NEWS ASIC takes Westpac to court And more banks could follow P6
BEST PRACTICE Surviving the storm Tricks of the trade to build resilience in business P12
OPINION A new approach Getting into property one brick at a time P14
MARCH 2017 ISSUE 14.5
INDUSTRY SPOTLIGHT Smooth transition
The power of communication in commercial deals P16
MARKET WRAP The quiet achiever
How unassuming Hobart is catching investors’ eyes
P24
DAVID KIM The CEO and co-founder of LoanFlare on how the new CRM will level the playing field for brokers amid the rise of mortgage comparison sites P10
A BIG DEAL Niche solution
One broker reveals how he secured a loan for his disheartened FHB clients
P26
AGGREGATOR SNAPSHOT 2
NEWS
ASSOCIATIONS
REGULATION
LENDERS
Broking industry is “on the money” – FBAA P4
ASIC takes Westpac to court, and more banks could follow P6
Property price growth puts banks at risk P8
BROKERNEWS.COM.AU
AFG KEEPS ON GROWING
EDITORIAL
AFG financial results for HY2017
Up by 5.0% to
$1.5bn
Up 34% from the same period last year
$127bn
$1.24bn
Combined residential and commercial loan book
Editor Madelin Tomelty News Editor Miklos Bolza Journalist Maya Breen
Steady at
$17.6bn
Production Editors Bruce Pitchers Roslyn Meredith
Total AFGHL settlements
Commercial settlements
Residential settlements
SALES & MARKETING Sales Manager Simon Kerslake Account Manager Rajan Khatak Marketing and Communications Manager Lisa Narroway
CORPORATE
ART & PRODUCTION
Chief Executive Officer Mike Shipley
Design Manager Daniel Williams
Chief Operating Officer George Walmsley
Designer Martin Cosme Traffic Coordinator Freya Demegilio
Managing Director Justin Kennedy Publisher Simon Kerslake Chief Information Officer Colin Chan Human Resources Manager Julia Bookallil
AFGHL loan book
$4.6bn
An increase of 44% on the prior period
EDITORIAL ENQUIRIES
Source: AFG
Madelin Tomelty +61 2 8437 4792 Madelin.Tomelty@keymedia.com.au
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tel: +61 2 8O11 4992 fax: +61 2 9439 4599 subscriptions@keymedia.com.au
CHOICE TAKES OUT BEST MORTGAGE AGGREGATOR AWARD Choice Aggregation Services has been named Best Mortgage Aggregator at the 2017 Australian Lending Awards hosted by global business intelligence and media provider RFi. The Best Mortgage Aggregator award is judged based on the opinions of mortgage brokers and a panel of judges from the financial services industry. Choice CEO Stephen Moore, who accepted the award at a ceremony in Sydney in February, said the win was a testament to Choice’s long-term commitment to supporting brokers. “Choice is a business that works closely with its brokers to help them succeed. Our team works hard to deliver advice and support that is tailored to brokers’ individual needs, and this award
is further proof that our approach is resonating with the market.” The win follows a strong 2016 for Choice in which it surpassed $1.6bn in monthly settlements and reached a loan book milestone of $58bn. Strong growth in recruitment, retention and settlements have all contributed to the record growth of the aggregator as it approaches its 20th birthday. Moore said he was anticipating another strong year in 2017 as Australian borrowers continued to recognise the value a mortgage broker could bring. “Mortgage broking is a growing force, with brokers continuing to write a record proportion of home loans in the market. As brokers are increasingly seen as leaders in the market, we are focusing on
helping them demonstrate their leadership with a focus on high-quality business practices and process.” With a long and rich history of working with brokers, Moore added that Choice’s success was the result of actively listening to brokers about what is important to them. “Our high level of understanding and insights enables us to provide the right advice and support, as well as empower our members to take control of their businesses to achieve their full potential. “We are constantly looking for ways to help our members excel, and we will continue to invest in delivering market-leading support and services to ensure our members are well positioned for growth.”
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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, Bengaluru 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
BROKING INDUSTRY IS ‘ON THE MONEY’ – FBAA Peter White, executive director of the FBAA, has returned from Canada after making an address at the Canadian Mortgage Brokers Association’s (CMBA’s) national conference. Speaking to Australian Broker, White said his time in Canada was a “check and balance” on how brokers conducted themselves in the Australian marketplace, including interactions with regulators and the government. The local broking industry is “very much on the money”, White said. “I don’t think there’s anything here that we need to change from what we’re doing.” White said his discussions
with Canadian brokers proved the messaging around brokers was in the proper place here in Australia. “It doesn’t matter where you look overseas. When you understand their journey and why they are where they are today, we are exactly right in what we’re doing. We are very sound in what we’re doing,” he said. “We’re not perfect, which is why you have regulators and they keep us in a bit of check and balance, but our broking market in Australia is most certainly not off the rails. “It’s most certainly not in any need of fundamental, major change.” The CMBA invited White to speak on a new piece of regulation
bring introduced in Canada around disclosing conflicts of interest and commission structures, and how Australian brokers responded to similar legislation brought into effect in July 2010. “It was of great benefit for them and of great knowledge and understanding for us. We’ve built some friends through which we’re going to go on a much bigger journey as we go forward throughout the year.” While there, White also met with the Financial Institutions Commission, the Canadian equivalent of ASIC, to understand where they were at from a regulatory position.
A rundown of the next fortnight’s events
MARCH
16 What: MFAA: SOLD Breakfast Where: Hamilton, Brisbane Details: The MFAA’s state program covers social responsibility, opportunities for women, lifestyle, wellbeing and mental health, and diversity and inclusion. It is a chance for all brokers to engage with issues that can enhance their business performance.
WHAT THEY SAID...
Mark Woolnough “You don’t get to represent greater than 50% of a dual market if you don’t have a very strong value proposition” P18
Michael Russell “Older parents [are] under pressure to gift tens of thousands of dollars to their adult children at a time when the Federal Government is urging all Australians to provide for their own retirement” P21
Craig James “The surge in housing construction, particularly for apartments in Sydney and Melbourne, will continue to soften the landing through the end of the resources boom” P23
MARCH
17 What: MFAA NSW Commercial Finance Breakfast Where: ICCC Sydney Details: This event will cover how to get the cut-through needed to deliver real value to business clients. Brokers will learn how to uncover new business opportunities, powerfully illustrate concepts that will make a difference to the bottom line, and position your real value as a trusted adviser.
MARCH
23 What: FBAA NSW Parramatta Summit Where: Mantra Parramatta Details: Join the FBAA’s NSW president, Gus Gilkeson, and Peter White at this summit where brokers will get a commercial real estate market update from Peter Seeto of Colliers Investment Services, as well as an update on industry regulation affecting brokers.
REGULATORY ROUNDUP 6
WORLD NEWS
THAT’S A LOT OF LOANS…
1.75 MILLION
The estimated number of loan facilities received by ASIC for analysis in the broker remuneration review Source: Chris Green, ASIC
ASIC TAKES WESTPAC TO COURT, AND MORE BANKS COULD FOLLOW
NEW ZEALAND KIWIS AGREE HOUSING IS THE NATION’S BIGGEST PROBLEM Forty-one per cent of New Zealanders recently surveyed by Roy Morgan have agreed that government/public policy/housing issues are currently the most important problems facing New Zealand. This figure, up 1% since October 2016, represents a cross-sample of 1,000 New Zealanders interviewed in January 2017, and shows that the main concerns among New Zealanders are housingrelated issues such as housing affordability and increasing house prices (15%). A housing shortage and homelessness is the next biggest issue at 11%, which 26% of respondents mentioned unprompted as being the biggest problem facing New Zealand. The results come following Prime Minister Bill English’s announcement that the New Zealand General Election will be held on 23 September 2017. However, if English is to secure an election victory later this year, Roy Morgan suggested, he will have to convince New Zealanders he has worthwhile policy solutions to the housing crisis facing more than a quarter of the New Zealand electorate.
