or first home buyers looking at more affordable properties,” she said.

However, more than 50% of millennials indicated they were ‘neutral’ about a mortgage increase, which Steele believes may highlight how “the vast majority of young people may be working contingencies into their financial plans”.

“Our study found some millennial mortgage holders were already making changes to manage their repayments, cutting back on spending or working additional hours if needed, so we’d naturally expect that trend to increase further if interest rates did rise.”

Following Shadow Treasurer Chris Bowen’s address at the National Press Club recently, LoanDolphin’s CEO, Ranin Mendis, also weighed in on the interest rate rise discussion, commenting on the impact that Australia losing its AAA credit rating could have on borrowers.

“The implications of Australia losing its AAA credit rating are concerning. If our banks receive a follow-on downgrade there is the very real possibility that the Australian households would

feel the pain from higher mortgage costs,” he said.

“I believe that we will see a steady increase in mortgage rates in 2017 as banks face stiffer competition globally. This would have a flow-on effect to property prices and we could see a slowing in growth.”

RFi’s research indicates that millennials are the generation with the greatest debt burden – approximately $428,000 if they have a mortgage, credit card or personal loan – and are also most likely to miss repayments and feel financially stressed.

Those aged 18 to 34 have applied for more than twice as many credit cards, mortgages and personal loans as the average Generation X-er or baby boomer in the last 12 months, and they are also the most likely to have their credit applications declined.

“In a market of escalating house prices and stagnant income growth, our research found a large number of Australians are experiencing challenges when it comes to servicing debt.

Millennials in particular are displaying a markedly different attitude to credit than older generations,” Steele told Australian Broker.

Of Generation Y respondents, 22% said they had been unable to make a mortgage repayment in the last 12 months, which is twice as many as the overall market average of 11%.

These findings indicate that many younger Australians are experiencing significant financial stress, and that they are borrowing right up to their limit in order to get into the property market, which may add fuel to the fire of the ongoing Australian housing affordability debate.

A recent nationwide survey by online bank UBank echoed this sentiment, showing how Australians are working too hard to try to pay off hefty mortgages they can only just afford.

UBank CEO Lee Hatton said, “One in four Australians admit they are financially stretched in relation to meeting their mortgages and as a result, they’re sacrificing their personal and social lives.”

The research also revealed that, due to being so financially stretched, more than half (56%) of mortgage holders skipped spending time with family in order to work more to pay the mortgage.

“UBank want Australians to borrow less and live more in order to find balance and ensure they’re happy and not crippled by financial stress,” said Hatton.

23

A BURDENED GENERATION

Millennials are the generation with the greatest debt burden

26%

approximately

of millennials

$428,000

‘extremely concerned’ about rate rise

if possessing a mortgage, credit card or personal loan

18–34-year-olds have applied for more than

TWICE AS MANY CREDIT CARDS, MORTGAGES AND PERSONAL LOANS

Millennials are also likely to

MISS REPAYMENTS and feel

FINANCIALLY STRESSED

Percentage of respondents who said they had been unable to make a mortgage repayment in the last 12 months

as the average

22%

11%

Generation X-er or baby boomer in the last 12 months, and they are also the most likely to have their credit applications declined

of Generation Y

of the overall market average Source: RFi

BORROWERS IN A RUSH TO PAY OFF MORTGAGES Almost nine out of 10 mortgage holders are trying to pay off their home loans sooner, a survey conducted by comparison website Finder.com.au has revealed.

The research shows that 89% of Aussies are going above and beyond to pay down their home loans sooner, while nearly two thirds (60%) of homeowners make additional loan repayments.

Finder’s survey of 2,005 Australians found that the most popular way for borrowers to fast-track their home loan repayments was using a linked offset account, with 34% opting for this strategy.

On segmenting the data, women are marginally more likely (90%) than men (88%) to pay down their mortgages faster, while baby boomers (18%) are twice as likely as Generation X (9%) to have never tried paying off their mortgage faster.

