JULY 2018 ISSUE 15.12
The fintech transformation How finance and broking can compete with the digital disruptors /16
Hold the front page MFAA CEO Mike Felton responds to brokers’ bad press /20
MARIO REHAYEM Pepper Money’s Australia CEO talks about the lender’s new broker toolkit, commercial loan product and record-breaking performance /14
Caught on camera All the action from the inaugural Broker Business Exchange /24
ALSO IN THIS ISSUE … Big deal How one broker transformed family life for their client /18 Opinion Teachers Mutual on the rising demand for ethical banking /22 In the hot seat Pivotal Financial’s Matthew Andrews reflects on 20 years in finance /30
NEWS
IN THIS SECTION
Lenders Educational qualifications can predict home loan success /04
Market Rise in variable rate home loans continues /08
Associations MFAA responds to brokers’ bad press /06
Technology Smart speakers could challenge broker space /10
Regulators Regulatory challenges offer “incredible opportunity” /12
www.brokernews.com.au JULY 2O18 EDITORIAL
SALES & MARKETING
News Editor Rebecca Pike
Sales Manager Simon Kerslake
Journalist Nicola Middlemiss Production Editor Roslyn Meredith
DATES TO WATCH
Upcoming can’t-miss events
ART & PRODUCTION Designer Martin Cosme Production Manager Alicia Chin
2 J U LY
4 – 3 1 J U LY
1 9 – 2 6 J U LY
Royal commission hearings recommence
Vow Academy PD days
FBAA’s Industry Commercial Masterclass
The second part of round four of the public hearings of the royal commission into misconduct in the BSFS industry recommences on Monday 2 July in Darwin. The last leg of scheduled hearings comes ahead of delivery of the commissioner’s interim report, due for publication before 30 September 2018.
Visiting Brisbane, Perth, Hobart, Melbourne and Sydney, Vow Financial will hold a series of professional development days, compliance workshops and webinars throughout July to help brokers stay on top of ongoing regulatory changes. With compliance and governance in the spotlight, these are must-attend events.
Taking place in Brisbane (19 July), Melbourne (24 July) and Sydney (26 July), the FBAA Industry Commercial Masterclass will include six interactive presentations on best practice commercial lending, opportunity development and customised solutions, with speakers from Thinktank, CoreLogic, ING, Suncorp, Macquarie and St. George.
Traffic Coordinator Freya Demegilio
Marketing and Communications Manager Michelle Lam
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
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Rebecca Pike +61 2 8437 4784 Rebecca.Pike@keymedia.com
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tel: +61 2 8O11 4992 fax: +61 2 9439 4599 subscriptions@keymedia.com.au
2 5 – 2 6 J U LY
2 6 J U LY
2 6 J U LY
The Summit 2018, Melbourne
Lunch with Bankwest
MFAA National Excellence Awards
Organised by the Financial Services Council, The Summit covers high-level policy issues shaping the industry, including key challenges it faces. The Summit will discuss issues facing wealth management, with concurrent sessions delving deeper into the details of advice, superannuation, investment, tax and life insurance.
Hosted by the not-for profit organisation Finsia, this lunch-time networking opportunity in Perth will provide attendees with the chance to hear from – and meet – Rowan Munchenberg, MD of Bankwest. Munchenberg will speak about tech and innovation at the bank, as well as Perth’s economic opportunities and the royal commission.
The MFAA National Excellence Awards, to be held in Melbourne, brings together the best of the best from the State Excellence Awards. This year it will feature several additional categories, including the Aggregator Award and the Support Service Provider Award, as well as four member voting awards.
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Simon Kerslake +61 2 8437 4786 simon.kerslake@keymedia.com.au
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7 – 14 AUGUST
5 – 7 SEPTEMBER
19 OCTOBER
Regtech
Credit Law Conference
Australian Mortgage Awards
Taking place in Adelaide (7 August), Perth (8 August) and Melbourne (14 August), Regtech will showcase products from banking, financial services and insurance that deliver the latest developments in regulatory and compliance technology – a sector hotly tipped to become ‘the next fintech’.
The annual Credit Law Conference returns with an industry-leading line-up of speakers, including Anna Bligh, CEO of ABA; Michael Saadat, senior executive leader, deposit takers, credit and insurers, at ASIC; Sally MacKenzie, director of COBA; and Helen Coonan, chair of AFCA.