ASIC has commenced civil penalty proceedings in the Federal Court against Westpac Banking Corporation for a number of contraventions of the responsible lending provisions of National Consumer Credit Protection Act. The regulator has alleged that in the period between December 2011 and March 2015 Westpac failed to properly assess whether borrowers could meet their repayment obligations before entering into home loan contracts, and that Westpac used a benchmark instead of the actual expenses declared by borrowers in assessing their ability to repay their loans. In addition, ASIC has said that Westpac approved loans where a proper assessment of a borrower’s ability to repay the loan would have shown a monthly deficit for home loans with an interest-only period. The implication of this is that Westpac failed to have regard to the higher repayments at the end of the interest-only period when assessing the borrower’s ability to repay. According to ASIC, the National Credit Act provides consumer protections to ensure that credit providers make reasonable enquiries about a borrower’s financial situation and assess whether a loan contract will be unsuitable for the borrowers. In a statement released following the charges, Westpac said it would defend Federal Court proceedings commenced by ASIC in relation to the home loan allegations. All loans identified by ASIC were “currently meeting or ahead in repayments”, the bank stated. “It is not in the bank’s or customers’ interests to put people into loans that they cannot afford
to repay. It goes hand in hand that we have robust credit approval processes while helping customers purchase their home,” said George Frazis, chief executive of consumer bank, Westpac Group. The bank’s credit policies are informed by a “deep experience and understanding” of the Australian mortgage market, he added. “They include a consideration of customers’ specific circumstances, including income and expenditure, previous repayments history, and the overall customer relationship. We build into our processes a range of conservative inputs, including the addition of buffers to take into account possible future interest rate increases.” However, Westpac may be only one of 11 total lenders that could soon be targeted by ASIC. Appearing before the Senate Economics Committee, Michael Saadat, ASIC’s senior executive responsible for banking, said: “We have announced action against Westpac, but we have been in discussions with other lenders and we hope to make an announcement about the work that we’ve been doing with other lenders in the next few weeks,” the ABC reported. Saadat told the committee that Westpac had changed its lending practices after ASIC made these concerns known back in 2015. “Despite the fact that they stopped the practice ... we’ve decided to bring this action because of the importance of the issues that it raises,” he said. The first hearing for the proceedings will be on 21 March 2017 at 9.30am in the Federal Court in Sydney.
LENDER UPDATE 8
-WESTPAC AND CBA DOMINATE HOME LOANS Home loan market share January 2017 30% 25% 20% 15% 10% 5% 0%
HOMELOANS REPORTS $4.1BN BROKER BOOK Non-bank lender and diversified mortgage distribution company Homeloans has reported a stronger principally funded loan book of $5.8bn as of 31 December 2016. In releasing its half-yearly financial results, the lender reached a total of $9.4bn in assets under management (combining the principally funded loan book with Homeloan’s white label managed book). This was up 10% from the year before. Additionally, the lender reported a third party broker book of $4.1bn. Total loan settlements equalled $2,069m in H1 FY2017 – an increase of 9.8% from the same period in the previous financial year. Of these, $445m were non-branded settlements through the broker channel. Homeloans also reported that its merger integration of RESIMAC was tracking ahead of expectations, citing a number of operational milestones achieved during the half-yearly financial period. These included the rationalisation of key premises and the finalisation of the merged group organisational structure as well as key management appointments. “We are pleased that settlement growth across our proprietary lending, third party lending and direct channels has remained buoyant in the period and throughout the merger,” said Homeloans’ joint CEO, Scott McWilliam. “The two organisations have come together and are well placed to capitalise on the opportunities in the market to further grow our settlements, our assets under management and ultimately grow our bottom line.” Looking towards H2 FY2017, Homeloans expects the broker channel to support increased settlement volumes, taking a market share of up to 90%.
Owner-occupier Westpac Banking Corporation National Australia Bank Limited Suncorp-Metway Limited Bendigo and Adelaide Bank Limited
Investment HSBC Bank Australia Limited Members Equity Bank Limited Commonwealth Bank of Australia Australia and New Zealand Banking Group Limited
Bank of Queensland Limited ING Bank (Australia) Limited Macquarie Bank Limited Source: APRA / DFA
PROPERTY PRICE GROWTH PUTS BANKS AT RISKS Most Australian banks are facing a one- or two-notch rating downgrade over the next two years as rising residential property prices put financial institutions at risk. In a commentary on Australian banks entitled “Rising Economic Risks Could Cut Ratings on Most Australian Financial Institutions by One Notch”, S&P Global Ratings has examined the dangers of Australia’s hot housing market. Rising economic imbalances are increasing the risk of a sharp correction in property prices, analysts at the global ratings agency said. S&P highlighted eight financial institutions (including six banks) that would incur large credit losses and a subsequent credit rating downgrade if such a scenario were to occur. S&P makes these ratings adjustments by focusing on the Risk Adjusted Capital Framework. “Our risk weights applicable to a bank’s loans are calibrated to the economic risk we see in the country. Consequently, as economic risks in a country rise in our opinion, we increase the risk weights, and that pushes down the capital ratios,” Sharad Jain, director at S&P Global Ratings, told Australian Broker. “This in turn could have an additional downward impact on bank ratings. This is because our riskadjusted capital ratios are a key driver of our capital and earnings assessment, which is an analytical factor in our assessment of a bank’s rating.” In the event of rising economic risks facing banks in a particular country, this in itself would be enough to place pressure on bank ratings
within that country, Jain said. S&P expects property price growth to moderate and then remain at relatively low levels during the next 12 to 18 months. However, analysts warned there was a one in three chance of a ‘downside scenario’ occurring in which property prices could spike. The resultant rise in risk would weaken the capital ratios of all banks in Australia. For most banks, this movement would not be enough to put further pressure on their credit profiles. Thus, most financial institutions would only be downgraded by one notch. However, S&P Global gave a warning about eight Australian financial institutions, highlighting two banks – Auswide Bank and MyState Bank – as being at greatest risk in this ‘downside scenario’. “It is important to point out that, if our downside scenario materialises, to review our ratings on these institutions we would make an assessment of their position and plans in relation to capital, business, and broader financial profile,” Jain said. “A two-notch downgrade would be only one of the three likely outcomes in that scenario. The other two likely outcomes are a one-notch downgrade with stable outlook or a one-notch downgrade with a negative outlook.” S&P Global also warned about the risks posed for AMP Bank, HSBC Bank Australia, ME Bank and P&N Bank in these circumstances, although the agency admitted that parent support from these institutions is highly likely to prevent a two-notch downgrade.