“Home owners are offended by the prospect that they will still be paying their mortgage off in twenty or thirty years’ time if they only pay back the minimum each month – so they are actively looking for ways to lower their balances,” said Bessie Hassan, money expert at Finder.

She suggested that borrowers felt burdened by carrying around a mortgage for 30 years and were going to great lengths to break free sooner.

Other tactics employed by savvy homeowners to pay down their debt sooner include negotiating a cheaper interest rate with an existing lender (5%), and refinancing to a new lender that offers a lower rate or other money-saving features (5%).

According to the MFAA, these low figures show massive opportunities for brokers to offer their services to get their clients better rates through refinancing or negotiating lower rates with their current lenders.

“With dissatisfaction in the market, take extra measures to provide a great deal for clients and continue to provide excellent service after settlement, especially if you want to be in the position to refinance your current customers,” the MFAA said on its website.

Chris Dunne, owner of ALL Home Loans Geelong and Surf Coast, said that reviewing your clients’ loans every year could be a great way to keep in touch and continue to offer them the opportunity to change loans if there was a cheaper alternative.

“The best way is a loan comparison based on their current loan balance,” said Dunne. “This shows them the savings that can be made in interest charges over the life of the loan and, if they kept their current repayment amount, how soon their loan could be paid off.”

24

MARKET WRAP MARKET TALK

HOME PRICES WILL KEEP RISING – DFA

The property market will not plummet in 2017, Martin North has predicted.

Rather, prices in most centres will continue to rise

RESEARCH FIRM Digital Finance Analytics principal Martin North has penned an article stating that 2017 will not mark a drastic change for the local property market where housing prices are concerned. “Demand will remain strong, auction clearance rates will be elevated, and property in many places will be in short supply,” he said.

“As a result, we think home prices will in most centres continue to rise. We are certainly not anticipating a dramatic fall. This is because supply of new property is likely to slow in line with the fall in building approvals.”

North added that the core Sydney market, and houses in the broader Melbourne and Brisbane markets, will remain strong. However, he expects prices in WA and Queensland to fall, as well as in the apartment markets in Brisbane and Melbourne, and across a number of regional centres.

North also made a series of predictions for the year ahead regarding mortgage rates, changes to the official cash rate and the prevalence of mortgage delinquencies.

Mortgage rates will be higher by the end of 2017 than they were at the end of 2016, he said, citing the “Trump Effect” as already having impacted on capital markets and caused an increase in mortgage rates. This effect will not end any time soon, and North predicts rate rises of more than 0.5% are likely.

“We think, on current trajectory rates could rise by more than half a percent, meaning the average repayment mortgage would rise by over $100 a month next year. Larger mortgages would rise by much more,” he said.

“Many younger households are already using more than half their disposable income to repay their mortgage, and any increase will be very painful in a low income growth environment.

We do not expect real incomes to rise at all next year, despite the rising cost of living and higher mortgage repayments.

“As a result, we expect mortgage delinquency rates to continue to rise.”

North’s comments echo widespread concerns recently reported among millennials and Generation X. In a survey conducted by RFi, 26% of each generation segment said they would be ‘extremely concerned’ about their ‘ongoing ability to make mortgage repayments’ if rates were to rise by 1.5%.

North said specific areas of concern for delinquencies would be the mining belts of WA and Queensland, and he expects problems to emerge in the high-rise areas of Melbourne and Brisbane.

Households with a variable rate interest-only loan will also find their repayments rising more, according to North, with a 0.5% rise in rates translating to a monthly rise in repayments of $146.

“One third of borrowers could be impacted,” he said.

Regarding mortgage lending, North predicts there will be further tightening of underwriting standards, meaning households will need larger deposits and won’t be able to borrow as much.

Non-banks, exempt from the regulation imposed on the banks, will continue to lend; however, North said regulation within this sector needed to be addressed, as many non-traditional lenders were extending credit – at higher interest rates – to non-conforming loans and foreign investors – a trend that will continue.