The leading independent awards event for the mortgage industry returns this year for another action-packed night in October. Recognising the outstanding achievement of Australia’s top mortgage brokers, lenders, aggregators and advisers, it will be hosted by Lawrence Mooney and features Furnace and the Fundamentals and Linden Furnell.
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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.
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NEWS
LENDERS NSW BORROWERS ENJOY BETTER RATES data suggests lenders are, on average, providing better rates to customers in NSW than to those in Queensland. The biggest discrepancy was found with ANZ, whose rates in the two states differed by 39.57 basis points. ANZ’s average rate in Queensland costs homeowners nearly $2,000 more per year. A spokesperson said, “Customers can negotiate discounts on their home loan rate depending on a range of factors, including loan type, size, LVR and location.” NEW
HOME LOAN SIZE REACHES RECORD HIGH Sources: ABS, CommSec
Average new home loan growth 2008–18 $400,000 $398,000
$360,000
$320,000
$280,000
YOUNG AUSSIES WORRIED ABOUT BORROWING conducted by RESEARCH Westpac has found that 63% of young Australians lack the financial literacy and confidence to understand how to apply for a loan. Westpac’s 2018 Financial Literacy Study surveyed 600 Australians aged between 15 and 20 and found that 71% are worried they are making bad financial choices and 59% do not feel prepared or confident enough to fill out a tax return. Additionally, 53% claim they do not understand superannuation.
“The availability of housing credit has tightened substantially, which is the primary driver of slower housing market activity and falling home values” Tim Lawless Head of research, CoreLogic
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$240,000 Jan 08
Jan 10
Jan 12
Jan 14
EDUCATIONAL QUALIFICATIONS CAN PREDICT HOME LOAN SUCCESS HomeStart execs urge industry to adopt fresh approach to borrower profiling during World Bank Group conference held in Washington, DC South Australian governmentbacked lender has presented research to an international conference hosted by the World Bank Group that correlates educational qualifications with the likelihood of a borrower falling into financial difficulty. HomeStart Finance CEO John Oliver and head of strategic development Andrew Milles presented their paper at the 8th Global Housing Finance Conference, held under the theme ‘Breaking the Mould – New Ideas for Financing Affordable Housing’. Addressing the conference in Washington, DC, Milles and Oliver explained HomeStart’s method of using education as part of the credit decision-making process and how A
this could be an effective alternative means of assisting a potential borrower in obtaining finance. HomeStart head of retail Deborah Dickson said, “At HomeStart Finance, we strongly believe educational qualifications are an essential feature of developing a case for prospective borrowers, and that it should be more widely used in housing finance systems across the globe, particularly in credit assessments. That is the primary message we hope audiences at this global forum will take away and consider for their own lending practices and organisations.” HomeStart Finance has reached $2bn in total lending since it was established in 1989. The non-bank supports those with higher education
Jan 16
Jan 18
in getting home loans, and one product has seen particular success. The HomeStart Graduate product recently achieved $1.1bn in loans since its launch in 2003, more than $500m of this in the last three years. Dickson added, “The HomeStart Graduate Loan, with its low deposit and flexible repayment options, has been extremely attractive to borrowers who have recently completed higher education study. Thanks to HomeStart Finance, more graduating students have been able to secure their first homes without the fear of large financial stresses.” Standard & Poor’s Performance Index for Australian prime mortgages showed that arrears increased to 1.18% from 1.16% in February; however, year-on-year figures remained relatively unchanged. Overall credit growth and home prices are likely to be affected by the continued tightening of lending standards in the wake of the royal commission, although that is expected to help contain the growth in household indebtedness.
