Australian Broker 14.04

NEWS CBA targets third party channel in lending crackdown Retail customers exempt from new restrictions P8

BUSINESS STRATEGY Key person of influence The five-step method to becoming one of the most highly valued people in your industry P12

ANALYSIS A vicious cycle Could the waning number of millennial first home buyers affect the SME economy? P14

FEBRUARY 2017 ISSUE 14.4

OPINION A risky mandate

How Trump’s plans to deregulate the banks could affect Australian lenders and the economy P18

A BIG DEAL Building resolve

One broker’s epic deal that involved refinancing 12 investment properties

P22

MARK VILO Suncorp’s new head of bank intermediaries on bringing fresh perspective to an industry rife with change P10

MARKET WRAP RBA warns of market risk

The RBA has warned of increasing risk in the Australian property market

P24

AGGREGATOR SNAPSHOT 2

NEWS

ASSOCIATIONS

REGULATION

LENDERS

Broker-originated loans hit new record P4

Regulator’s speed limit not enough: Murray P6

CBA targets brokers in investment crackdown P8

BROKERNEWS.COM.AU

AUSSIE HITS NEW RECORD

EDITORIAL Editor Madelin Tomelty

$3.5bn

News Editor Miklos Bolza

Value of loans settled by nMB

Journalist Maya Breen Production Editor Roslyn Meredith

ART & PRODUCTION Design Manager Daniel Williams

$188.5bn

Designer Martin Cosme

Aussie’s total home loan lending figure for 2016

$22bn

Value of loans settled

by Aussie Home Loans in 2016

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 Human Resources Manager Julia Bookallil

EDITORIAL ENQUIRIES

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

SUBSCRIPTION ENQUIRIES

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

$76bn

Aussie’s loan book

ADVERTISING ENQUIRIES

Source: Aussie

Key Media Pty Ltd Regional head office, Level 1O, 1–9 Chandos St, St Leonards, NSW 2065, Australia

NFC ADDS ONLINE LENDER TO ITS PANEL Finance aggregator National Finance Choice (NFC) has added lender Moula to its approved lender panel for its broker network in a push to increase its footprint in the SME sector.

Moula – an online lending platform for small businesses – offers loans of up to $250,000.

Although NFC has traditionally focused on asset finance, it recently turned its attention to the small and mediumenterprises segment “when it became evident that brokers were

increasingly driving transactions,” Moula said.

“Australia is in the midst of a revolution, with various new SME lending options being initiated in recent times,” said NFC national manager Tas Tzimos.

“It is clear that Moula’s concern for small business owners is genuine, and we were most impressed with the ultra-friendly platform they have built to better service this segment of the market,” he added.

Moula provides unsecured

Simon Kerslake +61 2 8437 4786 simon.kerslake@keymedia.com.au Rajan Khatak +61 2 8437 4772 rajan.khatak@keymedia.com.au

business loans based on a business’s cloud accounting and/or transaction data.

Accessing real-time financial data enables Moula to construct an accurate picture of the business that is applying for funds, said the firm’s head of broker distribution, Andrew Lim. “For that reason, we can provide small businesses with a fair and responsible funding solutions, but at pace.”

The broker market will remain a key part of Moula’s long-term strategy, he added.

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

BROKER-ORIGINATED LENDING HITS TO NEW RECORD Finance brokers originated at least $50.19bn in new home loans (including home loan refinancing) during the last three months of 2016, according to data from research group Comparator.

This marks the first time that broker-originated lending has exceeded $50bn in a quarter.

The figure helped drive 2016’s total home loan lending figure to a record $188.5bn – the highest value since data was first collected.

The MFAA said figures from 19 broker groups and aggregators showed that more than half (51.9%) of new residential loans during the last quarter of 2016 were originated by mortgage

brokers, and although this was slightly lower than the 53.6% settled during the preceding quarter, it matched the 51.8% in the last four months of 2015.

“The market share result for the end quarter of 2016 is just slightly ahead of the comparative figure for 2015, showing that consumers still support the broker position with the majority of residential lending,” said MFAA CEO Mike Felton.

“The softening in market share is a seasonal trend experienced since 2014 and does not reflect any change in brokers’ customer satisfaction.

“The past three December quarters have shown an adjustment

in share followed by a rise in subsequent quarters,” he added.

Felton said brokers had an established role on the investor side of the market, and this segment of borrowers had been affected by recent changes in lending restrictions.

“The ABS data also shows a flattening of the housing market with an overall 0.5% decrease in the number of settlements and a 1.1% increase in value of settlements for the six months ended September 2016. The December quarter result, however, still reflects solid consumer support for brokers in Australia in the residential lending sector.”

A rundown of the next fortnight’s events

FEBRUARY

28 What: MFAA Global Money Week webinar Where: Online Details: MFAA head of marketing Stephen Hale will run through the Global Money Week presentation and give tips on how brokers can run this community initiative successfully in their local area.

WHAT THEY SAID...

Peter Langham “Already a growing number of baby boomer and Gen X business owners in Australia are moving away from bricks and mortar as business security” P14

David Kim “Right now, a lot of brokers don’t have a digital presence, so we’re allowing them to compete against the likes of all the online players that go directly to the consumer” P21

Patrick Nolan “Even as part of a couple, east coast property prices are out of reach for many Australians” P27

MARCH

2

What: MFAA Adelaide PD Day Where: Sanctuary Adelaide Zoo Details: CEO Mike Felton will provide members with an MFAA update, while Scott Alison from Bendigo & Adelaide Bank will outline how brokers can protect themselves against fraud.

MARCH

8

What: MFAA ACT PD Day Where: Eastlake Football Club Details: CEO Mike Felton will provide brokers with an MFAA update. Ben Weeding, buyer’s agent at Buyside, will provide a property update focusing on current market activity and new opportunities in local areas and throughout the ACT, and Zarko Jokic will provide a lender update session.

REGULATORY ROUNDUP 6

WORLD NEWS

EAGER INVESTORS

Investor lending grew

$19.9M

from Dec 2015 to Dec 2016

CANADA REGULATIONS PUTS PRESSURE ON HOUSE SALES Beyond making it more difficult for first-time buyers to qualify for loans, the recent far-reaching changes to Canadian mortgage rules are also applying a significant level of stress to home sales numbers nationwide, according to the latest analysis by Dominion Lending Centres (DLC).

In a 15 February note, DLC chief economist Sherry Cooper cautioned that 2017 would prove to be a challenging year for the Canadian residential real estate segment and for the economy as a whole.

“Housing activity will not provide the boost to overall economic growth in 2017 that it did in 2015 and the first half of 2016 as first-time homebuyers will find it more difficult to qualify for a mortgage and credit availability is diminished by the disproportionate impact of the new regulations on nonbank lenders,” Cooper wrote.

Half of the nation’s housing markets – including the Greater Toronto Area, Greater Vancouver, and Montreal – have suffered declines in sales activity.

“Supply shortages are a major issue depressing sales activity and raising prices, especially in and around Toronto and parts of BC. Price pressures will continue in these markets unless demand declines significantly,” Cooper added.

Accompanying these developments is the consistent dearth of housing supply in major metropolitan markets. “The number of newly listed homes fell 6.7% in January, the second consecutive monthly decline. New listings were down in about two-thirds of all local markets, led by the GTA and environs across Vancouver Island.”

The statements echoed recent warnings from BMO economist Robert Kavcic, who predicted a gradual winding down of sales activity due to various ill-advised policy moves by federal and provincial governments last year.

“One of the big contributors has been Vancouver, and just through the last four or five months the market there has already started to correct,” Kavcic told The Canadian Press last month.

Source: ABS

REGULATOR’S SPEED LIMIT NOT ENOUGH, SAYS MURRAY Australia’s regulators have been criticised for failing to curb the rapid growth in investment lending and avoid instability in the property market.

In an interview with The Australian, David Murray, chair of the Financial System Inquiry, said the 10% limit to the growth of investment loans put in place by APRA was not having a significant enough effect.

Interest cuts by the Reserve Bank last year also played a role in the surge in lending to property investors.

While APRA chairman Wayne Byres confirmed the regulator’s commitment to the 10% speed limit on investment lending, Murray said the rate was too generous.

Up until September 2015, investor lending was growing at a rate of more than 10%.

Although this slowed down to 4.5% in August last year after the APRA crackdown, it has gradually increased and has since reached 6.2% year-on-year.