Despite the banks’ tightening of lending to foreign investors and the heavy state tax levies they must now pay, North said these investors would still be attracted to the Australian property market, and migration would continue, “so we expect to see ongoing support to prices in the main markets of Sydney and Melbourne and they

will remain above long term fundamentals”.

Local property investors will also continue to “pile into the market”, especially in the eastern states, so the volume of investment loans will continue to rise. “A high proportion of these will be interest only loans,” North said. “Given the current tax settings, where negative gearing and capital gains assist investors, many see this as the best investment option, including those in a self-managed super fund.”

By contrast, the momentum in owner-occupied lending is expected to slow as the rate of refinancing eases. “In the first part of the year, we expect a rise in the volume of fixed rate loans, as households decided to fix at a rate lower than the market’s expectation,” said North. However, he added that most fixed loans already implied a hike in rates, so many of the best deals had already gone. This will lead more households to turn to mortgage brokers for assistance, and North predicts brokers’ market share will therefore continue to grow well above 53%.

Unsurprisingly, first-time buyers will continue to be squeezed out of the market, according to North, thanks to higher underwriting standards and flat incomes. A proportion of these households will choose to go direct to the investment sector as a result, opting to ‘rentvest’ – invest in an area they can afford while continuing to rent in an area that suits their lifestyle.

North concluded that despite the continued momentum of the housing market, it is not sufficient to replace the downturn in mining investment, and therefore he predicts overall economic growth to be “sluggish”. “This structural issue needs to be addressed, and soon, if in the longer term the property market is to not go into a spiral of decline.

However, we do not think 2017 will be the start of that down cycle,” North said.

25

STAMP DUTY MASSIVE COST BARRIER TO HOUSE OWNERSHIP

Median dwelling value

$470,000

Brisbane

$568,000

Canberra

$465,500

Darwin

$343,500

Hobart

$482,000

Perth

$415,000

Adelaide

$600,000

Melbourne

$800,000

Sydney

$0

$100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000 $800,000 $900,000 $1,000,000 Estimated stamp duty payable on median value dwelling

$9,007 $16,182

Brisbane

Perth

$1,307 $17,257 Canberra Adelaide $17,257 $17,257 $21,506 Darwin Melbourne $21,506 $11,506 $12,006 Hobart Sydney $12,006 $12,006 $0 $10,000 $20,000 $30,000 $40,000 $0 Non-first home buyer Investor First home buyer

$17,332 $17,332 $10,400 $20,428 $20,428 $20,428 $32,680 $32,680 $17,145

$10,000

$31,763 $31,763 $31,763 $20,000 $30,000 $40,000 Source: CoreLogic

26

MARKET WRAP AUSTRALIA SHOWING SIGNS OF LOOMING MARKET CRASH? One of Australia’s leading economists has told The New Daily that there will be ‘‘big shakeouts” in the national financial markets, including property. While it may not necessarily be this year, Australia chief economist Stephen Anthony said that “common sense says that things are very highly priced” – a trend that drives up market prices but has little effect on economic growth.

“The RBA should just leave things where they are and sit back and use APRA and any other regulatory mechanism it can to slow price growth in Sydney and Melbourne,” he said.

Mark Crosby, macroeconomist at Monash University, seemed to agree with Anthony when he told The New Daily that dropping rates could further worsen economic distortion. “It’s always hard to call the top, but it’s definitely the case that there are risks being caused by these very low rates, especially in the Australian housing markets,” he said.

“The point of low rates is to stimulate demand, but when that hasn’t happened and that liquidity goes elsewhere, that creates other problems, so yes, there are definitely risks being built up, and that’s a worry for the Reserve Bank and other central banks, for sure.”

These comments also align with the views of former Commonwealth Bank CEO David Murray, who has warned that Australia’s property market is showing similarities to one of

history’s worst market crashes, during the period of Dutch tulip mania.