10
COVER STORY LEVELLING THE PLAYING FIELD
New CRM software LoanFlare has launched in Australia promising to increase the lifetime value of brokers’ clients, facilitate referrals and decrease tedious administration time
IN THE space of a few years the word fintech has gone from being an industry buzzword to representing a powerful and undeniable presence on the financial services landscape. Investment in the Australian fintech industry has reached an all-time high, with KPMG reporting that $856m was invested across 25 deals in 2016, with an average growth rate of around 90% between 2012 and 2016. This wave of innovation and progress has arrived to shake up the finance arena, and with it the mortgage industry. Digital mortgage platform LoanFlare recently launched with the aim of helping brokers work smarter, not harder. Co-founded by CEO David Kim, the technology aims to address brokers’ three greatest pain points: administration time, digital presence and client retention, and it is the only CRM on the market that connects brokers directly with their clients. “LoanFlare was developed as we could not comprehend how, in 2017, there was still no digital mortgage interface between brokers and borrowers,” Kim tells Australian Broker. “In all other industries and services, online interactions are not only expected, but also becoming the norm.” LoanFlare has been a long time coming for Kim, and was initially developed as a B2C offering when Kim himself was a broker frustrated with the home loan process. He and a team of six developers set out to create a seamless and user-friendly experience for brokers and their clients. They realised that there is a tendency for borrowers to be uninformed and disengaged when it comes to their home loans, despite it being the most important financial decision they will likely make in their lives. But LoanFlare, according to Kim, allows clients to “feel informed, engaged and in control”, giving borrowers easy access to the status and content of their applications, as well as real-time serviceability calculations. “By the end of the fact-find, the clients have an insight into how their situation affects their ability to borrow, leading to more effective conversations with their broker,” he explains. The unique software Kim has co-created integrates with any aggregator CRM used by the broker and comes with a number of features, including direct digital data input and drag-and-drop document uploads. Kim explains: “In addition to automating the entire end-to-end experience, including product search, fact find, document handling and status tracking, LoanFlare’s vision is to keep clients engaged post-settlement through loan progress tracking and marketing automation.”
He believes that precious hours are being sucked up by these tasks – hours that restrict brokers’ capacity to make the most of the existing relationships they have with their clients. “Mortgage brokers are not leveraging the goodwill and trust created to effectively become financial concierges for life,” he says. “LoanFlare’s goal is to ensure that borrowers get the most out of their loans under the guidance of a trusted broker.” Kim’s platform does this by facilitating communication, engagement and trust between the broker and the client, while also opening up cross-selling opportunities with referral partners that benefit all three parties. “We slash the time spent on manual data entry and offline interactions allowing brokers to focus on high-level advice, originations and cross-sales,” he explains. “Furthermore, LoanFlare is built around centralising interactions and data, making the compliance process a breeze.” The promise of increasing client lifetime value is undoubtedly one of the most tantalising aspects of Kim’s new digital proposition, but how exactly does a CRM do this? Kim says it comes down to a vision to extend LoanFlare’s life cycle beyond settlement to the entire lifetime of the client. “We are building in bank feeds to track mortgage rates and payments as well as an offers dashboard that provides curated news, advice and recommendations for related products and services. The platform ultimately becomes a sticky portal, where clients can continuously engage with their home loans, their broker and the broker’s referral partners.” Another problem LoanFlare is solving for brokers is the need to have a digital presence. There is still an overwhelming number of brokers that don’t even have a website, and while this may work for the older, established brokers whose businesses have been built on word of mouth for years or even decades, it certainly does not work for brokers only now entering the highly saturated broker market. LoanFlare will speak to these brokers, giving them their own customisable website, instantly increasing the broker’s digital presence and catapulting them into Googleable territory. “Clients are now expecting a simple, online solution for applying for and tracking home loan applications. More and more borrowers are using online lenders such as Uno and Lendi, and we help level the playing field for all brokers … the success of these platforms highlights the need for brokers to look at the digital presence and efficiencies afforded by leveraging technology in their business.”
Bugbears and pain points One of the biggest bugbears brokers have in their businesses is the amount of time spent on administration, such as data entry. In building LoanFlare, Kim wanted to find a solution so brokers would instead be able to focus their energy on where it needs to be – their clients.
Times are changing LoanFlare is coming onto the mortgage scene during a time of intense change, and Kim and his team are focused on cutting through the noise of the dozens of fintechs swamping the market that in fact have little or no relevance to brokers and their businesses.
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David Kim, CEO and co-founder of LoanFlare
“LoanFlare arms brokers with the most flexible and comprehensive mortgage broking platform to compete in today’s fast-changing landscape,” he says. However, this comes at a price – $500 a month, to be precise, or $300 for those in LoanFlare’s early adopter’s program. This is, of course, another line item in the broker’s already extensive list of expenses, including the fee already paid to their aggregator, who is supposedly providing the only CRM the broker needs. But Kim isn’t worried. “Brokers have not objected to this price point, comparing it to the admin costs saved or simply one extra refinancing a year generated through the platform,” he says. “The cost for individual brokers to build a similar platform is prohibitive, and even a simple website may cost thousands.” So why not partner up with aggregators, whose CRMs are far from
perfect, as Kim suggests? It’s an idea he’s not ruling out. “We do recognise that aggregators are not software development agencies, and are open to white labelling all or part of our platform to enhance their technology offering,” he reveals. But for now, Kim and his team are focused on spreading the word about this new technology that promises to change brokers’ businesses for the better. “Our hope is that LoanFlare becomes the industry standard and best practice for mortgage broking platforms. We want to create a consistent end-to-end experience for all brokers and borrowers that integrates seamlessly with an entire ecosystem of broking tools and related services. We’re always listening to our customers and open to integrations from any partners to achieve this goal.”
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BEST PRACTICE SURVIVING THE STORM
Dave Hopson on the ups and downs businesses face, and the tricks of the trade that will help them to become resilient and, ultimately, survive
EVERY BUSINESS goes through cycles. They get started. They expand – sometimes rapidly. They decline. They consolidate. But if they’re not careful navigating the storms that the market and fate throw at them, they could cycle right out of existence, says Dave Hopson, managing partner at the information-technology consulting firm Triumphus. The author of Surviving the Business Storm Cycle: How to Weather Your Business’ Ups and Downs (www.davehopson.com) says that about half of all new businesses don’t make it to their fifth birthday, according to the Small Business Administration in the United States. Essentially, those start-ups stalled out. Maybe the reason was too little capital. Maybe it was a faulty marketing plan. Sometimes the reason may be that the technology crucial to any business’ success simply couldn’t meet the always-evolving challenges the business faced. “Transitioning from start-up to successful enterprise is always going to be a difficult undertaking,” Hopson says. “But that’s going to be even more so if your company hits an exciting growth phase and your back office fails to keep up.” As company leaders try to make sure their
businesses survive, Hopson says it’s critical that they keep these key points in mind:
phase as productively as possible, from start-up, to rapid growth, to deceleration and back again.
Professionalise the back office and IT That will keep your systems predictable and your IT ready to expand and adapt to the next phase the business faces. “And I don’t care what business you’re in,” Hopson says. “Information technology is your company’s backbone.”
Don’t stand still The business storm cycle will drive you to constantly reinvent yourself as a company. If you fail to recognise that the status quo won’t last forever, the market will leave you behind.