NEWS
A S S O C I AT I O N S FBAA RELEASES CONFERENCE DETAILS FBAA has adopted the theme of evolution for its 2018 Gold Coast conference. The event will take place at Sea World in November and will include updates from ASIC. Following the conference, the ‘Awards of Supremacy’ will take place, followed by the Firstmac after-party. “I think we can accurately say that we are at a time of great change, and the industry must evolve if we are to grow stronger,” said FBAA executive director Peter White. THE
HIA REPORTS INVESTOR LOAN DECLINE value of housing loans to investors has dropped to its lowest level since the start of 2016, declining 27.4%. The value of investor loans fell from $12.6bn in April 2017 to $10.7bn in April 2018. Housing Industry Association principal economist Tim Reardon said, “The fall-off in investor participation has been caused by a number of factors, including tighter financial regulations and the targeting of certain loan products favoured by investors.” THE
MFAA RESPONDS TO BAD PRESS RECEIVED BY BROKERS MFAA to present new figures to government and ASIC demonstrating broker value to the finance industry a letter to its members, the
IN MFAA has highlighted the
positive impact brokers have on the lending market, quoting new data that confirm a customer satisfaction rate of 92% and a reduction in complaints of 78%. The figures highlight a series of positive trends that MFAA CEO Mike Felton will present to both the government and ASIC. “While consumers benefit from the service brokers provide, we continue to be criticised as though the broker channel is systemically rotten. So we decided to examine additional real data for answers, to bring an accurate presentation to government and to ASIC. The numbers don’t lie,” Felton said. The volume of complaints to
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major bodies has declined sharply over recent years. While brokers represent 91% of the Credit and Investment Ombudsman membership currently, complaints against them account for only 6.1% of the total volume received last year – a near 50% reduction on 2008 figures. Further, brokers account for 1% of complaints to the Financial Ombudsman Service, and ASIC has made 15 broker convictions between 2010 and 2017, representing one in 9,000 brokers per annum. Assessing its own complaints data for 2008 to 2017, the MFAA said consumer complaints had declined 78% to what it termed a “negligible 55 per year”. The body
expelled, cancelled or suspended the membership of 75 brokers over the same period. In 2017, there was less than one consumer complaint for every 21,000 new contracts, and the consumer Net Promoter Score currently stands at +70, with customer satisfaction at 92%. “If our industry was systemically rotten you would have complaints and arrears going up, competition and consumer support declining, and you would have interest rates rising. We have a very different picture,” Felton said. In the first three months of 2018, brokers’ share of the market increased 1.7% year-on-year, from 53.6% to 55.3%. Further, in 2017, the major lender paying the highest commission received the lowest share of business among the four majors. “It’s a phenomenal performance,” Felton said. To help brokers leverage the positive trends, a series of marketing materials will be made available on the MFAA website.
“Elder financial abuse is one of the most common forms [of abuse] and one that local bank branch staff witness regularly” Anna Bligh CEO, Australian Banking Association
NEWS
MARKET AFFORDABILITY IMPROVES IN MARCH QUARTER affordability improved nationally in the March quarter, according to figures from Adelaide Bank and the Real Estate Institute of Australia. The proportion of family income spent on loan repayments decreased 0.3 percentage points to 31.3%, while the proportion of income required to meet average rental payments increased to 24.8%, a quarterly increase of 0.3 percentage points. The number of first home buyers decreased by 14.5% during the quarter, but year-on-year there was a 28% increase. HOUSING
HOME LOAN APPLICATIONS TAKING LONGER experiencing longer turnaround times need to give their customers realistic expectations, according to Liberty group sales manager John Mohnacheff. With delays attributed to the increased uncertainty that lenders are facing – as well as incomplete applications – Mohnacheff said, “Brokers have to set the right expectations with the borrower. They have a choice of other lenders that may not be affected in the same ways as the major banks. Brokers need to double-check processing times before putting in an application.” BROKERS
“[Interest rate] increases are already starting to flow through, and we could see upward rate movements of more than 20 basis points” John Kolenda Managing director, 1300HomeLoans 6
RISE IN VARIABLE RATE HOME LOANS CONTINUES More borrowers opt for variable rate loans, and first home buyers are “propping up the market”, says Mortgage Choice CEO data has shown a 2% increase in borrowers opting for variable rate home loans as demand for fixed rate loans fell for the eighth month in a row. According to Mortgage Choice’s latest national home loan approval data, variable rate home loans accounted for over 82% of all home loans written in May 2018. This is up over 2% from April and almost 7% higher than the 12-month average. Susan Mitchell, Mortgage Choice CEO, said, “This trend will continue as borrowers develop apathy towards the Reserve Bank of Australia’s stagnant cash rate. Indeed, we continue to see borrowers opt for the flexible nature of variable rate home NEW
loans, which may offer a redraw facility, offset accounts and the ability to make extra repayments. These features are not typically associated with fixed rate loans. “While a fixed rate product provides repayment certainty, variable home loan rates have been relatively stable for a prolonged period of time, giving borrowers little incentive to fix,” she said. According to ABS housing finance data, 52,116 home loans were approved in April, down 1.4% from the previous month. “Unsurprisingly, the value of investment loans dipped somewhat, falling 0.9% to $10.7bn in April, which could reflect tighter lending standards
and serviceability policies,” Mitchell said. “However, May data is likely to show an increase in investment loans following APRA’s lifting of its cap on investor loan growth at the end of April. “ABS data also shows the value of owner-occupied housing loans in April rose just 0.2% to $20bn. “The data also showed, in original terms, the number of first home buyer commitments as a percentage of total owner-occupied housing finance commitments rose to 17.6% in April 2018 from 13.7% in January 2018. “This increase is significant, and first home buyers seem to be propping up the market.” Looking ahead, Mitchell expects a combination of factors, such as historically low interest rates, easing property prices and access to first home owner grants, to maintain home loan demand, whether variable or fixed. However, preparation remains key.