In an interview with Sky News, Murray said the Australian economy was “vulnerable” due to overvalued property in Sydney and Melbourne.

“All the signs of a bubble are there … If the economy tracks along okay, it might turn out that this thing sorts itself out. But when those risks are there, something needs to be done about it in a regulatory sense, and the Reserve Bank and APRA need to stay on it,” he said.

“When we get a momentum in a market like this, when you get these self-amplifying price spirals, the fact they keep going on and on longer than expected is another sign that it’s not very healthy.”

If a crash does occur, it will be spurred on by a large volume of landlords forced to sell their investment properties at the same time, he said. “We have more investors in the market than we’ve had historically, and those investors typically, even people on lower incomes, own multiple properties and those properties are often collateralised in the system. So they’re the people who become forced sellers, and that’s the risk to the system.”

While a crash would make it easier for first home buyers to enter the market, Murray was pessimistic about the effects on the property market. “If home prices fall significantly, there’s a wealth effect on the economy and a constraint on consumption, and that doesn’t help everybody, it doesn’t help jobs, so we don’t want that,” he said.

PROPERTY DEMAND STILL RED HOT Tim Gurner, founder of luxury property developer Gurner, has told the Australian Financial Review that Melbourne is suffering from an undersupply in certain areas of the city – going against the majority of industry experts who are claiming Melbourne is at risk of apartment oversupply.

In opposition to the Reserve Bank, the major banks and a large swathe of Australia’s financial analysts, Gurner has backed up his view by saying he witnessed an unprecedented demand for property recently at an open home.

Within 10 days of advertising 150 rental apartments on the market, he witnessed 55,000 online views and 1,500 enquiries, he said.

“Most importantly, we opened two apartments on Saturday and Sunday [last weekend] for the first time and had more than [prospective] 450 tenants come through. We were absolutely run off our feet as we expected only 20 or 30.” “[The] response is like nothing I have ever seen before in my 15 years in the

industry – we could have leased the project 10 times over, it is absolutely astounding.”

While concerns about an oversupply of Melbourne apartments have been reported frequently over the past few months, Gurner said this was untrue for better-quality developments in suburbs just outside of the city’s CBD. “I have been saying for the last 12 to 18 months that I believe there is an undersupply of apartments in the inner city in contradiction to all media reports,” he told the AFR. “To date I have only been able to prove that with our sales evidence, however now we have real evidence at completion that there is also a huge demand from tenants.”

Figures from the Real Estate Institute of Victoria have also indicated that demand for apartments is higher in suburbs on the fringe of the city centre rather than in the CBD itself.

For instance, the recorded vacancy rate in the CBD is 3.3%, compared to 2.5% for suburbs 4km from the city centre and 2.1% for areas more than 10km out.

27

FINANCIAL SERVICES

SMALL BANKS TRUMP MAJORS J.D. Power has found that smaller and regional banks are outperforming major banks in customer satisfaction ACCORDING TO the J.D. Power Australia Retail Banking Satisfaction Study, the difference in customer experience varies greatly across financial institutions in Australia, with the highest-performing banks mainly being smaller and regional institutions.

The study shows that the performance of smaller and regional banks is stronger than large banks across areas that matter to banking customers – such as greater transparency regarding account fees, shorter queue times at branches, and higher resolution rates at call centres – and they also have fewer customer-reported problems overall.

“In general, smaller banks in Australia are able to provide a higher level of service at the branch and through the call centre than the major banks, which, along with improved transparency on fees, helps place them in a good position to develop greater trust among their customers,” said Loi Truong, senior country manager at J.D. Power.

The inaugural study measured customer satisfaction with customers’ main financial institution by examining six key factors: account activities; account information; product offerings; fees; facility; and problem resolution.

An area the major banks did prove to be strongest in was digital self-service channels.

Overall satisfaction with bank mobile apps was found to be higher for the major banks, at 827 versus 808 for non-majors.

“Banks in Australia are keen to promote digital usage amongst their customers, as it reduces service costs and increases customer control in one step,” said Gordon Shields, director at J.D. Power.