However, data from last December showed an annualised rate of 10.1% for the rise in investment lending, edging this above APRA’s speed limit.

“It seems no doubt that activity in the market is still strong,” Murray said.

“APRA and the Reserve Bank should consider doing more on investment housing. I don’t think it’s entirely healthy,” Murray said.

He said it was worrying that both house prices and household debt levels were incredibly high.

“It presents a future risk to the economy, so I’d be in favour of more being done.”

Investor loans currently account for 40% of all lending. And in its Statement on Monetary Policy released on 10 February, the RBA warned that an oversupply of apartments could push down property prices in the future.

“If there are more investors in the market and the market softens, you’re more likely to have forced sales in the market – there’s less stability in this kind of market,” Murray said.

LENDER UPDATE 8

-HOME LENDING DRIVES CBA’S POST-RECORD PROFIT

$4.91bn

CBA’s cash profit for six months to 31 Dec 2016

$13.1bn CBA’s operating income

Source: CBA

CBA TARGETS THIRD PARTY CHANNEL IN INVESTMENT CRACKDOWN The recent tightening of investment lending practices by the Commonwealth Bank of Australia only applys to those loans coming through the third party channel, it has been revealed.

The news comes following the announcement

by CBA that it will not be accepting new refinance applications from investors.

A notice sent to the bank’s broker network stated: “To ensure we continue to meet our commitments, from Monday 13th February we will be suspending the acceptance of new refinance applications for Investment Home Loans, until further notice.

“Applications which include both Investor and Owner Occupier loans are not impacted.”

While the notice appeared to apply to all refinance investor loans, the major bank has since told Australian Broker that these changes apply solely to intermediary-sourced loans. Borrowers will still be able to access refinance investor loans via CBA’s retail branches.

“We’re committed to meeting our responsible lending and regulatory obligations, and to ensure we continue to meet this commitment we are unable to accept new refinance applications for investment home loans from our broker partners,” a CBA spokesperson said.

“The vast majority of our single property investment home loan refinances come to us through our broker partners, so the decision was made to address this in the first instance to ensure we continue to meet our regulatory requirements.

“We constantly review our products, policies and processes to ensure we’re meeting our customers’ financial needs,” the spokesperson said.

WESTPAC TOUGHENS UP ON OFF-THE-PLAN BUYERS Off-the-plan apartment buyers could find it harder to borrow funds as banks introduce new conditions for property valuations required to secure a loan.

Major lender Westpac has introduced new rules that require mandatory apartment inspections by a qualified valuer before a final loan offer is made, the Australian Financial Review has reported.

The inspection will be done when the valuers can go onto the building site and walk through the building, which because of occupational health and safety rules is typically a few weeks before completion, the report added. In the past, many lenders approved loans based on the building’s plans or desktop valuations.

Before the valuation on a project’s completion, off-the-plan buyers would need conditional approval at the outset “based on criteria such as position, fixtures and size”, the report said.

The valuation can also be influenced by different rules between state and territories.

Tony Kelly, managing director of Herron Todd White, told the AFR that tougher inspections would guarantee quality and boost industry standards. However, the report said that “problems could arise for borrowers if the completed apartment’s value is less than the original price, either because of market movements or inferior construction”.

A CoreLogic study released in 2016 said: “The volume of new apartments is now approaching, and even exceeding, the average number of apartment sales overall in the past five years.”

Some banks have already begun tightening lending on particular products, particularly interest-only and investor refinance. Bankwest

recently confirmed that it had removed negative gearing tax benefits for borrowers.

“For customers who operate their investment property at a loss, where the income of the investment property does not exceed the costs, the related tax benefit will no longer be included in Bankwest’s calculation for serviceability of the loan,” a spokesperson told Australian Broker.

AMP also announced it would no longer accept loan applications to refinance stand-alone investment property loans with investment property security.

“We will no longer accept loan applications to refinance stand-alone investment property loans with investment property security. Refinances that include owner-occupied and investment properties remain acceptable, subject to security property values,” the bank said.

But the AFR said some lenders were offering discounts, cash incentives and special terms, usually through their mortgage broker network.

This includes ANZ, which is offering up to $1,200 for new home or residential loans refinanced under its ‘Breakfree’ package through to the end of April.

Westpac and subsidiaries are offering a $1,250 refinance rebate for customers applying for a new owner-occupier or investment home loan package, the report added.

Last month, credit watcher Fitch revised its outlook on the banking sector from stable to negative amid concerns that rising household debt and increased house price growth could result in the banking system becoming more sensitive to sharp corrections in the labour market or if interest rates were to change.

10

COVER STORY A FRESH PERSPECTIVE Suncorp’s head of bank intermediaries on the importance of acknowledging change, and how being the new kid on the block will benefit the bank and its broker partners

CHANGE CAN be a scary word for many, but if there’s one thing we know for sure, it’s that nobody can stop it.

Suncorp’s new head of bank intermediaries, Mark Vilo, is acutely aware of this. He believes that the constant change the mortgage industry is undergoing is one of the biggest challenges currently facing bankers and brokers. “If there is one certainty across financial services at the moment, it’s that change is ongoing. The regulatory environment is shaping up as the most immediate with regard to headwinds for 2017, and while there remains uncertainty, the next few weeks and months will shed light on specifics and timelines,” he says.

Preparation is key at times like this, Vilo says.

As the former CEO of General Electric, Jack Welch, once said, “Change before you have to”.

“We can all do a bit of crystal-ball gazing, but I think we all recognise something is going to change, and it’s our job to help support our partners – and ourselves – to get ready for it,” Vilo tells Australian Broker.

‘The customer is always right’ has never been more relevant than it is now, he suggests, and banks as well as brokers need to respond to the increasing standards customers are seeking. “It’s important to remember that changes within the industry are being driven by the customer, and we need to adapt to better meet their needs and expectations.”

Fresh eyes This candid talk about change as a reality that the industry must accept – and not shy away from – is refreshing coming from an institution that is embedded in tradition. But of course the banks are changing too, up for the challenge set by fintech start-ups that flock in droves to disrupt the finance industry. For Suncorp, Vilo himself is a change for the broking channel, and his fresh perspective is a trump card he plans to play.

Vilo is less than two months into his new position as Suncorp’s head of bank intermediaries, following a straight role swap between Vilo and the previous head of bank intermediaries, Steven Degetto, in December last year. Vilo transferred to the role from his previous position as head of wealth and life intermediaries. The role swap, which will last for a period of 12 months, was driven by a greater focus on customers and brokers, and came five months after Suncorp’s intermediary businesses were brought together under Andrew Mair’s leadership in July.

“By moving away from a structure that was very business-line focused, we’re able to better concentrate on putting our customers and partners

at the centre of what we do,” Vilo says. “Strategically, we want to be less centric on product and more focused on our partners … as a leadership team, we share and learn from each other in an effort to create best practice for us and our partners. And we’re definitely on that trajectory!”

Better servicing the non-major bank’s third party partners is at the top of Vilo’s list of priorities. In talks with aggregators thus far, he has noted pain points as well as processes that have been working well for brokers, but there is more to do, he says.

“Steve [Degetto] had some big wins while he was in the role, including leading Suncorp to being recognised by brokers as the MFAA’s Non-Major Lender in 2016, so I certainly have some big shoes to fill. That said, I believe having some fresh eyes allows us the opportunity to look for ways we deliver even better service for brokers.”

Vilo’s “fresh eyes” seem to come along with a capacity to think outside the box. “I once worked with a mentor that would often say about a problem, ‘Someone somewhere in the world has already solved this’, and I really believe we need to be curious and not limited by our thinking within our own industry.

“I believe having a diverse background automatically brings a different perspective because you look at opportunities through several different lenses. As the new kid on the block I also have the ability to use my dumb question card regularly, and it surprises me how often people respond by saying, ‘Good question’. Maybe they’re just being kind!”

Calling on the past Vilo’s 25-year career in financial services saw him as an integral part of the development of sales, product and marketing strategies across the independent financial advisers market, and he tells Australian Broker that in his previous role he was set the challenge of navigating Future of Financial Advice and the Life Insurance Framework. Both of these have remarkable similarities to the issues and themes currently facing the intermediary network, he says.

“These two pieces of work alone focused on – among many things – the delivery of quality advice, clients’ best interest, professional standards, clawbacks and conflicted remuneration. Sound familiar?” Vilo asks.