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Technology alone isn’t the answer, 2 though Successful ongoing transformation of a business depends on not just technology, but people and processes as well. Each must be fully integrated with the other two. When you leave out one, Hopson says, your business’ functions are no longer healthy, effective and productive – and you may not be able to survive the transition points on the business cycle. He developed an IT survival quiz to help business leaders assess how well they’re doing on this score. Keep employees informed and engaged It’s part of a leader’s role to let people know where the company is in the business cycle, and to educate, encourage, and inspire them to use each
3
4
Be prepared for a tornado Periods of high growth, which Hopson calls tornados, are caused by a new product, a new market, a new merger or a technological advance. “Companies that understand the characteristics of all the phases a business will go through are less likely to be caught unawares by these hypergrowth phases,” he says. “They know how to make one of these growth phases last as long as possible so they can get all the profits they can out of it.” Although it can seem like he’s sounding a dire warning, Hopson says with the right planning businesses can survive those tornados and thrive. When you do, take a deep breath and relax, he says – but not for too long. “Eventually, a new tornado will come along,” Hopson says, “and you will go through the entire cycle all over again.”
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14
OPINION A NEW APPROACH
Anthony Millet, CEO of BRICKX on looking to new, innovative ways to get onto the property ladder amid an overheated market thus more affordable, or an individual has to have more money, so property at its current price seems more affordable. Given 65% of Australian wealth is tied up in property – over 9 million dwellings owned by individuals and investors – a fall in house prices is not in the nation’s wider interest. So let’s conclude that housing affordability is an issue, and will remain an issue. Different governments can tinker, but no single policy is going to be unanimously popular, and thus will likely never happen. A long-lost Aussie dream The Australian dream has moved on from owning a house on a quarter-acre block. It’s now about owning your first house, and then working towards your investment property and further exposure. The bar has been moved, and we’re living in a nation of haves and have-nots. Today’s millennials are among the most disillusioned – and rightly so. They may be getting a poor reputation with all the talk about smashed avo, but for them the concept of ever having enough money to buy a house – for the purposes of living in or even just as an investment – is daunting. In this information age, where the advice we get goes beyond reassuring words from our parents and friends, the case studies and hysteria about the demise of the FHB is self-fulfilling. The award for the most frustrated goes to those who decided four years ago that they would start saving for a house in Sydney or Melbourne, and how a $60,000 deposit was needed for a $600,000 unit (not to mention the stamp duty and other acquisition costs). After years of sacrifice and disciplined saving in a high-interest bank account, in the 2017 market, they would still find themselves with only 50% of the funds needed to buy the property
OF THE multiple columns I read each day on housing affordability, it isn’t often that the rhetoric stretches beyond the fate of the first home buyer (FHB), and it rarely covers the wider network of services and products that rely on FHBs achieving their goal of buying into a house. This stretches from the banks and mortgage brokers to the removalists. It appears, more than ever, young people are having to rely on intergenerational wealth exchange in order to improve their financial situation, but I guess this is for the lucky few. As the older generation holds on to their assets during this unprecedented property boom, how will the younger generation afford housing in the
Saving for a home deposit or for the future still resonates with millennials, but perhaps they should go about it differently. It’s time for them to look for alternatives to grow their wealth future? Maybe we need to start thinking about things differently, and move the conversation away from housing affordability to accessibility. After all, solving the affordability problem means that either a house has to become cheaper, and
they’d originally set their hearts on. So how are we going to solve this lack of accessibility? How are we going to inject a bit of optimism and hope into the disillusioned – and not just the millennials, but all those who
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consider themselves the have-nots, who have missed out on the returns of Australia’s best performing asset class over the last 20 years? Welcome, disruptors Enter the rise of fintech. And welcome the exposure of asset classes as never seen before. Customers are the fintechs’ world, and they obsess about customer service and customer experience. It’s about making something that may once have been exclusive accessible to everyone. There is no better way to do this than by harnessing technology. When it comes to access, this is where the concept of fractional property investment comes in. Fractional property investment has long been around through private syndicates and various
BRICKX gives Australians who would otherwise be unable to buy a house the opportunity to own a share in a property … allowing investors to save in line with the property market clunky, unlisted vehicles. It’s never really been an option open to everyone (retail investors), nor has it been accessible from purely an understanding or ease-of-use point of view. BRICKX (www.brickx.com) gives Australians who would otherwise be unable to buy a house the opportunity to access and invest in those aspirational, yet increasingly unaffordable, suburbs. Rather than own an entire house, they can own a share in a single property by buying Bricks, starting at under $100. This allows investors to save in line with the housing market – rather than sitting cash in a highinterest bank account – so if the property market continues to power along, so should the growth of the deposit. But what happens if the market retreats and the investment goes down in value? Property prices don’t rise indefinitely, despite what many think. Then one could argue, if you are saving in line with your absolute goal, then you are no further away from achieving your goal. With hindsight, it’s easy to call out the best performing type of investment over any chosen period, but doesn’t an inexpensive hedge to the property market make sense? Saving for a home deposit or for the future still resonates with millennials, but perhaps they should go about it differently. It’s time for them to look for alternatives to grow their wealth.
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16
INDUSTRY SPOTLIGHT SMOOTH TRANSITION Two lenders tell Australian Broker how strong communication is vital in commercial deals, and how resi brokers can more easily transition into commercial if they call on the support of their BDMs
THINKTANK
The scenario Recently one of our Melbourne relationship managers, Joel Harrison, was introduced to a broker who was still relatively new to home lending. However, being a successful accountant with a thriving practice, he saw many of his clients also in need of commercial finance solutions. As an accountant, he was on top of all numbers and serviceability; where he was looking for some further assistance was in the sort of conversations to have with both the client and the lender. For example, with the client, the broker wanted to know where a commercial finance discussion should start, how to go through the client’s particular needs and circumstances, understanding how the finance options affect cash flow, and what to say when it comes to rates and fees. With the lender, he needed to find out what the structuring considerations are, which product options are appropriate, how to bring together a commercial application, and which format to use, among other things. In this particular case, the broker’s client was seeking to buy two industrial units in Clayton, south east Melbourne, which would allow him to expand his business interests and investment property portfolio. Joel worked closely with the broker from the outset, to not only assist him through the client interaction and securing the finance, but more particularly in helping the broker establish a template which now enables him to confidently apply the same experience with other clients and lenders.
The solution It turned out that a self-certified mid-doc loan at 70% LVR was most suitable for the client’s circumstances in this case, which avoided the need to provide complete financial statements and tax returns across multiple entities. Joel then also helped manage the rest of the process through after the finance was approved, in dealing with the satisfaction of conditions, the execution of documentation and then seeing the settlement over the line. The first purchase was finalised recently with a loan of $352,720, while the second purchase settles in a few weeks with finance all approved and documented for $220,000.
Peter Vala, head of sales and distribution, Thinktank
The takeaway The broker would not have been able to write the two loans without the nature of the initial engagement being framed in the way it was, with the “on demand” support offered by Thinktank. The broker has since launched into
commercial lending with real revenue being produced from a number of settled and settling loans, and his clients are obtaining the benefits of a greater range of value-adding services. This in turn is helping to make his client relationships a great deal deeper and more enduring.
17
LA TROBE FINANCIAL
The scenario A self-employed applicant had purchased a commercial warehouse on a six-month term contract where the finance clause had expired and provided a 10% deposit. The purchase price was $2m with the applicant looking for 70% of the purchase price to complete the transaction. The property was to be altered through nonstructural renovations and fitted out to be used as an owner-occupied space. The applicant had been in discussions with his current financier, but after five months and still without an answer, he was starting to panic and turned to his local broker for a solution. What made this transaction even more difficult was a number of defaults on the applicant’s credit history, non-availability of current financial statements and his tenure of 18 months being selfemployed.