“However, in doing so banks must not lose focus on their branch and call centre service channels, as customers rely on them, especially when they can’t get an answer online or through their banking app.”

Further findings of the study show that 15% of customers indicate having experienced a problem with their bank in the past 12 months, with the most common issues related to account errors (eg processing or transactional errors) and service complaints (eg fraud/unauthorised activities, ATM-related issues or poor customer service at the branch).

NON-MAJORS TAKE THE CAKE

Overall satisfaction index ranking – financial institutions (non-majors)

Overall satisfaction index ranking – financial institutions (majors)

(Based on a 1,000-point scale)

(Based on a 1,000-point scale)

650

700

750

800

850

Heritage Bank

829

Greater Bank

825

People’s Choice

801

CUA

790

Bendigo Bank

730

740

750

Commonwealth Bank

760 754

Major banks average

743

782

BOQ

764

Financial institutions (non-majors) average

762

Bank of Melbourne

754

Suncorp Bank

752

Bankwest

745

Bank SA

740

St.George Bank

739

HSBC

720

715

NAB

Westpac

ANZ

738

735

733

Source: J.D. Power

28

COALFACE A BLOOMIN’ GOOD BROKER 2016’s AMA Young Gun of the Year tells Australian Broker how he found a winning formula just 18 months into his career

Commonwealth Bank, starting out with $100,000 transactions and ultimately working on $50m commercial deals.

But after 10 years he felt it was time to do something different. “I just wanted to look after the clients and get the deal done, figuratively speaking, so that’s pretty much why I moved across to the other side of the fence.”

His commercial background no doubt gives him an edge when it comes to commercial broking. “It will be easier if you’ve got a commercial understanding,” he says of his success.

“Straightaway, when I speak to a client, I know exactly where I want to place them and how to get it across the line for an approval – if it’s realistic, in terms of the client expectations.”

He says his experience with the banks gave him a

“There’s always a solution out there; you’ve just got to find it”

YUVAL BLOOMFIELD recently took home the 2016 Young Gun of the Year award at the Australian Mortgage Awards in Sydney. And while this award didn’t come as a surprise to his colleagues at 1st Street and those who had learnt of his impressive loan figures, what is a surprise is that Bloomfield only became a broker 18 months ago after a decade in commercial banking.

“It was great,” says Bloomfield, who didn’t expect the win at all. “It’s a great award to win in a prestigious environment.”

1st Street Home Loans also won the AMA for Best Community Engagement this year, adding another accolade to its trophy cabinet – one that is positively overflowing thanks to founder Jeremy Fisher and his team’s outstanding work in the 14 years since the business was founded.

Bloomfield looks after most of the brokerage’s commercial transactions, although he still deals mainly with residential loans. Before broking, he was one of Australia’s top-performing senior bankers at National Australia Bank and

good understanding of policy and procedures, how the banks ‘think’ and how realistic it would be for a deal to get approved.

“I think I had a good grounding … working within the banks,” he says, but he adds that that didn’t leave him without challenges when he began broking. “It’s mainly deal flow, getting the right relationships at the right banks – those are the two main challenges I faced, certainly in the beginning.

There seems to be more compliance these days, but that’s the way the industry is going and we expect more changes in the future.”

Bloomfield has built up a reputation for delivering fast turnaround times for a loan approval (usually two to three days on average) and says a large part of this approval speed comes down to relationships with the right banks. “There are different channels when you go residential and commercial … it’s just understanding which bank is ready to turn around a deal within often a very reasonably quick turnaround time.

“Commercial is a little bit different – it just really depends; there’s no hard and fast rule.” But he says a fast deal can be approved within seven to 10 days.

However, there are common principles that can be applied to both spaces, he says, starting from the first meeting. These include being organised, understanding what the client really wants, and understanding what their goals are. “That initial conversation is key, so when the client is speaking to you they can feel the sense – the confidence of the broker that ‘yes, this deal is going to be done’.”