“There are many key learnings our industry can take from what has occurred in advice.”

Calling on solid experience gained in other finance verticals isn’t a new idea, but it is perhaps one that is easily taken for granted. “There are definite synergies between financial advice and mortgage broking, and while the products are different, most intermediary

AN OPPORTUNE MARKET “Undoubtedly, there is a real opportunity for brokers to diversify into small business lending,” says Mark Vilo.

“Approximately 30% of our home loan customers are self-employed, which provides an enormous opportunity for brokers to start looking after their existing customers’ small business requirements.”

“Australia is home to more than two million small businesses, accounting for 96% of the country’s business sector, yet only 10% use a broker for their lending needs.

For brokers who can provide expert advice, innovative products, an easy onboarding process and speedy execution, the opportunities are endless.”

“More than 1,200 brokers have already completed Suncorp’s Small Business Masterclass series, which is designed to help them diversify into this space, and we will be running more of these workshops in 2017.”

partners tend to work in small business and experience many of the same challenges.”

Broker power Suncorp is currently the fifth-largest bank in terms of mortgages, and as the non-major continues its growth Vilo understands the importance of having a happy broker network. A lender must offer more than just a product, he says, and Suncorp wants to assist brokers in building a strong referral network through the bank’s other division partners that will benefit both parties in the short and long term.

“We know that just offering products … is unlikely to mean they will just use them … so what we’d like to build is a marketplace that enables intermediaries to engage in other business lines or work with like-minded business people if they choose to refer,” he explains.

11

Mark Vilo

“I really believe we need to be curious and not limited by our thinking within our own industry” Suncorp is therefore currently looking at hosting a marquee event that will bring together all of the bank’s broker partners to deliver “strategic insight with practical value” for every intermediary across the whole financial services spectrum.

“Ideally I want our broker and aggregator partners saying ‘Suncorp is approachable, professional, they listen and understand our needs, are easy to do business with and help me with mine’,” Vilo says.

Time to act As the industry continues to be penetrated by fintech disruptors and pushed towards progress by

forward-thinking enablers, Vilo stresses the importance of brokers pre-empting industry changes and gearing up for the ride.

“Successful businesses are usually the ones that anticipate change and start making small steps early to evolve their business,” he says. “Proper business planning, and strategic thinking as a business owner, will pay dividends. And most importantly, execute the plan. Brokers have many options ranging from new technology and/or social media to improve customer attraction and experience; outsourcing of low-level tasks, allowing them to focus on their strengths; and diversifying

their range of services either through partnerships or DIY to de-risk when markets tighten.”

Vilo adds that brokers have countless options for improving their chances of success and longevity in the increasingly competitive broker market, but this requires a proactive and forward-thinking mindset.

“While there’s no one silver bullet, the options are endless and require a business owner to strategically think through where they want to take their business into the future. I’ve never heard a business owner say that they’d like to work harder to get the same result.”

For Suncorp’s part, Vilo says brokers can expect the bank to practise what it preaches – 2017 will be a year in which the non-major’s dedication to its broker network will be obvious. “We’re continuing to look for ways to deliver value beyond product, and the key is really getting into the psyche of a business owner and looking for ways we can add value.”

12

BUSINESS STRATEGY KEY PERSON OF INFLUENCE

Dent Global’s five-step method for becoming one of the most highly valued and highly paid people in your industry

ACROSS ALL industries, the top opportunities go directly to a small group who present themselves as key people of influence in that field. The rest of those in the industry are left to fight over the opportunities that key people of influence turn down. It might sound unfair, but that’s how it is. It’s not that hard to become a key person of influence, and it certainly doesn’t take years to achieve.

The following are just five things that you need to have in place to demonstrate that you are a key person of influence.

13

Pitch – Your ability to communicate your value and uniqueness through your spoken word Key people of influence can answer the question ‘What do you do?’ with power and clarity. Powerful pitching is the ability to clearly communicate your message in a way that influences and enrols supporters into your projects.

Conversely, many people who have had great ideas and personal resources couldn’t get things done when their pitch was lousy. Key people of influence pitch for specifics. They don’t cast a wide net; they are laser focused. Their pitch has gravitas.

When you have a great pitch you don’t just make more money and attract great people; you also have more fun, attract further opportunities and experience deeper rewards.

1

Publish – Your ability to gain credibility through authoring content Published content creates ownership and authority over your chosen niche or micro niche. If we were in the agricultural age you’d need the title deed to your land.

In a global market full of ideas, content published online shows ownership; it puts your name on your work.

Published books, articles and reports tell the world that you are an authority in your field.

If you publish, your ideas get seen and they spread faster. The process of writing will make you smarter than most in your field: it will sharpen your communication skills, develop your stance on each topic and help you to spot trends in your thinking. Published content on its own is an intellectual property asset that can be further developed in your products.

2

Product – Your ability to scale your value through an elegant product and services ecosystem Turning your skill set into an asset is an essential part of becoming a key person of influence and this happens when you productise your intellectual property.

The products you represent will play a central role in the commercial success of your enterprise. You must have several products, each designed to complement the overall mission you have as a key person of influence.

Part of that challenge is to have products that are built for high volume and some that are built for high value. Products help you to become, know and transfer value. Even services businesses can create a ‘productised service’ and develop additional products that complement the core services business. As soon as you develop quality products you’ll increase your opportunities to scale and even go global if you want to.

3

Profile – Your ability to become known, liked and trusted in your industry When people do a search for your name, you must come up on the first results page in order to show you are clearly a key person of influence in your chosen field. There is no longer an excuse for being invisible online – you are who Google says you are. If you’re invisible, you won’t complete bigger deals, no matter how well you pitch. You’re in control of your online profile. It’s your responsibility to create a powerful online presence using social media and traditional media hand in hand. It’s important to clean up anything that’s confusing or outdated and to remove anything that doesn’t serve your personal brand. With a well-crafted profile you’ll find that perfect inbound opportunities start to show up regularly and you get more success with what you go after.

4

Partnership – The ability to structure and maintain strategic relationships that benefit everyone involved As you may have guessed, the real wealth comes when you complete this final stage and begin leveraging with others in an effective way. The spirit of partnership generates a multiplier effect.

Rather than two people competing over how to slice a pie, they work together to build a bakery and produce more pies than they know what to do with. Consider that there is already someone who has a list of thousands of potential customers for your product; that there are already experts in your industry who would jump at the chance to be interviewed by you to create a product that enhances their brand and yours; that there are already people who have products that your contacts would be interested in and they would happily pay you a healthy percentage for making the sale.

5

The order is important There’s no point trying to skip over any of the five steps. You can’t just leap straight into a lucrative partnership if you have a poor pitch, no credibility, a broken business model, and you’re invisible when searched.

If you try to create a product but you can’t pitch it, it’s not going to find its market.

Building a profile without any written content just doesn’t work. Real money can be made from partnerships, but they don’t happen until people know that you are a key person of influence. The fastest way to achieving this in your industry is by following these five steps in the order I’ve given them to you: pitch, publish, productise, profile and partnerships. Then the results come.

Dent Global holds business events around Australia as well as weekly podcasts. Their book Becoming a Key Person of Influence guides people towards achieving business growth and success.

14

ANALYSIS A VICIOUS CYCLE The number of first home buyers is waning, as is the number of young people buying property. Australian Broker investigates the possible flow-on effects of this on the SME market and the economy if the affordability fire isn’t put out soon

AUSTRALIA’S HOME ownership rate is on the decline. Since falling from a peak of 71% in 1994–95 to 67% in 2011–12, this decline is now predicted to continue to 65% by 2020 as the number of households renting takes an upward trajectory.

These statistics, released by the ABS, are of great concern, according to the president of the Real Estate Institute of Australia, Malcolm Gunning.

Not only is the rate of home ownership falling but the number of first home buyers as a

proportion of total owner-occupiers is also way down – to 13.8% in November 2016 compared to the long-run average of 18.5%.

“Since April 2012, when official interest rates were 4.25% compared to the current 1.5%, the number of home loans issued to home buyers increased by 25% while the participation of first home buyers declined by 17%,” Gunning says.

Adding fuel to this fire, the latest figures from the ABS show that investor activity is back on the rise as portfolio investors snap up property after property for high capital growth on the

booming eastern seaboard, further shutting out first home buyers who can’t keep up with the runaway market.