The solution La Trobe Financial is a story-based lender that gives potential clients the ability to articulate previous issues that traditional banking channels abandon. The broker’s previous interactions with La Trobe Financial gave us confidence that we could provide a holistic solution and meet deadlines under the Commercial Lite Doc product. The identified issues were mitigated as follows: • Servicing of the debt was evident with a verified accountant’s letter and borrower’s repayment declaration • Defaults were clearly explained as a result of one life event (minor trade defaults) • The applicant’s self-employment was overcome by their two-year tenure and a strong background of salaried employment in the same field • The applicant had the available funds for the office fit-out La Trobe Financial approved the loan at 70% LVR and duly met the four-week deadline for settlement.
The takeaway The broker was quick to explain to the client from the get-go where he sat in the
Steve Lawrence, vice president, head of credit, La Trobe Financial
current financing market, and immediately ran the scenario past the La Trobe financial relationship manager. The application forms – the same for all La Trobe Financial submissions – were completed and supporting documentation provided to ensure the transaction progressed smoothly and without any major hiccups.
Many applicants do not fit the strict lending criteria of traditional lenders, and the everevolving funding environment, tightening of regulations by APRA and the banks’ changing appetites provide opportunities for specialist lenders like La Trobe Financial to provide tailormade financing solutions.
18
TECH FOCUS BROKERS VITAL IN TECH-DRIVEN FUTURE With more and more information available to consumers looking for a home loan provider, brokers may play an even more vital role as a technology driven future industry appears almost certain
WITH THE shift towards a more device-led digital economy, brokers will begin to play a more important role as time-poor consumers demand instant decision making, according to Izzy Silva, general manager of consumer and digital marketing at Veda. Speaking in a panel at the RFi Group’s Australian Mortgage Innovation Summit 2017 on 24 February, Silva said that in this environment, brokers will play a very important role in helping customers make decisions in the face of an abundance of information and data. “It’s about the quality of the decision and the time to get to that decision,” he told the audience. “A broker can bridge that gap for the consumer. Build trust, and trust builds a longer-term relationship.” Also speaking in the panel, Mark Woolnough,
AUSTRALIA DEFIES FINTECH INVESTMENT TREND
A new high of
$856m
was invested in 25 deals in Australia’s fintech industry in 2016
This was despite a
47% slide
in fintech investment globally to $32bn
The industry is experiencing an annual average growth rate of around
90%
Source: KPMG
19
head of third party distribution at ING Direct, discussed how consumer trust of brokers’ value propositions had caused them to secure more than 50% of the market. “You don’t get to represent greater than 50% of a dual market if you don’t have a very strong value proposition,” he said. “The broker provides an element of honesty. They’re trusted and their role is to essentially take all of the complexity and confusion out of buying property or refinancing a home loan.” He sees broker market share continuing to grow in the next five years as the digital and human elements augment together. However, he said that any change would be gradual rather than
a massive shift. “In the next five or 10 years, there won’t be too much change. What will happen will evolve rather than be an out-and-out revolution.” Glenn Gibson, head of sales and marketing at AMP Bank, told the panel that any slight change would occur in the way that lenders and brokers did business. “Where it’s really interesting is it’s becoming more complex,” he said. “There is such a variety out there in regards to little nuances in products that the consumers just don’t understand the differences.” Therefore a broker’s ability to talk to customers and advise them of the right products will remain through face-to-face meetings, video conference calls or any other means, he said.
FINTECH PIONEERS VIDEO ID VERIFICATION Global software provider SuiteBox has upgraded its tech platform to allow multiple parties to witness the signing of documents, such as loan contracts, in real time. “This new functionality allows for a meeting host and up to three participants to meet together to virtually witness, sign and collaborate on documents in real time, in a safe and secure cyber environment. No other video conferencing software option offers this capability,” CEO Ian Dunbar said. While SuiteBox is not reinventing the concept of digital signatures, the firm has taken the concept to an extended level, he told Australian Broker. By combining the signing process within the digital portal, the platform allows brokers to meet clients through a digital work environment, upload different documents and bring digital signing into the process. “With the digital signing itself, there are two areas that we do that other digital signing providers don’t,” he said. “We capture a video of the meeting, including when the document is being signed, and then soon after release a screen snapshot as well.” This enables SuiteBox to bind a copy of the client’s identity into the digital signature, Dunbar said, effectively producing a record of the faces of those participating in the document signing. “We’ve done a lot of work around the importance of capturing the ability to evidence identity, i.e. being able to demonstrate who was actually in the meeting as well as all the credentials of the digital signing.” This video-based channel will allow brokers to engage with potential clients from the beginning of the loan process instead of communicating in person or
over the phone, he said. “A good example might be where a mortgage broker is dealing with a client from far away geographically or who is travelling. It gives the broker the ability to converse with the client or clients through that video channel.” SuiteBox is currently working to bring lenders on board and accept this new digital signing technology. “What we’re dependent on is the mortgage originators being prepared to accept a digital signature as part of the transaction,” Dunbar said. “That’s evolving but it’s not the case that all of them accept digital signatures today.” The firm has made the most progress in this area with non-majors and the nonbanks in terms of engagement levels. “Generally we find in that space that there are a number of providers that are quite actively looking at how they embrace digital technologies to ensure that they’re attractive as a lender, but also to speed up the process to expand their reach,” Dunbar said.
20
CONSUMER INSIGHTS
DEBT EXPOSED
A new analysis has shown that the banks’ underwriting measures may not be enough to save households from exposure if rates rise
DIGITAL FINANCE Analytics’ Martin North has published the results of a survey examining Australian household debt and they are “not pretty”, he has said. The findings are a result of North’s recent study of the sensitivity of mortgaged households, which showed that 20% of Australians are “on the edge financially speaking” despite the low interest rate environment. North’s latest research shows that although lenders have substantial affordability buffers and underwriting safeguards in place to allow for interest rate rises and to minimise the possibility of borrower default, these don’t take into account the large amount of other debt on the shoulders of many Australians. “Households with debts, on average and on top of a mortgage, have $12,000 in unsecured loans and $11,000 in card debt, of which $10,000 is revolving. These can cost as much to service each month as the mortgage repayment,” North said. Households aged between 40 and 59 have the largest loans and revolving balances, while those aged 60-70 have the largest card balances, the research shows. The higher the household income, the higher the debt amount, along with a greater ability to repay this debt. However, the majority of households are not in the high income segment, “where debt is still rife”. “Young growing families have on average close to $20,000 in debt, including some on revolving
HOUSEHOLDS UNDER DEBT PRESSURE
A wider view of mortgaged households’ finances $14,000 $12,000 $10,000 $8,000 $6,000 $4,000
Average of Unsecured Loan Balance
Average of Card Balance
Average of Revolving Card Balance
$2,000 $0 Total Source: DFA
cards (where interest is charged at a high rate),” North wrote. The highest debt levels were found in urban centres, including the ACT, Sydney and Melbourne, where the largest mortgages in the country are also found. In addition, younger households who are online most of the time and prefer to use digital channels borrow more than those who shun the internet. Wrote North: “Many households have large mortgages and other debts, including credit cards and personal loans. This entire portfolio of debt
must be considered when looking at their sensitivity to rising rates, and when comparing static incomes with rising debt repayments. Just looking at the mortgage gives only part of the full picture.” North added that a lot of this household debt would not have existed when the banks made their mortgage underwriting decisions. “That point-in-time view, however, does not necessarily still hold true,” he wrote. “Should ongoing affordability testing be required by the regulators?”