CONDITIONS AND CONFIDENCE EASE Source: NAB Monthly Business Index
Business conditions and confidence index
-40%
30 20 10 0 -10
-20 -30 -40 Sep-98
Sep-01 Business confidence
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Sep-04 Business conditions
Sep-07
Sep-10
Sep-13
Dotted lines are long-run averages since Mar 97
Sep-16
CHINESE INVESTMENT DECLINE: SHOULD AUSTRALIA BE WORRIED? Source: KPMG’s annual report, Demystifying Chinese Investment in Australia, in collaboration with the University of Sydney (June 2018)
Australia is the second-largest recipient of accumulated Chinese investment globally, receiving just under US$100bn since 2008 Downtrends trend
11%
29%
33%
decline in Chinese investment in Australia in 2017, now valued at $13.3bn
global decline in Chinese overseas direct investment (ODI) in 2017
of Chinese ODI channelled into real estate, down 22% on the previous year and valued at $4.4bn
Driving forces
70%
67%
35%
of survey respondents say political debate has made Chinese companies more cautious about investing in Australia
see the federal government as less supportive than previously
of surveyed companies feel welcome to invest in Australia, down from 52% in 2014
BUSINESS CONDITIONS DOWN FROM RECORD HIGH business conditions index decreased by six points to +15 index points, easing back from the historical highs seen in April, according to NAB’s Monthly Business Index. Meanwhile, business confidence fell by five points to +6, maintaining its long-run average level. Conditions eased in most industries in May, with the exception of transport and utilities and retail. However, overall conditions remain at above-average levels and, in trend terms, are strongest in mining. NAB Group chief economist Alan Oster said, “The survey continues to suggest a broad-based strength across industries and most states. Both business conditions and leading indicators continue to suggest a pick-up in growth.” THE
NEWS
TECHNOLOGY
MORTGAGE MARKETPLACE AUTOMATES EXPENSES mortgage marketplace HashChing has partnered with Equifax to automate the collection and categorisation of income and expense receipts. The partnership hopes to lessen the amount of time brokers spend sorting through paperwork and bank statements in order to accurately determine a borrower’s expenses. By integrating Equifax’s MOGO software into its platform, HashChing will be able to provide its brokers with secure digital access to their clients’ complete 90-day transaction history. ONLINE
SMART SPEAKERS COULD CHALLENGE BROKER SPACE A futurist and fintech co-founder has encouraged brokers, banks and the wider financial industry to accept and evolve with technology to the co-founder and CEO of fintech start-up Moven, smart speakers will be the next challengers taking on the broker space. Speaking at AMP’s Amplify event on 13 June, Brett King said Google Home or Amazon’s Alexa could become key players in the homebuying process, minimising the number of interactions it takes to secure a home loan. “Ideally what would happen is by the time you walk into the display home or village we know where you are, and there’s a good chance you’re in the process of buying a home. So then we have to look for the behavioural trigger that indicates you’re
ready to make a purchase on the home; that maybe you go into your account to look at how much you can afford for a deposit,” King said. “Pre-approval is a very important construct here. If you think about lowering friction, one of the key data competencies that financial services or organisations will have to have is the ability to approve in real time. If you have to wait to approve someone for a mortgage or a line of credit, you’re going to miss out on future business.” King also discussed the possibility of Airbnb underwriting home loans when buyers agreed to rent out rooms in exchange for help on their loans.