Poor millennials?

But while the fading first home buyer segment is clearly a concern, the situation for young firsttime purchasers is even more dire. Researchers recently found that in the past five years the number of first home buyers over 40 years old had significantly increased while the younger age brackets had all experienced a decline.

15

TECHNOLOGY UPDATE

s

TECHNOLOGY KEY TO KINGSBRIDGE PRIVATE’S SUCCESS

‘RENTVESTORS’ ON THE RISE Thanks to increasing costs and unaffordability issues prevalent in the Sydney property market, first home buyers are being encouraged to purchase homes further afield in a multistep approach to finally buying property closer to the CBD. “They should approach it in a staged way,” says Zac Peteh, director of Sydney-based mortgage brokerage Mint Equity.

He says these ‘rentvestors’ could leverage growth in regional areas where capital costs are a little lower, while renting closer to the Sydney metro.

“At least that gives them the opportunity with a low capital base to try and leverage some equity and re-enter the Sydney market. You’re talking about a more segmented approach and building it up in stages rather than going directly for gold.”

While Sydney is ideal in terms of property growth, Peteh says a strategic approach is required to enter the market in the first place.

There is a trend of more buyers in regions such as the Central Coast, Wollongong and west of Penrith where capital costs are lower than those in Sydney, he says. “I’ve seen a big trend with family guarantees as well where first home buyers are leveraging off their parents’ substantial equity to buy an investment property initially.”

Amid hype around Sydney’s dramatic price growth, Peteh says he hopes APRA’s banking restrictions and reductions in offshore borrowing will cool the market just a little to make it more affordable for locals.

“With the increase in stamp duty revenue over the last five years, I’d like to see first home buyers getting out of stamp duty altogether,” he adds. “The revenue supports this because they’re such a small percentage of the market.”

Self-confessed “tech head” and Kingsbridge Private managing director Sheyne Walsh is back in the game after a stint in retirement because he missed being in a position where he could “resolve issues and make people’s lives better”.

“I know this probably sounds crazy, but I get a real buzz from helping people.

My brother is a Church minister and I had an inkling to do that too. Maybe that explains it,” he laughs.

“I’ve been in the sector for 30 years and I’m aware that the conventional wisdom is ‘work on the business, not in the business’. I tried that. But at the end of the day mortgage broking is a ‘people person’ business and the only reason I’m still doing it is because I get to improve people’s lives.”

In 1999, Walsh co-founded Kingsbridge and Eagle Pty Ltd, a boutique brokerage house that grew into one of the largest single office brokerages in the country with a portfolio of nearly a billion dollars under management.

Kingsbridge and Eagle became part of Centric Wealth in August 2007, and Walsh stayed on as head of lending until March 2014.

After a period of ‘gardening leave’, Walsh established Kingsbridge Private in February 2015.

In the first financial year the business wrote $80m in loan settlements. It has already passed that figure as of January 2017.

Kingsbridge Private does both commercial and residential lending, specialising in complex scenarios.

“The challenge is everyone is becoming a ‘sausage factory’ because that’s the most profitable way to do business,” he says. “We’ve tried to break through that by saying let’s apply some lateral thinking.”

Technology has always featured heavily in Walsh’s world. He built the operational systems in both his businesses, plus a number of unique selling tools for Kingsbridge Private.

He’s witnessed the evolution from paper-based processing to digital, and applauds high-tech for enabling brokers to engage in a level of customer service that wasn’t even contemplated a decade ago.

“I said to NextGen.Net their ApplyOnline mobile app is unbelievable!

It’s an incredible broker tool,” he exclaims.

“For a guy like me who always has a multitude of deals happening and is constantly on the road, it’s one of the best service tools you can have.

“When someone calls I tap on their name on the app and it tells me where the deal is at and all their details. If, say,

Sheyne Walsh, managing director, Kingsbridge Private

a document is missing, it tells me which one. I then tap on the phone icon and it immediately dials the client’s number.

“It also sends milestones alerts.

Honestly, for someone who can’t do all the back-office work, it’s an essential tool.”

Walsh’s circumstances mirror those of hundreds of brokers across the country, who are frequently mobile and struggle to service clients, and consequently have embraced the ApplyOnline app, which was launched 12 months ago and is now used by over 3,500 brokers.

NextGen.Net training manager Deniz Ertem says broker feedback has been “extraordinary”.

“We’re in such a mobile culture and the app provides application details at the brokers’ fingertips, up-to-date messages from lenders, and really helps put them in control,” Ertem says.

“All brokers have to do is download the app, either from the Apple or Google store, and enter their mobile number, and they can see all their applications within their pipeline.

“It gives brokers peace of mind knowing they can access the updated status of all their clients the minute it happens, even when they’re not in the office,” Ertem says.

Declaring “I love technology”, Walsh confesses that the excitement of the digital age and the anticipation of what is likely to be rolled out next is one of the reasons he remains in business.

“We don’t put ourselves up for awards, I don’t self-promote and I don’t need to work, and I don’t know what this business will look like tomorrow,” he says.

“We help people change their lives, but that doesn’t mean I’m not ambitious in terms of getting transactions. I’m not driven to own the world, but we do believe if we do it right the rest will follow.”

16

ANALYSIS HOUSING INVESTMENT BACK ON THE UP

Housing loan approvals $bn

$bn

25

25 Total

20

20

15

15 Owner-occupiers*

10

10

5

5 Investors**

0

2004 * Excludes refinancing

2008

2012

** Includes refinancing

The findings, by South Australian lender HomeStart Finance, show that the number of millennial first home buyers is waning. The number of first home buyers aged between 40 and 49 years spiked by over 50% between 2011 and 2015, while those over 50 increased by more than 100%.

In the same time period, the number of first home buyers aged between 18 and 29 years dropped by over 50% while those between 30 and 39 decreased by 20%. If this trend continues, first home buyers over 40 years old will make up the majority of the segment within the decade.

According to HomeStart CEO John Oliver, this momentum towards a dominant middleaged first home buyer is being driven by both lifestyle and housing market factors, and he, like Gunning, believes the writing is on the wall: younger property buyers need more support to break into the housing market.

“The longer it takes for home buyers to save for the upfront costs, which is based on the price of the property as well as living costs, the later they will break into the market,” and this poses multiple risks for the property market, Oliver says.

“An increase in the age of Australian first home buyers impacts on a healthy home buyer cycle. A healthy home buyer cycle has a good balance of first home buyers and upgraders, who transition from their first home to their next home within a few years.”

Therefore, he added, as the age of typical first home buyers increases into the 40s and 50s, this results in fewer upgraders since older first home buyers will be less likely to transition to a second or third property.

But an unbalanced home buyer cycle may not be the extent of the impact of a millennialweak property market. The double whammy of high property prices along with a tightening of lending standards means that first home buyers now have to come up with a much larger deposit than previous generations, which naturally takes a lot longer to save up for.

Richard Holden, a professor of economics at the University of New South Wales, tells Australian Broker that the potential flow-on effect on areas outside of property is undeniable. For example, the later in life people buy property, the less time they have to build up equity in their properties, and it is equity, of

2016

0

Source: ABS, RBA

course, that the banks look at when customers are looking for a loan to start or fund a small business.

“If the deposit needs to be larger, it takes people longer to be able to purchase the property and they have no equity in it later on in their life when they might be starting a small business, so it does reverberate through that,” Holden says.

What about SMEs? Small businesses are arguably the engine room of Australia: there are over two million in operation and those with fewer than 20 staff employ 45% of the workforce. Currently, many SMEs fund their businesses by bank overdraft, using their properties as security. But with the number of millennials – the next generation of business owners – who own homes waning in number, how will the ‘smashed avocado’ generation fund their future businesses?

Scottish Pacific CEO Peter Langham believes Australia’s small business sector will feel the effects if the trend of millennials not owning their own homes continues. “With many millennials expressing a sense of futility about

17

THE RISE AND RISE OF PORTFOLIO INVESTORS

Portfolio investors and all investors $600,000

7,000

Investment loan portfolio $m

5,000

$400,000

4,000 $300,000 3,000 $200,000

2,000

$100,000

1,000

Jan-2012 Mar-2012 May-2012 Jul-2012 Sep-2012 Nov-2012 Jan-2013 Mar-2013 May-2013 Jul-2013 Sep-2013 Nov-2013 Jan-2014 Mar-2014 May-2014 Jul-2014 Sep-2014 Nov-2014 Jan-2015 Mar-2015 May-2015 Jul-2015 Sep-2015 Nov-2015 Jan-2016 Mar-2016 May-2016 Jul-2016 Sep-2016 Nov-2016

$0

Number of portfolio investment loans per month

6,000

$500,000

Investment loan portfolio value $m

saving for a home, and feeling priced out of the market, this will invariably impact the use of property as security for business working capital,” Langham says.