21
THANKS, MUM AND DAD
AVERAGE SUM GIFTED TO FIRST HOME BUYERS BY FAMILY MEMBERS
Queensland $47,000 Western Australia $19,000
AUSTRALIANS SAY PROCESS TO SWITCH BANKS IS TOO PAINFUL
South Australia $63,000 New South Wales $40,000
Nationally $41,000
Victoria $49,000
RISKY BUSINESS AS PARENTS CONTINUE DEPOSIT HANDOUTS A new survey has shown the extent of the new phenomenon of the ‘Bank of Mum and Dad’ – when parents gift cash to their children to help them fund a deposit for a house. According to national mortgage broking group MoneyQuest, this is a risky strategy for parents, and shows that the current affordability crisis is having a multigenerational effect. MoneyQuest’s findings show that currently one in five (19.1%) of first home buyers nationally rely on a cash gift from family members – a figure that rises to 30.7% of first home buyers in Queensland, and falls to 1.9% among first home buyers in New South Wales. Parents offering financial support are gifting, on average, $41,000 to help their adult children buy a first home. In addition, one in four (22%) first home buyers rely on the support of a guarantor – usually a parent – while 13% of first home buyers are opting to buy an investment property while still living at home. Only 3% of first home buyers nationally are rentvesting – purchasing a rental
property while continuing to rent themselves. Michael Russell, managing director of MoneyQuest said, “Declining housing affordability has seen first home buyer activity drop significantly, accounting for just 13.8% of new home loans at present, down from 18% ten years ago. “The fall in first home buyer numbers is rapidly becoming an intergenerational issue, with older parents under pressure to gift tens of thousands of dollars to their adult children at a time when the federal government is urging all Australians to provide for their own retirement.”
Australians are willing to switch home loans but believe the process is too painful – there’s too much paperwork and it’s not worth the effort – a new poll has revealed. The survey of 1,000 Australians conducted by BLACKMARKET Research focused on what drives competition in the banking market. “This poll shows Australians want competitive home loans, but they’re being let down by the switching system,” COBA CEO Mark Degotardi said. “Polls like this tell us there’s a problem – people want to switch but find it too hard to do so, so they simply give up. That’s not genuine banking competition.” The BLACKMARKET Research found that 36% of people are fairly or very likely to change home loans in the next 12 months. However, more than one-third of people say they haven’t switched because the process is painful, while one in five gave the reason as paperwork or it not being worth the effort. Single women are significantly less likely to switch. “We believe one of the reasons is the amount of time between a consumer asking to switch and their current home loan provider completing the paperwork,” Degotardi said. “All stakeholders need to have a closer look at this issue to see if switching can become more efficient. “If people want to switch from a major bank to a customer-owned banking institution, we find it hard to understand in 2017 how it can take up to three months in some cases.” The poll also found many customers were happy with their current provider, including four out of five customers at customer-owned banks. “Customer-owned banking is doing well, with market leading customer satisfaction and net promoter score ratings,” Degotardi said. “Part of the reason is our highly competitive and award-winning products, including our home loans that have average standard variable home loan rates 0.64% lower than the big four banks.”
22
COMMERCIAL COMMERCIAL PROPERTY OVERLOOKED BY SMSFs Population growth and a positive market outlook means commercial property could be a segment full of earning potential in 2017
COMMERCIAL PROPERTY should be considered as a core asset for self-managed superannuation portfolios, according to property fund industry leader Steven Bennett. With unlisted commercial property funds generating yields of more than 6% and a strong long-term growth outlook for the sector, he said that SMSF trustees should be taking a closer look at commercial property. Speaking at the SMSF Association National Conference recently, Bennett, the head of direct at property fund manager Charter Hall, said that the most obvious attraction of the sector is the high-income yields it’s generating: 6.25% and above for Charter Hall’s commercial unlisted funds, versus an average of around 2.5%-3.0% for residential property. Commercial leases also tend to be far longer periods than residential leases. For example, the average lease term in Charter Hall’s Direct Industrial Fund No.4 is 16.7 years, and the Direct Office Fund is 9.5 years, compared to a typical residential lease term of only six months to a year. Responding to criticisims of property fund managers in the past for over-gearing their funds, Bennett emphasised that this is not the case today, when dealing with large institutional property managers. Gearing levels for unlisted commercial property funds are around 45%, which is lower than the maximum gearing allowed on most SMSF limited recourse borrowing arrangements, he said. Bennett said that the fact that the population of Sydney, Melbourne and Brisbane is predicted to grow by 30% or more over the next 20 years suggests a positive outlook for the Australian property market. Population growth is an excellent long-term indicator of commercial property demand, in particular office property to accommodate workers, more industrial property to manufacture or distribute goods from and more retail property, where goods or services are ultimately delivered to consumers. There continues to be an ongoing and growing foreign investor interest in the local commercial property market as well, Bennett said, with 30% of Charter Hall’s institutional clients coming from 13 different countries. Offshore investors are attracted to the long
lease terms that underpin Australian commercial property, with regular rental increases that provide secure income growth structured into the leases. However, Bennett believes the positive attribute of a strong and growing income stream is just as relevant to SMSF trustees
as to major offshore investors. The overall risk and volatility on an SMSF portfolio can be reduced by a 10%-20% allocation to unlisted commercial property, he said. Therefore, any increase would provide significant diversification and portfolio construction benefits.
23
RESI CONSTRUCTION BUOYS ECONOMY
Residential construction rose 5.7% for the year to December 2016, according to the latest Australian Bureau of Statistics figures. While data across the nation is varied, with Tasmania’s construction down 8.4% and Western Australia’s down by 6.3%, it was a very different story in the ACT, Vic and NSW. Construction made the biggest gains in the ACT, rising 13%, Vic, rising 2.4%, and in NSW, where construction was up 2.2%. Residential construction in the Northern Territory also rose 1.1% in the December quarter. “Construction work may be coming down off the mountain in Western Australia,” Craig James, chief economist of CommSec told The Real Estate Conversation. “But in NSW the amount
of construction work completed has never been higher. Activity should only taper lower over the next few years.” Matthew Pollock, national manager of housing with Master Builders Australia said that this new data confirms the economy is still transitioning past the mining-boom phase. “The surge in housing construction, particularly for apartments in Sydney and Melbourne, will continue to soften the landing through the end of the resources boom,” he told The Real Estate Conversation. “Over the year, residential building work contributed over $70bn and accounted for around 4% of Australian GDP.” At the same time, he said, “the value of engineering construction work fell by $20bn, equal to around 1.2% of GDP.”