ACCORDING
AMP Bank group executive Sally Bruce said brokers were already providing a frictionless service by completing the paperwork and other processes for borrowers. She said having these kinds of conversations was vital to making sure the financial services sector, including AMP, could evolve to maintain relevance. “All industries, including financial services, will evolve as technology continues to drive change,” Bruce said. “It is both smart and necessary to be actively working to anticipate these changes. “No one is immune to the changing landscape, and mortgage brokers and advisers have an incredibly important role in this evolution, given the valuable service they provide in supporting more than 50% of all Australians seeking a home loan.” For more on this story, turn to page 16
FINTECH REVENUE GROWTH SUBSTANTIAL Source: EY Fintech Australia Census
Year-on-year fintech post-revenue growth Revenue decline Nil growth
6% 10% 20%
1% to 100%
24%
101% to 300% 301% to 700% >700%
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14% 24%
Median fintech post-revenue growth in 12 months to June 2017 208% increase
ASIC REVIEW POSTPONES IPO has released a statement after an ASIC investigation caused it to postpone trading on the Australian Stock Exchange, saying it is satisfied the issues are not material to the IPO. The company was due to commence trading on 6 June but held back after ASIC requested information on some of its loans as part of broader industry reviews. Following consultation with joint lead managers UBS and Macquarie, the IPO remains on hold. PROSPA
NEWS
R E G U L AT O R S
ASIC BANS FORMER NAB ADVISER former NAB financial adviser who incorporated a company to operate a mortgage broking business has been permanently banned by ASIC. Sydney-based Max Kiattisak Eung was banned from providing financial services and engaging in credit activities following an ASIC investigation into his conduct between March and December 2016. It was alleged that during this period Eung created two false bank accounts, misappropriated client funds, falsified documents, and impersonated clients. A
REGULATORY CHALLENGES GIVE BROKERS ‘INCREDIBLE OPPORTUNITY’ Broker Business Exchange panel reports that consumers trust their brokers more than their banks
panel of leading brokers has reported that customer trust in the sector remains strong, while confidence in major banks is in decline. Speaking at the Broker Business Exchange (BBX) on 6 June, the panel shared anecdotal evidence on customer sentiment in light of the royal banking commission. Liz Wilson, director of Wilson Financial, said, “We haven’t had anyone explicitly tell us they don’t trust more brokers any more. They don’t trust banks is what I’m hearing. This is a great opportunity for us to reposition ourselves as trusted advisers. It’s almost as good if not better than the GFC was. It shook people. A
COURT PROCEEDINGS BEGIN AGAINST WESTPAC has begun federal court proceedings against Westpac in relation to poor financial advice provided by one of its former financial planners, Sudhir Sinha. In court documents, ASIC alleged that, in four sample client files, Sinha breached the best interests duty under the Corporations Act, provided inappropriate financial advice, and failed to prioritise the interests of clients. Sinha provided financial advice in Perth as an employee of Westpac from 2001 to 2014.
“We’re all adapting; we’re all getting better. I think we can position ourselves as more trusted within the industry if we do it right. We have had more enquiries, people referring me I’ve never had before. It’s interesting to see they’re having conversations they have never had.” Wilson was joined on the panel by Nathaniel Truong, director of The Loan Lounge; Kim Horan, Aussie Top 100 broker and franchise owner; and Brenden Lowbridge, associate director and finance strategist at Money Links. Horan agreed and added, “I think it’s going to be an incredible opportunity for us as
mortgage brokers in general. There are people that ask questions, but, as Liz has already said, it positions us in such a place of strength. “Our value proposition is better than before. We offer genuine service for the life of the loan, so we are going to touch base with them, we are going to make sure their product is competitive, we’re going to compel them to stay in touch with that part of life.” Truong commented, “I think it’s going to be constant disruption. I think as brokers we just have to be ready to adapt to the changes, work with what we can control and ignore what we can’t control.” BBX welcomed panellists and guest speakers from across the country, with topics covering specialist lending, the new digital landscape, time management and business strategies. The conference is scheduled to return in 2019.