“It’s an emotive topic, as seen by the recent ‘smashed avocado brunches versus home ownership’ debate, but for the SME sector this is a big underlying issue.

“Already a growing number of baby boomer and Gen X business owners in Australia are moving away from bricks and mortar as business security.”

According to Holden, if the SME market is affected, the economy is affected, and none of these sectors should be viewed in isolation. “To the extent that people aren’t able to use that equity to collateralise a small business loan ... that’s definitely going to hinder their ability to start up those businesses, and anything that does that hinders the dynamism of the economy,” he says.

A weak link For SMEs that use their properties as collateral, the funding available to them is limited by the value of the real estate they own. But Tyro

Number of portfolio investor transactions

Payments executive director Jost Stollmann believes this is an outdated way of lending, because in the vast majority of cases the property is entirely unrelated to the business.

Following the release of small business ombudsman Kate Carnell’s report on SME lending, Stollmann came out slamming the banks, saying their approach to collateral for business lending not only impeded innovation and job creation but also curtailed economic growth. “We know that Australian SMEs want to borrow up to $60bn a year more than they currently do to grow their businesses, hire new staff and innovate,” he said. “In the 21st century it is a ridiculous restriction that Australia’s big banks are insisting that any small business loan must typically be collateralised by property, rather than the cash flow of the business itself.”

Research conducted by Tyro found that tight regulation among the major banks was costing over 880,000 SMEs four weeks of productive work per year, draining approximately $7bn annually from the national economy.

Stollmann tells Australian Broker that a better approach is needed, especially since new businesses today are less about physical assets

0

Source: Digital Finance Analytics

and more about intellectual property, especially in the current ideas boom fuelled by the entrepreneurial millennial generation.

Holden agrees that the banks’ lending policies are archaic; however, given that the banks are required to hold substantially more capital for SME loans than they are for home loans of the same value, forcing people to use their homes as collateral is their safest bet.

They’ve got something that’s “more liquid to sell” if the business fails, he explains. Then there is the fact that the banks’ return on assets is higher for home loans.

“I can see why the banks do it, but it’s also a sign of how outdated that lending practice is in a way,” Holden says.

But Stollmann is adamant that something needs to change or the economy will suffer.

“Lending has to be based on understanding the business and cash flow,” he says. “The banks have to get their head around that otherwise we cannot close the $60bn in estimated shortfall in growth funding, with all the negative consequences it has for Australia’s future prosperity. So far, the reliance on mortgages has been the easy way for them.”

18

OPINION A RISKY MANDATE

Dr Eliza Wu on the ramifications of US President Trump’s plans to deregulate the banks, and how they could affect Australian banks and the economy

THE DONALD TRUMP administration recently announced an executive order for a review of major US banking rules that were put into place after the financial turmoil of 2007–08.

This is a clear and present signal that looser banking regulations are edging their way back into the banking sector.

The Dodd-Frank Wall Street Reform and Consumer Protection Act encompasses a set of comprehensive formal rules that were enacted into US legislation by the Obama administration in 2010 in the midst of the GFC that started in 2007–08. It was designed by US lawmakers with the intention to prevent another catastrophic collapse of a major financial institution like Lehman Brothers.

Many in the finance and banking industry say that the Dodd-Frank Act was an excessive knee-jerk reaction to the GFC and bears huge costs, especially in terms of the additional compliance costs, and many are welcoming a shift towards banking deregulation.

Combating the ‘too big to fail’ problem One of the main objectives of the Dodd-Frank Act is to avoid banks becoming ‘too big to fail’. To do that, the Act created the Financial Stability Oversight Council. If any of the banks get too big and/or risky, the Council can require the banks to be additionally regulated and monitored by the Federal Reserve.

In addition, the Dodd-Frank rules required banks to go through annual “stress tests”, banned them from undertaking certain risky transactions and gave new powers to securities regulators to control the investment activities of the larger US financial institutions in particular.

Under Dodd-Frank, banks are also required to have plans for a quick and orderly shutdown in the event that a bank becomes insolvent – or runs out of money.

Protection of financial service consumers Post-GFC, brokers working for financial institutions were required by law to provide financial advice that was in the best interests of consumers when promoting mortgages, credit cards and personal finance. The Consumer Financial Protection Agency was set up to ensure financial institutions did not engage in transactions that involved predatory lending practices and the giving of unscrupulous financial advice.

What about Trump?

It is not clear which parts of Dodd-Frank the Trump administration has in mind to roll back, but there is speculation that much of the key elements will be relaxed if not removed altogether.

The Trump administration in DC is selling this as being necessary to get banks lending

again as this legislation is too burdensome on the banks and there are businesses that cannot get credit any more despite their financial strength.

Their pitch is that there is too much red tape for banks to do their business, and it is necessary to wind it back to help boost the real economy. While it is important to improve

19

Dr Eliza Wu is an associate professor in finance at the University of Sydney Business School.

efficiency in the financial sector, it is equally important to be aware of the potential unintended consequences.

Going back to the pre-GFC regulatory regime and allowing banks to again use their own funds as well as deposits taken to support proprietary trading is a slippery path. It will legitimately allow large financial institutions to dip their hands back into the lolly jar and be exposed to more market risk with not only their own funds but also those of depositors from their traditional banking businesses.

What are the implications for Australian banks?

One of the natural consequences that we need to be wary of is that when we start creating an uneven playing field for banks operating around the world they will rationally respond by engaging in

new Basel rules – is likely to provide ammunition for the local Australian banks to not play ball and to push back on the relatively higher regulatory requirements imposed on them

by APRA. This will increasingly place undue pressure on local financial regulators who are trying to maintain the high regulatory standards recommended by the last Financial Systems Inquiry in 2014 to ensure that our banks remain “unquestionably strong” and that our banking system is more resilient.

In the medium to longer term, Australian banks facing this relatively higher regulatory burden are likely to pass on some of these costs to financial consumers in the form of higher interest rates or fees. This is likely to have repercussions across different parts of the economy, with increases in lending

Going back to the pre-GFC regulatory regime … will legitimately allow large financial institutions to dip their hands back into the lolly jar and be exposed to more market risk regulatory arbitrage and shifting more of their banking activities to places where the regulations are relatively less stringent – essentially in a ‘race to the bottom’.

There is already much empirical evidence documented on the risk-shifting behaviour of banks internationally, and in some recent research work funded by the Australian Research Council we have found that simply the introduction of observable risk-based capital requirements under the Basel framework has induced risk-taking behaviour in global banks’ lending practices and exerted real economic growth effects.

Australian banks will no doubt find it harder to compete overseas against global banks that will be facing lower regulatory costs and be less constrained in their banking activities as they shift more of their operations to come from their US banking units.

The political reality is such that the relaxation of regulatory burden in the US and internationally – if the Basel Committee on Banking Supervision also gives in to European banks on the

rates in affected segments curbing investments in some sectors, and this may dampen property prices and slow down growth.

Investors in bank shares here in Australia seem to have already been pricing this real possibility into their valuations, with all the major banks posting share price gains in response to the deregulations on the horizon in the financial sector.

What now?

In the longer term, the future prospects for global financial stability are not great as President Trump sows the seeds of the next international financial crisis with this move.

A level playing field for banks operating around the world is critical for achieving global financial stability and to discourage any gaming of the regulatory differentials faced by cost-conscious banks.

While the exact form of banking deregulation that will come from the US is not certain, we can be certain that there will be spillover effects on the Australian banking sector and broader economy.

20

COMMERCIAL FOREIGNERS DRIVING DEVELOPMENT More than two in three residential developments costing over $100m were purchased by offshore buyers or buyers with overseas backing, new research has revealed

A NEW report by property advisory firm Charter Keck Cramer has shown that 66% of the $100m-plus development land sales in Sydney between 2014 and 2016 were made to offshore buyers or local developers with overseas backing.