Bloomfield’s successful start in broking goes to show that if you are passionate about what you’re doing, the odds are you’ll excel at it. And he is certainly passionate about being a broker. When asked what his favourite things about being a broker are, he lists problem-solving, “getting the deal done” and being his own boss.

“I’ve always enjoyed, just genuinely in terms of in finance, getting the deal done and approved for the client trying to reach a goal – there’s always a solution out there; you’ve just got to find it.”

29

PEOPLE CAUGHT ON CAMERA On 25 November, Australian Broker ventured to the Gold Coast for the FBAA’s annual conference.

The one-day event was hosted by TV journalism veteran Catriona Rowntree, and kicked off with a talk on branding by Yellow Brick Road’s Mark Bouris.

Attendees at the conference heard from a senior spokesperson from ASIC, Chris Green, who provided an update on the review into broker remuneration, and for the first time the conference ended with an awards gala held at Movie World, with the theme ‘White Christmas’.

30

PEOPLE HOT SEAT

ANDREW MIRAMS The managing director of Melbourne-based Intuitive Finance on why he wishes the industry would stop ‘jumping at shadows’, and what’s at the top of his bucket list

Who or what inspired you to become a broker?

After a successful 15-year banking career, A I just wanted to explore the potential to work for myself and be able to offer my clients a full service. When I was working in the bank and you couldn’t assist them, you just had to say, “Sorry”.

Now, with a diverse offering through multiple lending channels, we can offer our clients a lot more.

I’ve always loved the client interactions that we have, and being able to assist them to buy a property or grow their wealth through property is very satisfying. When you run your own business you are the master of your own destiny rather than being at the whims of an employer. I watched too many of my managers and mentors work hard for the bank only to be moved aside when it suited the bank, so I got out first! Best thing I ever did!

Q

What will be the biggest disruption to the broking industry in 2017?

To be honest, I’m getting sick of all this talk A about disruption. Why don’t we just focus on all the positives in our industry – the way we assist clients, the growth to around 54% of all mortgages now being originated by brokers and still growing – rather than jumping at shadows.

Sure, the ASIC review of commissions could be interesting (I don’t believe that there will be any change), as will the next round of regulatory changes if APRA and co. really want to put the squeeze on investors and the housing market – particularly in Melbourne and Sydney – but let’s deal with those when they arise. Too much time in our industry is spent on things we can’t control.

Let’s deal with whatever it is whenever it arises.

Worrying about it in advance won’t change it!

Q

What is your key point of difference as a broker?

We like to focus on two key clients – those A being investors and self-employed clients – and we are specialists in these two areas. We seek a lot of detail from our clients before we even start work for them; this way we can provide the best possible outcome for them. Our clients appreciate the effort we go to to secure them a deal, and we ensure that they get a full written advice piece and their hand held from application through to settlement and beyond.

We get so many thank yous and repeat clients – it is very rewarding to watch people prosper. Our favourite piece of feedback is something as simple as “That was easy” and “If we knew it was that easy we would have started a long time ago”. That’s

Q

rewarding, when you can take people on a journey and help them grow their wealth.

What has been the toughest or scariest decision you have made during your life?

Marriage? Kids? Leaving a secure income A to start my own business? Take your pick.

I believe that in life you get out of it what you put into it, so I’ve worked pretty hard at all these things to be as successful as I can be. It’s a message I try to instil into my two kids as well. I tell them, “The harder you work, the luckier you get!”

Q

If you had $1m lying around, what would you spend it on and why?

I’d use a pretty fair chunk of it as deposits A towards some more property and leverage as much as possible (I may need to find a good broker to help me…), but I’d keep a little bit and go on a nice holiday with my wife to either Europe or America (or both)! I would have to play golf on St Andrews and Pebble Beach (again) and play a couple more of the world’s Top 100 golf courses.

This is a little bucket list thing for me – to try and play on all of the Top 100 before I check out!

Q

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