LOW PERCENTAGE OF CIO COMPLAINTS
ASIC
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Source: MFAA
6%
9% CIO membership: 2016–17
CIO complaints: 2016–17
Mortgage brokers
91%
Other
Mortgage brokers
94%
Others
TECHNOLOGY UPDATE
NEWCASTLE PERMANENT’S WINNING TECHNOLOGY GAME PLAN
Simon Burt
Permanent Building Society is reaping the rewards of delivering state-of-the-art solutions to the broker channel. “We rolled out ApplyOnline around five years ago, and during this time we’ve incrementally added optional functionalities and tools,” says Newcastle Permanent’s manager broker origination Simon Burt. “This software has enabled us to compete on a level playing field with the major banks, and the big-picture advantage for us is that ApplyOnline facilitates choice for brokers and borrowers.” Since the implementation of the software, Newcastle Permanent has been able to save one hour per application in processing and data entry time. “The faster we can process a loan application, the faster the broker and the customer get an answer,” says Burt. “For us, ApplyOnline has enabled us to provide an industry-standard platform for brokers while allowing us to customise the application form to meet our own policy requirements, and it has integrated with our other systems.” Newcastle Permanent’s success doesn’t just rest on competitive pricing; it’s also the result of a highly refined level of customer NEWCASTLE
Steven Hudson
service to its broker partners. Complementing Newcastle Permanent’s broker relationship style, NextGen.Net customer account manager Steven Hudson says: “They see brokers as an extension of their sales team. They’ve adopted a holistic approach and support brokers the way brokers support their customers.” For Burt customer service is up there alongside “staying ahead of the curve in terms of technical enhancement and competitiveness regarding pricing”. “We’re striving to be more hands-on,” he says. “We view that as a pivotal aspect of our customer service initiative. “Processing a loan is still quite a manual operation, so we need to get whatever efficiencies we can out of the technology. For that reason, we’re doing more with NextGen.Net to automate the process and reallocate human resources to other value-add activities. “If we can automate the task, it frees our staff up to talk to brokers and deliver better service.” Hudson says that with the lending environment constantly evolving, Newcastle Permanent is taking full advantage of ApplyOnline’s adaptability and ability to deliver rapid solutions to
the changing requirements. In March, Newcastle Permanent launched an ApplyOnline add-on functionality to capture a 13-category breakdown of borrowers’ living expenses. “The team at Newcastle Permanent is at the top of their game. They are early adopters of smart technology and were the first lender to leverage ApplyOnline for effective expense capture,” says Hudson. Burt says, “NextGen.Net was able to build that functionality for us. Receiving the split expenses rundown has made a big difference in Newcastle Permanent’s ability to assess the rationality of a customer’s declared expenses when assessing an application. “We offer it as an efficient option for brokers, and the proof is in the pudding: 75% of our brokers use the full functionality.” NextGen.Net’s development team is in constant communication with Newcastle Permanent’s team and are already working on new tailored functionality. “Newcastle Permanent is breaking new ground in the lending space and continue to ensure their brokers have the best technology tools available to streamline the loan origination process,” says Hudson.
FE AT URES
SPECIAL REPORT
THE BRAND BUILDERS Enjoying a record year to date, Mario Rehayem, Pepper Money’s Australia CEO, explains how and why the lender has rolled out the definitive guide to broker branding
KEY BUSINESS METRICS
95%
of loans originated from broker channel
10
months of record loan volume growth
4%
predicted market share for new commercial loans
30%
year-on-year increase in the number of brokers using Pepper Money products
3,000
brokers have used the Pepper Product Selector tool
>1,500
brokers have used PPS repeatedly
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the outside looking in, self-employment is a whirlwind of homeworking, flexible hours and long lunches. However, for those who establish their own enterprise, the reality is very different. The number of self-employed Australians has declined almost 2% since 2010 to 16.5% of the total workforce, and in broking 50% of new-to-industry brokers close shop within the first 18 months. It’s fair to say that self-employment brings as many obstacles as it does opportunities. While practical business advice can be difficult to source, one lender has placed a renewed focus on supporting brokers with what is arguably one of the most challenging elements of business operations: marketing. Last month, Pepper Money debuted an alternative lending toolkit at its annual Insights Roadshow, which visited Melbourne, Adelaide, Perth, Sydney and Brisbane. Described by CEO for Australia Mario Rehayem as a natural extension of the alternative lender’s Brand Hand, introduced in 2013, it’s the latest third party channel investment from Pepper Money, devised in response to broker demand and market trends. “Since we started the Pepper Money Roadshow the one consistent message that has come from brokers is that they love dealing with us but don’t know how to market to alternative lending customers,” Rehayem says. “Then another theme was that they like our marketing, messaging and branding but need support FROM
with marketing their own business, within and beyond the alternative lending space.” In response, Pepper Money pulled together the expertise of its marketing, analytics and sales teams to create the ultimate guide to broker branding. Described by Rehayem as a “meaningful investment”, the toolkit has been designed in response to more than six years of data collected from Pepper Money’s own surveys, reports and analysis, repackaged
Behind the name While there is no single formula for creating a successful brand, the first rule of marketing it is to associate your brand’s name with its values and then consistently push those elements across all activity. However, that can be difficult to achieve unless the products and services on offer align with the name over the door. Pepper Money’s white label loans are identical to its branded products, and because lending authority and underwriting functions are retained in-house, standards, compliance and customer satisfaction are safeguarded while the broker’s brand is supported to grow. “The white label space is constantly changing,” says Rehayem. “It has moved from the old days where lenders had
“This is just a natural extension and the result of constantly listening and giving back to the broker market” Mario Rehayem, Australia CEO, Pepper Money for the brokers who drive 95% of all the lender’s business. The kit contains three tools: referral partner collateral, a customer satisfaction survey template, and alternative lending content to help brokers create their own website landing pages. “This is just a natural extension and the result of constantly listening and giving back to the broker market by leveraging our internal expertise, our business, as well as what we have learned over the years,” Rehayem says. “These tools allow brokers to come up to speed quicker and get insights from the learnings we have applied to our own business in both the direct-to-consumer channel and broker channel. So it’s a bit of both.”