Most of the buyers of the 33 “mega sites” – as Cramer calls residential development sites with price tags in excess of $100m – were based in China, the analysis says, with additional purchases made

by Japanese and Singaporean interests. Only 34% of the mega-site sales were made to local developers.

Fifty mega sites were sold off during the period and accounted for total sales of $9.4bn, with an average sale price of $189m. “This far exceeds

sales of similar sites within the other major east coast capital cities of Melbourne (7 equivalent site sales) and Brisbane (no such site sales) during the corresponding period, highlighting Sydney as a key location for large scale investment into residential development,” the report, penned by national director Bennett Wulff, reveals.

Wulff adds that Sydney’s buoyant market – in which the median house price has increased by 42% during the stated period – is due to increased overseas investor ­activity, low interest rates and government pro-development planning as outlined in 2014 in the NSW Government’s report, A Plan for Growing Sydney, which aims to “accelerate

urban renewal across Sydney at train stations, providing homes closer to jobs”.

The mega sites’ locations in Sydney therefore tend to follow major transport linkages, in preparation for the 85,000–90,000 new inhabitants predicted to enter the city per annum until 2036. “Strong market fundamentals [are] luring off-shore developers with the appetite, capacity and indeed preference to deliver mega site projects,” but despite the development and building completions, Sydney remains undersupplied, the analysis says. “An inherent undersupply of dwelling stock, with pent-up demand compounded by reduced development activity subsequent to the Global Financial Crisis (GFC)” is driving the mega-site phenomenon, Wulff states.

“Re-zoning of these mega sites is enabling new residential supply through urban ­renewal and gentrification of f­ ormer industrial, commercial and low density residential locations, or extension to fringe ­suburban areas into previously rural locations.”

The Charter research concludes that the Sydney residential apartment market has responded well to the supply pipeline of recent years, and suggests that the oversupply debate is merely a “story”.

“Solid market fundamentals have underpinned acceptance of new stock additions and although capital value growth eased somewhat throughout 2016 (albeit still robust at 11%), solid take-up rates have been evident in both CBD and suburban locations.”

SYDNEY METRO PROJECT TO BUMP UP OFFICE RENTAL YIELDS Savills’ latest Sydney CBD Office Briefing Report has shown an improved leasing environment with strong tenant demand, stock withdrawals and falling incentives resulting in significant net effective rental growth.

The substantial rise in net effective rent experienced by the Sydney CBD – the country’s strongest office market – is set to continue for the rest of the year, according to Tony Crabb, national head of Savills Australia’s research and consultancy team, who says both prime and secondary rents are rising in Sydney on the back of a shrinking pool of secondary stock.

In particular, office demand will keep increasing as more tenants become displaced as a result of the Sydney Metro project.

The research shows net effective rents in the Sydney CBD enjoyed year-on-year growth in 2016 of +60% for B-grade office space, +48% for A-grade and +26% for premium space.

“The scarcity of secondary space has driven up both face and effective secondary rents and has caused a similar effect, albeit more muted, in the prime market as tenants are forced to upgrade,” Crabb said.

“Looking forward, we anticipate that net effective rents will continue to increase, particularly for secondary and A Grade accommodation. This will be a function of continued demand from displaced tenants, the ongoing shortage of secondary stock and the ongoing effect of declining incentives.”

21

TECH FOCUS FINTECH TO BOLSTER BROKER VALUE A new digital mortgage platform for brokers and their clients has launched, promising to dramatically increase brokers’ value proposition

DIGITAL MORTGAGE platform LoanFlare has been launched with the aim of reducing admin time for brokers and providing a “tenfold” increase in the lifetime value of clients.

The software integrates with the broker’s current CRM and comes with a number of different features, such as a client interface for direct digital data input, drag-and-drop document uploads, and customisable website templates to increase a broker’s digital presence.

LoanFlare co-founder and CEO David Kim told Australian Broker how brokers could benefit from using his platform.

“Right now, there’s a manual processing between the borrower and the broker that takes a lot of time,” he said. “We’ve built a smarter way to do that.”

The software allows customers to manually enter data into the system, saving brokers time when copying information from paper forms into the CRM. Data from uploaded documents can also be auto-filled into the system, making the process more efficient.

As for increasing client value, the platform comes with a number of marketing triggers built into the CRM. “You can simply track your client in the platform, look at how their loans are progressing, and pull bank feeds and interest statements to track overpayments and underpayments,” said Joshua Shen, co-founder and chief product officer at LoanFlare.

“The final goal of the platform – the vision – is

to help increase the lifetime value of the client by tenfold. That’s done by retaining these clients on the platform. It’s no longer about giving a gift offline every birthday or anniversary.”

This allows brokers to set finance figures and look at opportunities for cross-selling and upselling through emails tailored to each client.

“For example, if there’s a refinance or a cross-sell or upsell opportunity, we will trigger that and as a result the broker can diversify their revenue,” Kim said.

He added that LoanFlare would help brokers create a digital interface with clients, a service that is sorely needed in the industry. Web pages can be customised with different colour schemes, logos, layout and content.

“Right now, a lot of brokers don’t have a digital presence so we’re allowing them to compete against the likes of all the online players that go directly to the consumer.”

The current version of the platform automates the entire pre-lodgement workflow for brokers to eliminate the possibility of mistakes, Shen said.

“We do the compliance statements as well to make sure that brokers are not breaching any regulations or releasing any confidential information.”

This is accomplished by requiring the broker to ask the client the right questions, show them specific information and upload a particular set of documents, and provide the responsible lending documents before the system allows the loan application to proceed.

AUSTRALIA’S NEWEST BANK RECRUITS EX-NAB EXEC Tyro, the first-ever fintech start-up to get an Australian banking licence, has recruited financial services veteran Natalie Dinsdale to its leadership team.

Dinsdale, who has been appointed Tyro’s head of brand and marketing, is the latest hire in the new bank’s headhunting recruitment run.

“Tyro is one of Australia’s most remarkable growth stories, and the opportunity to be part of an organisation dedicated solely to giving SMEs a better deal is incredibly exciting,” Dinsdale told Business Insider.

While Dinsdale has been involved in the high-profile launch of Virgin Money’s mortgages business and was a part of Bankwest’s push into the East Coast region, she was also one of the founders of Australia’s first digital bank – NAB’s online-only brand, UBank – prior to her appointment. Her latest role, however, was leading her own e-commerce start-up in the parenting sector for four years.

Dinsdale has also held executive positions at Telstra, Foxtel and Citibank.

Since APRA awarded Tyro an official banking licence last August, the fintech has overhauled its executive team, with founder Jost Stollmann stepping down as chief executive in October and Gerd Schenkel – who was also involved in setting up UBank –.taking up the position.

Tyro also recently announced it had recruited PayPal executive Kareem Al-Bassam for the newly created position of head of product.

The start-up currently serves more than 16,000 small businesses, and Stollmann is ranked number 21 in the Business Insider Tech 100. According to Business Insider, Stollmann led the company to a 2016 financial year that saw it harvest $95m in revenue and crunch through $8.6bn in transactions. He remains an executive director and the largest shareholder in the company.

22

A BIG DEAL BUILDING RESOLVE Tracy Kearey on one of her most challenging cases, in which she had to refinance 12 investment properties for the one client

THE SCENARIO A challenging but interesting case. My client was a female medico with a portfolio of 23 investment properties. Eleven of the properties were with one lender, standalone and interest only. However, the remaining 12 were all crosscollateralised and principal and interest. The client wanted to minimise her risk. She required cash-out for future investment, interest only, variable, 90% LVR and no LMI.

THE SOLUTION Kept on my toes throughout the entire process, the good news is that I managed to refinance all 12 investment properties across three new lenders. Admittedly, in my favour was the fact that my applicant was a medico. This small gem allowed me to secure a major slice of the funds required for six of the properties with lender A at 90% with no LMI. I was then able to refinance the next four properties with lender B and the final two properties with lender C, both at 80% with no LMI. In fact, in this case selecting the lenders was a walk in the park. The challenging part of the deal was servicing all the new and existing loans while in the process of submitting applications to the three new lenders; not to mention the strategies that had to be put in place to keep all the lenders in the loop in regard to the new structure and repayments going forward.