VIC FAVOURS OFF-THE-PLAN PURCHASES
Of the $28.7bn in FY15 advanced-off-the-plan (AOTP) approvals across Australia, 72% related to projects in Victoria and New South Wales, with Victoria accounting for $12.85bn in AOTP approvals (NSW recorded $7.77bn). VICTORIA
$31.2bn RESIDENTIAL
COMMERCIAL
$25.5bn Developed
$5bn
New dwelling
$5.4bn
$5.7bn
For development
Developed
$20.6bn
Redevelopment
$0.8bn
$4.8bn Vacant land
$1.3bn
For development
$0.9bn
Advanced off-the-plan
$12.9bn
Source: FIRB
24
MARKET WRAP THE QUIET ACHIEVER The picturesque state of Tasmania is starting to catch the attention of savvy property professionals, as new research shows Hobart is enjoying the lowest vacancy rate in Australia and a strong return on investment
AUCTION CLEARANCE RATES OUTDO THEMSELVES
3,232
The number of auctions held across combined capital cities in February
Sydney and Melbourne experienced a record high volume of auctions for the month of February
78.6%
The combined capital city preliminary clearance rate reached a new record high over the year to February 2017
of properties sold in the week ending 26 February 2017
Source: CoreLogic
NEW SQM research has revealed that house hunters across Australia may have been focusing their attention on the wrong states. According to Luca Simms, senior investment analyst at SQM Research, there is a new “quiet achiever” in the country when it comes to property opportunity, and it’s still being undervalued. “While the nation has been obsessed with Sydney’s unstoppable, unaffordable juggernaut of a property market, unassuming Hobart has been happy to step away from the limelight to become a rather quiet achiever,” Simms wrote recently. “It’s very easy for mainland east coast dwellers to forget about that little chunk of island all the way down south we call Tasmania, but perhaps it’s time we pay attention to this picturesque haven and, in particular, the evolution of its property market.” Simms said that vacancy rates in Hobart have rapidly declined by 1.42% over the past five years to record a February 2017 rate of 0.87%, giving Hobart the lowest vacancy rate in Australia. Stock-on-market levels have also been falling in Hobart, which has seen a 32% decrease in homes on the market and a 39% decrease in apartments since a peak recorded in November 2012. “Although slow, property asking prices have been rising over the past five years; houses have increased on average by 16% and apartments by 17%, showing compound annual growth rates of
3.02% and 3.19% respectively,” Simms said. Hobart also seems to be providing an excellent return on investment, he added, securing an average implied gross rental yield of 4.4% for houses and 5.46% for apartments over the past 12 months, second only to Darwin at 4.65% for houses and Canberra at 5.68% for apartments. Tasmania jumped from seventh to fourth position on CommSec’s recent state performance report based on various economic factors, and a growing population seems to be the cause. “More people have been arriving with less people departing the state,” Simms said. The Australian Bureau of Statistics reports that the Greater Hobart area has received the majority of Tasmania’s increased population. “This influx of population has boosted the local economy creating growth in terms of the job market and housing finance, where the annual growth on home lending is currently the strongest in the country at 8.9%,” he said. Sydney and Melbourne’s ever-increasing average house price means mainland property is becoming out of reach, especially for young people, Simms added. “So if you’re tired of the same old stories of Sydney’s unaffordability, or a looming oversupply of apartments in Melbourne, keep an eye on Hobart, it may be an interesting market to watch in the coming year,” Simms concluded.
25
INNER BRISBANE BOOM SOFTENS AFTER “TOUGHER YEAR” Place Advisory’s latest market report for inner Brisbane apartments has shown that Brisbane’s off-the-plan apartment market continued to soften in the December quarter 2016. A combination of the federal election and the various policy changes that were announced, higher construction prices, new lending policies for developers and purchasers as well as a clampdown on foreign investors “caused market uncertainty to be exemplified and resulted in softer sales results”, according to the report. “Following a record-breaking 2015, which saw the highest volume of transactions on record, 2016 was a considerably tougher year.” “Over the past 12 months, inner Brisbane has undergone a significant transformation,” the report says. This includes the shift in inner Brisbane in the level of one- and two-bedroom sales, particularly over the past five years. The number of one-bedroom apartment sales decreased from 52% in 2011 to just
36% in 2016, while two-bedroom apartment configurations increased from 38% in 2011 to 55% in 2016. Place Advisory says this indicates a shift away from smaller, more affordable stock to larger apartments. A total of 315 unconditional apartment transactions were recorded in inner Brisbane during this time, which was a substantial decline from the figure seen at the same period a year earlier: 1,293 transactions. According to Place Advisory, this new data brings the total sales for the year for inner Brisbane apartments to 2,149, a whopping 60% decrease over the prior 12-month period. However, this is also an increase of 68% over the number of sales recorded five years earlier in 2011, and the report says that this brings the figures back in line with the long-term 10-year average. The weighted average sale price for the quarter increased by 2.3% over the threemonth period to $631,270. As it stands,
71 projects across inner Brisbane are currently selling off-the-plan apartments; just three have been released during the most recent quarter. Approximately $1.304bn of off-the-plan apartment sales were recorded over the past 12-month period, Place Advisory says. “We expect that 2017 will be another challenging year, but we will see some great opportunities present themselves,” the report states.
HELLO, HOBART HOUSING
Vacancy Rates – Hobart 4% 3% 2% 1%
Jan 16
Nov 15
Sep 15
Jul 15
May 15
Mar 15
Jan 15
Nov 14
Sep 14
Jul 14
May 14
Mar 14
Jan 14
Nov 13
Sep 13
Jul 13
May 13
Mar 13
Jan 13
Nov 12
Sep 12
Jul 12
May 12
Mar 12
Jan 12
0%
Source: SQM Research
26
A BIG DEAL NICHE SOLUTION Anish Prasad, Australian Property Finance’s top loans writer for the past three years, on how he secured a loan for a disheartened and defeated couple wanting to buy their first home Anish Prasad
THE SCENARIO The clients were first home buyers who had signed a contract to purchase, as they wished to get out of the rental market and into their dream home. However, their real estate agent had some concerns that their finance application would fall over. The first home buyers had spoken to their local branch, who had informed them that they shouldn’t have any issues in gaining finance. However, after a week had gone by, the clients were contacted by the bank, who advised that their application had been declined. The clients were not given a specific reason; they were simply told their application did not fit the bank’s criteria at that stage. They were understandably disheartened as they figured if the bank they had used for the past 10 years couldn’t provide them with a loan, then no one would. Their agent had been right to feel concerned and referred them to me. I immediately made contact and could tell as
soon as I met them that they were shocked and defeated. They were ready to go back to renting. After speaking with the couple, I was able to identify the cause of the lender’s issue with their finances. The parents of one of the clients had recently gifted the deposit amount to the couple and the funds had only just gone into their bank account. This meant it had not been held for the required three months according to the bank’s genuine savings policy. I spoke with the clients about providing rental history as I was aware of some lenders who would use this as genuine savings. However, they were currently renting through a private arrangement with the property owner and not through a real estate office. This new information basically ruled out 99% of the lenders. I was shocked their existing bank had let them go through the whole application process while knowing this.
THE SOLUTION Among the 35-plus lenders that I have access to, I was aware of a couple that would accept the situation these first home buyers were in. Outside of the unacceptable length of time the deposit funds had been in their bank account, the remainder of their application was strong. They had strong employment history and income to service the loan. I delved more into why they had no savings, however, and they informed me they had two car loans, into which they had been directing all their surplus cash in order to pay the loans off early. They didn’t realise this would affect them in a negative way. We then compared the couple of lenders who would accept their scenario. The lender the clients settled on had a niche
product that suited their current needs and objectives. The clients wanted an offset account but also wanted the security of a fixed rate, as they wanted to feel safe in knowing their exact repayments for the first couple of years of the home loan. The lender who they went with not only accommodated their requirements but also had a more competitive rate then their existing bank. The lender also had no ongoing fees as they were first home buyers, and offered a 40-year loan term due to the applicants’ young ages. The application was lodged and approved within their existing finance period, making the clients extremely happy. Home ownership would become their reality and the clients could not be happier!
THE TAKEAWAY Deals like these really strengthen the benefits of using an experienced mortgage broker. These clients could have avoided the initial stress of the rejection had they gone to a broker first, rather than going straight to the bank. I was able to provide them with a better solution for their requirements and save them a considerable amount in fees and interest for the life of the loan.