their own credit, customer service and sales team to having hybrid models where the partner takes responsibility for those functions. “Then there is the new version of white label, the fintech-style brokers and networks that are 100% online, direct to consumer. It’s an old system and an old offering that is evolving as everything else evolves. You have people spending millions of dollars on their own brand, and they want to extend it. We cater to their needs as well.” Helping brokers to select the right product for a customer, the Pepper Product Selector (PPS) tool was developed in-house to give brokers the confidence and information required to
In partnership with
Mario Rehayem, Australia CEO, Pepper Money
offer a wider range of products. PPS uses the responses to a 12-point questionnaire to return information on rate, fees and other terms and conditions within two minutes, 24/7. To date, 3,000 brokers have used PPS, and around half of those return to use it on a regular basis. Rehayem says PPS represents “a good chunk” of business coming in, with more than $4bn in indicative offers to date. “We had the idea internally and then acted to remove that barrier to entry, so brokers don’t need to know the product guide, just their own customer,” Rehayem says. “We are now able to help more
customers, not because we have changed our product but we have changed the ability for someone to have the confidence to offer the product.” Enduring change The last 12 months have seen significant changes behind the scenes at Pepper Money, with KKR purchasing a 53% share last August and the group delisting from the ASX. Describing the deal as a “two-way relationship”, Rehayem says it paves the way for KKR to further extend its own global footprint by combining Pepper Money’s management and market experience with
its own capital. A year after expanding into personal loans, Pepper Money’s commercial loans launch this month, tailored to both prime and near-prime customers. Describing this as a “golden opportunity”, Rehayem expects to build a “fairly sizeable market share” by 2020. Such developments support Pepper Money’s goal to service the financial needs of the millions of Australians it says are locked out of the financial system. According to the lender’s own research, 18% of Australians have been turned down for a loan and 42% do not feel their financial institution
understands their goals. Alarmingly, a huge share of these would-be borrowers are the gig economy entrepreneurs, start-ups and small business owners the modern workforce is built on, while others have experienced life events that have periodically affected their earning potential. As regulatory changes start to redefine the role of the lender, the availability of credit and the very concept of responsible lending, Rehayem says lenders will increasingly have to “get under the bonnet” when identifying if an applicant will be a ‘good’ borrower. Naming it as one of the key trends that will define the broker space to the end of this year, he explains, “There will be a lot of confusion, and I believe brokers should explain what is going on in the industry to their customers. “I believe they need to prep themselves to be better brokers, and by that I mean it’s all about the communication they have with their customers.” Looking ahead, Rehayem predicts that home values, compliance and CCR will have the greatest influence on the broker space, and that to thrive despite the storm brokers will need to continue to focus on the integrity of their own businesses and brands. At Pepper, the investment and support will carry on as the lender expands its reach in the market and continues to assist both borrowers and brokers in achieving their goals. “We are proud of the investment we have made in the broker channel because we can see the return coming back: brokers gravitate towards our brand; they know we are there to support them,” Rehayem says. “We don’t have mixed emotions on whether we want to be direct or not. We are 100% broker focused, and that is something that will stay true.” AB www.brokernews.com.au
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NE WS ANALYSIS
THE FINTECH TRANSFORMATION According to one fintech expert, brokers could soon be replaced by smart speakers, but the data suggests that customers are unlikely to embrace such a technological leap. Australian Broker examines the trend the early 2000s, the process of booking a holiday involved trips to multiple travel agencies, hours thumbing through glossy brochures, and more sit-down meetings than the average mortgage currently requires. Today it’s a task that can be completed on a mobile phone during a coffee break. There are many reasons why the travel industry experienced such a shift, from the lure of competitive prices to the convenience of consumers becoming their own armchair agents. People simply wanted to take more control. Seeing the same demands echo throughout the finance and mortgage space, the co-founders of Australia’s first “cloud-native digital bank” – ex-NAB execs Nathan Walsh and Michael Starkey – believe it’s time the finance industry saw the same shake-up. “Athena’s mission is to make the journey to homeownership faster, cheaper, and less stressful,” says Walsh. “To create the best mortgage experience and savings benefits for borrowers and investors, we’ll bypass the banks to connect borrowers to super-fund-backed loans at much lower rates. Australians don’t need more debt. We need help to pay off our home loans faster. In as little as 15 minutes online, a borrower can apply to refinance their mortgage and get conditionally approved at a great rate.” While it’s good news for consumers, it’s another innovation that could be bad news for brokers. Last month, Moven co-founder and CEO Brett King predicted that even smart speakers would be inching in on the broker space in the future as UNTIL
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customers look to limit the number of transactions in the homebuying process. Speaking to Australian Broker, King says, “Ideally, what would happen is by the time you walk into the display home or village we know
key data competencies that financial organisations will have to have is the ability to approve in real time. If you have to wait to approve someone for a mortgage or a line of credit, you’re going to miss out on future business.”