As you can imagine, with 12 standalone submissions

to complete within a short time frame my in-house team worked diligently to ensure everything was covered and all the boxes were ticked. Amazingly, all 12 applications were approved within 24 hours of each other and quickly progressed to document signing and the discharge of the current mortgages.

From there discharges with the outgoing lenders were organised and settlement was booked. However, as we all know, the life of a finance and mortgage broker is rarely smooth sailing and just when I thought it was safe to take a breather there was an unexpected delay on the day of settlement. But I threw on my superwoman cape, snapped into action and negotiated with the lender, managing to resolve the issue on the same day. It was a close call and I was under the pump, but by close of business all 12 loans had settled.

THE TAKEAWAY It’s deals like this one that build your resolve and bring to the fore the utmost importance of building and maintaining strong working relationships with all lenders. I value and appreciate the relationships I have developed with lenders, and the reciprocal benefits pay untold dividends.

Being in the position to discuss scenarios and having direct access to credit advice from lenders in regard to the likelihood of a successful approval prior to submission can never be overrated.

Needless to say, my client was ecstatic with the outcome; so much so that she now considers me part of her professional network and refers ongoing business to me.

Without a doubt, this case was a tough gig and a challenging deal to pull off. But, with all that said, nothing feels quite as satisfying as using your skills, knowledge and abilities to help others with achieving their financial goals and objectives. The flow-on benefits for my business continue, with a steady stream of qualified referrals filling my sales funnel.

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24

MARKET WRAP RBA WARNS OF MARKET RISK The Reserve Bank has warned of increased risk in the Australian property market

$1M PROPERTIES THE NEW NORM? The number of suburbs in Australia with a median property value of at least $1m has grown by 176% in the five years prior to December 2016.

Researchers at CoreLogic report that there were a total of 760 suburbs across Australia with a median value of $1m or more at the end of 2016. This figure has increased from 275 in 2011.

The number of suburbs with a median of $1m for houses increased from 261 to 679 (an increase of 160%) while those for units shot up from 14 to 81 (a spike of 479%).

Across the states, 70.3% of these $1m suburbs were in NSW while 16.7% were in Victoria – an increase from 60.4% in NSW and 15.3% in Victoria five years earlier.

“This year, affordability is going to become an increasing issue around the country,” Cameron Kusher, head of research at CoreLogic, told Australian Broker. “Our view

is still that we’re going to see growth in 2017 in Sydney and Melbourne, and that’s going to push more suburbs into that $1m category.”

Another factor to consider is the high level of unit construction, particularly in Melbourne and Brisbane,” Kusher said. “We’re already seeing the unit market in terms of growth lag behind houses. As more and more density comes into those inner-city areas, I think it’s going to make houses more sought after and it will probably push more suburbs into that $1m median.”

While growth won’t keep pace with that of the past five years, Australia will have more suburbs with a typical value of $1m or more in 12 months’ time, he said.

Capital cities accounted for 93.5% of all the $1m suburbs in 2011, and this figure increased slightly to 93.6% in 2016.

Sydney alone accounted for 57.8% of the $1m suburbs in 2011 and 65.4% in 2016.

These figures also rose in Melbourne, which accounted for 15.3% in 2011 and 16.4% in 2016.

While there were only 39 suburbs nationwide with a median value of $2m or more in 2011, this number rose to 136 five years later (an increase of 249%). In 2016, 115 of these 136 suburbs were in Sydney.

Outside of the two major capitals, demand for lifestyle properties has been picking up, Kusher said, meaning that more areas in regional NSW, Queensland, Victoria and Western Australia may move above the $1m threshold.

“We’re also seeing improvements in housing markets in Canberra in terms of growth, so we could see some more $1m suburbs there.

And although growth is pretty moderate, you might start to see more of those higher-end inner-city suburbs in places like Brisbane and Adelaide pushing up above $1m as well.”

25

IN ITS Statement on Monetary Policy released on 10 February, the RBA has warned of increased risk in the Australian property market, in light of the rapid growth in high-density apartments in certain capital cities that could lead to oversupply.

According to the policy, there are dangers that the geographically concentrated nature of apartment dwellings could pose, particularly in cities such as Brisbane and Melbourne.

The RBA cautioned that the longer lag between the decision to build a high-density apartment and its completion could lead to less predictable impacts on the overall supply of housing. Approved apartments take around six quarters to complete, which is three times longer than for detached houses and twice as long as for townhouses. This means the actual pipeline of work can be used as an indicator of dwelling investment further into the future, and developers may not be able to respond in time to any signals of waning demand, the RBA warned, leading to apartment oversupply.

“This increases the chance that (localised) oversupply could develop, and would exacerbate the effect on local area prices if that were to occur,” the RBA said. “If these risks materialise, there could be an increase in the proportion of newly completed apartments that fail to settle and a rise in the share of work yet to be commenced that is not undertaken.”

The RBA also commented on the low rental yields investors are currently experiencing in the market, and warned that investor activity could drop dramatically in response to oversupply fears. “Low rental yields and slow growth in rents could refocus property investors’ attention on the possibility of oversupply in some regions.

“Although investor activity is currently quite strong, at least in Sydney and Melbourne, history shows that sentiment can turn quickly, especially if prices start to fall. Softer underlying demand for housing, for example because of a slowing in population growth or heightened concerns about household indebtedness, could also possibly prompt such a reassessment.”

In recent years, high-density building approvals have amounted to around half of all residential building approvals, the RBA said. This is far above the long-run average of less than one third.

OWNER-OCCUPIERS BECOMING AN ENDANGERED SPECIES

The change in the number of owner-occupier loans for the construction or purchase of a new home to December 2016

QLD

+4.9%

WA

-22.4%

NSW

-2.9% SA

-14.6% VIC

+3.9%

TAS

-11.9% Source: ABS

Digital Finance Analytics principal Martin North believes the RBA’s warning is particularly important considering its usual confidence on the subject.

“I think this is the first warning I can remember on the subject, as up to now the RBA has been remarkable bullish. Will this mean the regulators efforts to control the risks be accelerated?” he said.

“Now, you can read this a couple of ways, first

it is a low-probability – they say, so not to worry.

Or could it be that this is a way of getting housing expectations reset.

“At very least it seems the housing expectation sails are being trimmed, and should things go bad later, the RBA can point back to the ‘I told you so’ paragraph.

“Let’s see if the regulators get their act together now, though it is late in the day!” North said.

26

CONSUMER INSIGHTS

TURNING FROM THE BANKS

A recent survey has found that the majority of people believe the big four banks would not provide the best service for customers facing a financial crisis DESPITE 80% of the Australian home loan market being held by the big four banks, almost three in four people believe a major bank would not provide the best service if they were facing a crisis.

These findings come following a nationwide survey of over 1,000 respondents, conducted

by Galaxy Research for non-bank lender State Custodians Home Loans. The survey asked the respondents who they thought would provide the best service when seeking out or renegotiating a home mortgage or investment loan if they were faced with a life-changing event, such as unemployment, a business failure, divorce, serious illness or a death in the family, that drastically changed their financial circumstances.

The results indicated that the majority of Australians (72%) believe that in these circumstances a big bank is not their best option for service. However, people are divided as to who would most likely give them the best advice and care. Just over one third (37%) believe they would receive the best level of specialised attention from a smaller lending institution such as a credit

union or building society; 28% said they would nominate a big bank, 25% said they would turn to a mortgage broker, 22% to an accountant, lawyer or financial planner, and 10% said they would go to a non-bank lender.

“Australians are currently facing increasing uncertainty on numerous fronts including a stagnant economy, job insecurity, high levels of relationship breakdowns and unhealthy lifestyles leading to chronic illness,” said State Custodians general manager Joanna Pretty. “When you’re in crisis mode it can be very stressful and confusing trying to make any major decision. I think trust is very important in dire situations and sometimes with larger institutions people can feel like they’re ‘just a number’. So any organisation or people who can give you the right information and reassure that they’ll look after you is important.”

The Galaxy survey also uncovered that women were more likely than men to think that a big bank would provide them with better service in times of great need, and people’s preferences for gaining property advice in the wake of a crisis varied greatly depending on what life stage they were in.

Forty-three per cent of young adults aged 18–24 said they’d turn to a financial planner, accountant or lawyer first, compared to just 15% of those aged 50 or older. Of those aged 25–34, a majority of 34% said they would seek out a smaller lending institution. People in this category also had the highest preference for a non-bank lender, at 16%.