Having access to a wide range of lenders who each have their own niches makes our jobs as finance brokers so much more satisfying, because it means we can help more clients get into their own homes. The couple has since referred me to a number of their friends and family members as they now understand first hand that it is in the home buyer’s best interest to use the services of a mortgage broker.
28
COALFACE IN THE DRIVER’S SEAT Australian Broker talks to an MPA Young Gun to find out the driving force behind her success what that walk-in wardrobe looks like!” she laughs. “It’s not to say that I didn’t have a life, which is a common misconception – if you have property you don’t have a life – I was living at home in the first couple of properties so I was able to save.” Working to get to the position she’s in now – standing out as a new broker in a top brokerage – was no easy feat, but Choi says she was prepared for the challenge and had no illusions that it would be an easy path. “I think the first year is always going to be the hardest, so you’ve got to be prepared to stick it out. Coming into this current environment now is definitely challenging as well, so you definitely need the support of the people and the lenders around you, but also your own motivation and drive to actually stick it out for at least a couple of years.” She says that although volume pressure and living up to both the clients’ and the brokerage’s expectations can be challenging, there are many advantages to being part of a top brokerage like ALIC. One reason in particular stands out for her. “The team,” says Choi. “Definitely, that’s the biggest advantage. We’ve got an awesome culture and we get support from people all in different roles. In terms of growing and building your business, that support – you can’t quantify that.” She urges new young brokers to work together with those who are like-minded, saying everyone can learn from and challenge one another.
BEING THEIR own boss, having more flexibility or desiring to focus on a niche are three of the most popular reasons bankers transition into broking. But Natasha Choi was inspired to leave her successful career in institutional banking behind for an utterly different reason. Having watched her friends positively impact the lives of others through their own careers in healthcare and science, she realised she wanted the same for herself – she wanted to help people. “I felt that I wasn’t necessarily getting the satisfaction out of helping everyday people because the transactions that we were working on [at the bank] were all large corporate deals,” Choi tells Australian Broker. “And I looked at my friends in the health and science space and their contribution back to society and I wanted to have that impact.” Choi has certainly managed to achieve this and seems to be making up for lost time. Because a mere three years into her tenure at multi award-winning Melbourne brokerage The Australian Lending & Investment Centre (ALIC), Choi recently made MPA magazine’s 2017 Young Gun’s list. She says that being a numbers person, she had a target she wanted to reach, and in writing $46m in the last year alone, she far exceeded it. But reaching for the big numbers wasn’t without some sacrifice.
“I look at my friends in the health and science space and their contribution back to society and I wanted to have that impact” “I was stoked, but I guess it goes to show how hard you work and I didn’t achieve it without compromising some of my lifestyle and personal time as well. It’s very challenging and it’s a choice that you really have to make,” she says. A different path Choi got her start as a broker at ALIC in a less conventional way, too, having been a client of ALIC principal Mark Davis before moving over to the other side of the client-broker relationship. She now specialises in servicing investor clients ranging from 28-50 years old, and her portfolio of four investment properties makes her the perfect example of how twenty-somethings can not only get a foot on the property ladder, but also quickly climb it, rung by rung. Choi says a property portfolio was something she always wanted to have and she made it happen by her early 20s, having purchased properties dispersed across the states of Victoria, NSW and QLD. “I have always thought about my dream home and
“Surround yourself with like-minded people and people who are better than you, who you can learn from. And be prepared to stick it out. It’s not easy.” Growing the female market share Choi is also a shining example for the increasing number of women who are choosing broking as a career path. Around 28% of brokers in Australia are female, and figures show they made up 34% of new recruits between October 2015 and March 2016. But when it comes down to what brings her the most joy in her job, Choi says it comes back to the reason she started on this path to begin with: interacting with and helping her clients. “It’s awesome to hear people’s journeys [and] their knowledge, or lack of knowledge about finance, which is somewhat scary!” So these days, rather than dealing with gargantuan deals for faceless corporations, she makes it her mission to educate her clients, and is creating a career that fulfils her own aspirations, too. “It’s always nice to make an impact on someone’s life.”
29
PEOPLE CAUGHT ON CAMERA On 21 February Mortgage Professional Australia held the first ever live-streamed Major Banks Roundtable featuring the broking heads of ANZ, National Australia Bank and Westpac. Moderated by Australian Broker editor Madelin Tomelty, (right, L-R) Warren Shaw, Simone Tilley and Steve Kane engaged in a discussion on the most topical issues currently faced by mortgage brokers in Australia, culminating in a Q&A with questions texted in by brokers watching online.
30
PEOPLE HOT SEAT
ZAC PETEH
The director of Sydney brokerage Mint Equity talks about moving from banking to broking, fighting for every client and his love of cricket
Who or what put you on the path to become a mortgage broker? Before becoming a mortgage broker, I spent A 20 years working for the banks building my lending experience across various roles in credit, relationship management and as a business development manager in the broker segment. In the five years before starting Mint Equity, I worked in direct client facing roles at NAB as a business banker and as a mobile banker to prepare me for the role as a broker. My wife and business partner, Leigh, was an integral part of me stepping out from the safety of a big bank. Having her support within the business for all the things I couldn’t or wouldn’t have time to do was very reassuring, and meant we could establish a professional business from day one.
Q
What has been the most challenging moment in your broking career? The first few months were the most A challenging – I had left the buzz of a dynamic sales environment at a major bank and replaced it with a home office environment. The social interaction I enjoyed at the major bank had changed significantly. I was lucky to have my business partner and former colleagues to bounce ideas off and satellite offices with financial planners and accountants, but it certainly wasn’t the same environment. I was keen to reconstruct the culture and environment that I’d had in my 20 years of banking. As the business grew, we were able to purchase an office in Somersby after 12 months when I took on my first employee.
Q
What is your point of difference as a broker? When you’ve been in banking and finance A for as long as I have, you retain a lot of experience and knowledge that helps turn a potentially declined application into one that will be approved. I’m tenacious so I’ll fight for every client and when it comes to the current lending market, it’s important to have someone in your corner fighting for you. What we do isn’t just paperwork and commissions; it’s people’s homes, their families and their future. We live in an instant world where people want information and reassurance quickly, which is probably why we’ve seen a rise in online lending. My philosophy is to give clients access to my knowledge quickly and easily – being responsive isn’t difficult, but it can be hard to find, so this is a point of difference for me.
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Where do you see broking going in the next five years? More and more people now just want great A service and expertise. Combining those two things within our industry means you can stand out from the crowd. I think there will be a greater demand and value in individual relationships with a client’s mortgage broker as a source of expertise, rather than online tick and flick models. There is a place for online finance models, and recent fintech innovations are proving popular with certain markets, but I feel these are a novelty and will lack longevity. Over the next five years, we’ll see an increased reliance on the broker network from lenders where it’s a more cost-effective model and clients are better serviced. Lending changes will always continue and
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complexity needs to be met with expertise, so brokers who can think outside the box will become an asset to clients. If you could visit any time, past or future, where would you go? From an industry specific standpoint, I would A like to fast-forward five years from now to see how the property and mortgage markets have recovered from the regulatory constraints currently in place and the improvement in the level of professionalism among brokers. Personally as a cricketing tragic, I would love to go back in time to the 1932-33 Ashes tour in Australia, when England came up with the highly controversial bowling tactic called Bodyline to try to stop Bradman. He still averaged 56 for that series.
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