Mortgage brokers were found to be the most popular choice for Gen X respondents aged 35–49 years, at 34%, and 35% said they would consult a smaller lending institution. Of those aged over 50 years, a majority of 46% would consult a smaller lending institution first.

Pretty said it was important for people to know that smaller institutions were renowned for their more personal tailored service, which could be helpful when going through a personal crisis.

“Smaller institutions tend to specialise with different products and services, and are very good at helping people who fall outside traditional parameters,” she said. “They can also have more of an open mind as to what kind of deal they’d be prepared to do with a customer, as they’re used to evaluating extenuating circumstances.”

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WHO’S GETTING HELP FROM THE ‘BANK OF MUM AND DAD’?

Proportion of first home buyers receiving a financial helping hand from parents

1.7%

New South Wales

12.0% Western Australia SINGLES FORCED TO SAY ‘BYE BYE’ TO PROPERTY? More singles are being squeezed out of buying a home, according to an analysis by industry super fund-owned bank ME. The number of home loan applications from single people received by the home loan lender fell by nine points to 35% of all loans over the past two years. Meanwhile, the average loan size for mortgage applications from singles increased by 9% to $355,000.

Single women are significantly worse off than men. The number of single female loan applications fell by 14 points compared to only five points for those from single men. Not surprisingly, NSW-based singles experienced the greatest jump in average loan amount, rising by 16% to $422,000, followed by Victorian singles by 11% to $348,000.

“Even as part of a couple, east coast property prices are out of reach for many Australians,” said ME head of home loans Patrick Nolan. “But being single is not a reason to delay or forgo home ownership.

Buying your own home is one of the smartest decisions you can make.

“There are a number of strategies you can deploy such as investing or tapping into the bank of mum and dad.

“Alternatively, join forces with someone who isn’t your romantic partner such as a friend or family member.

“It’s also important to arrange pre-approval for a home loan in advance to give you a good idea of what you can afford and not waste time looking at homes that are beyond your budget.”

The most recent ABS Survey of Income and Housing 2013–14, which revealed that people buying their first home were older than they were over a decade previously, also suggested that many people would still be paying off their home loan when they reached retirement age. Indeed, as other ABS Housing Occupancy and Costs data shows, the proportion of households aged 65 and over still paying off their mortgage has more than doubled, having risen from 3.6% of all households aged 65 and over in 2000/01 to 8.2% in 2013/14.

19.1% Nationally

26.6% South Australia

26.7% Victoria

RENTAL STRESS CREEPS UPWARD

Proportion of low-income households in rental stress 50

Per cent

40 30

30.7%

20

Queensland

10 0

NSW

Vic

Qld 2007/08

WA 2009/10

SA 2011/12

Tas

ACT 2013/14

NT

Australia Source: ABS

Source: MoneyQuest

28

PEOPLE EXPANDING FRONTIERS Students are set to benefit as a university and a financial institution team up in an Australian-first collaboration

IN 2016 Deakin University and Bendigo and Adelaide Bank announced the Deakin University Community Bank initiative - a unique banking service that will return profits to university programs and capital projects in the years ahead.

The initiative is an expansion of the Bank’s unique Community Bank model, which plays an active role in building sustainable and resilient communities.

In 2016 alone, $17 million was returned to local communities and to date, the 313 locally owned Community Bank branches have collectively reinvested more than $165 million of their profits into local projects deemed important by local people.

“This innovative collaboration was borne from Deakin’s mission to constantly improve the experience we provide the communities we

shared interests and objectives.

“The new model is the culmination of a long engagement with the Deakin community about the value they see in a community banking service and how it could support their goals,” he says.

“What we heard overwhelmingly was that they see this as a win-win, a true example of shared value. It means that, for staff, students and alumni, just by doing their everyday banking through the Deakin University Community Bank initiative they can contribute to supporting projects that matter to them and their university.”

Den Hollander adds that those who choose to bank with the Deakin University Community Bank have the ability to play their part in giving back to the university community and funding its new projects.

“In a world where banking is an essential service each of us must pay for, Bendigo Bank’s Community Bank model is unique because it takes its revenue and returns it to local communities” serve, and to build external partnerships that add value to all involved, socially and financially,” says Professor Jane den Hollander, vice-chancellor of Deakin University.

“In a world where banking is an essential service each of us must pay for, Bendigo Bank’s Community Bank model is unique because it takes its revenue and returns it to local communities.”

Expanding the bank’s Community Bank model into a university is recognition that community isn’t bound by geography alone, says Bendigo Bank managing director Mike Hirst, but also through

“Our staff, students, alumni and stakeholders will be contributing to the profits that could, for example, one day fund new scholarships to help young people follow their dreams, grants for researchers to become world leaders in their fields, and sustainable capital projects that make our university the best place to work and study.”

The Community Bank companies traditionally invest in local projects like scholarship funds, skate parks, community buses, sports stadiums and health centres. But by collaborating with Deakin University the shared-value initiative opens the

door for funding an even wider range of projects in the future. For instance, at the launch, funds were gifted towards some early projects across the university, including the building of a new edible garden at the Burwood campus, and support for a student health and wellbeing day.

Scholarships are also high on Bendigo Bank’s list of priorities. Its scholarship program for tertiary students enters its 10th year in 2017. The program has provided scholarships worth more than $5.4m and supported 468 students since it began, giving university graduates the experience of working in financial services and gaining skills across a range of divisions that go hand in hand with their chosen field of study.

“Our bank is very proud of our strong and valued brand, our commitment to great customer service, and our role in the communities in which we operate,” says Hirst.

“Our actions in delivering on this promise are real and there for all to see.”

29

CAUGHT ON CAMERA MyState recently hosted 100 business banking and broker partners at the National Barnbougle Polo event in Tasmania. Guests included attendees from Tassie Home Loans, Wealth Works, Finance Brokers of Tasmania, Vow, nMB, Connective, Choice and Liberty.

The event was held over two days and guests were treated to a dinner hosted by Barnbougle founder and CEO Richard Sattler, followed by the main event – a day at the polo.

30

PEOPLE HOT SEAT

JIM HENWOOD

The director of eSelect Finance on challenges facing the mortgage industry, taking the plunge into a bigger office, and why he wants to have dinner with Jerry Seinfeld

Who or what inspired you to become a broker?

I commenced working in real estate in 2008. At the time A I saw a real need for clients to also be provided with a variety of options regarding their finances so they could realise their home ownership dreams. For me there was a natural progression to mortgage broking in 2010 from the real estate industry. My background and connections in real estate also provided me with much-needed lead flow and generation.

Q

What will the most exciting aspects of broking be this year?

The mortgage industry is certainly becoming more and A more challenging, with regulation changes a common occurrence. I believe this presents brokers with the opportunity to really consolidate their relationship with their clients. We will become trusted advisers as clients will rely on us more and more to provide them with sound financial solutions and structures for their individual circumstances.

Q

What has been your most memorable moment as a broker?

There have been several loan scenarios that we have A seemingly ‘resurrected’ which are always very satisfying both for me and, of course, the client. However, I would have to say taking the big step of moving out of my home office to a bigger office space in Richmond about 12 months after I started as a broker was a huge step for us. It was a daunting yet exciting time as we took on additional brokers and administration staff. That leap of faith certainly paid off.

Having an office to go to helped me to stay more focused and motivated as well as providing a professional atmosphere for our staff.

Q

If you were head of the MFAA or FBAA, what would your focus be?

My focus would most definitely be on supporting brokers A and their businesses. Keeping up to date with compliance has been a challenging issue for brokers, and any additional advice, tools and training is always welcome. The ever-changing regulations in the mortgage industry are certainly a challenge, so again, support to continually educate brokers via the MFAA is paramount. Also, continuing to work with banks to streamline lending criteria across the board would be another focus.

Q

If you could invite three people to dinner excluding family and friends, who would that be?

There are so many to choose from; however, these three A people do come to mind and will make for a great night of entertainment, food and laughs. Firstly, Jamie Oliver to cook the meal as his style of food is ideal to serve to a crowd – plus I really enjoy cooking his recipes so I could maybe give him a hand! Second would be Ed Sheeran to provide the tunes throughout the evening. I enjoy his music and he seems like an all-round good bloke. Lastly, Jerry Seinfeld as he can provide the laughs. Who doesn’t enjoy his sense of humour?

Q

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