“If we look ahead, online broking has a place, but we don’t know where it’s going to land” Anja Pannek, CEO of PLAN Australia where you are and there’s a good chance you’re in the process of buying a home. So then we have to look for the behavioural trigger that indicates you’re ready to make a purchase on the home. “Pre-approval is a very important construct here. If you think about lowering [transactions], one of the
Moven and Athena aren’t the only fintech platforms making headlines this year. Recent months have also seen the launch of Australia’s first digital bank, volt, which promises to develop “better, more honest products and services” to give consumers greater control of their money. Both Athena and volt have specific
plans for the $1.7trn nationwide mortgage market and boast some heavyweight credentials. In May, Athena raised $15m in Series A funding from Macquarie Bank, Square Peg Capital and Apex Capital, and APRA introduced a new restricted ADI, or RADI, licence to enable the launch of volt. Other start-ups, such as BlockX, have also received backing from the majors. Anja Pannek, CEO of aggregator PLAN Australia, says, “Every month there is another article on a new digital disruptor in the market, and we have a number in the market at the moment who have built significant platforms and have quite a bit of backing. “When I speak to our members the first thing I say is that you have to understand how these businesses actually operate, because in my view they are testing broking in a digital form. Naturally, there will be
FINTECH REVENUE GROWTH SURGES Source: ASIC Review of Mortgage Broker Remuneration (2017)
EY FinTech Australia Census shows strong fintech industry revenue growth and industry hubs in all state capitals.
208% average revenue jump 24%
54% 2016
2017
of fintechs reported revenue growth of more than 700%
WA 9%
Qld 12% SA 4%
of companies said expanding overseas was a priority for the next 12 months
NSW 54% VIC 19%
Fintech firm locations
TAS 1%
significant learnings through that process, and if you’re a broker you need to understand what they are doing and how.” The hybrid broker According to data from MyState Bank, 13% of surveyed brokers believe online platforms do not pose a serious threat to their business models and 47% plan to remain focused on their current models. However, more than 22% of brokers are adopting new technology and software to remain competitive, and 5% are looking to partner with fintechs to improve their client offerings. Such findings underline the different levels of fintech adoption currently seen across the industry: while some brokers remain true to their traditional approach, others are leveraging new tools to offer hybrid services that blend old and new. “If we look ahead, online broking has a place, but we don’t know where it’s going to land,” Pannek says. “Brokers should be aware of what’s going on in the industry and how they should engage with their customers, and I think there are lessons in productivity, too – where fintechs fine-tune elements of the broking process and are able to do it very efficiently.” In banking, major lenders are both backing and competing with the fintechs. In May, NAB unveiled its QuickBiz for Broker platform that enables brokers to digitally apply for unsecured business finance of up to $100,000 on behalf of their small business clients. The bank’s tandem introduction of the ApplyOnline tool will also help brokers offer
competitive turnaround times for their customers. It isn’t the only innovation from the big four. ANZ has partnered with Loanapp, a new e-lodgment tool for brokers to submit residential mortgage applications, which Simone Tilley, GM of the bank’s residential broker division, called “transformational”. But NAB’s general manager of broker distribution, Steve Kane, maintains there is still a place for traditional, branded banking – as well as brokers – and that will be the case for some time yet. “The issue is conversion. The fintechs have leads, they have people interacting with them, some have in-house brokers, but they struggle to commercialise that,” says Kane. “Some of the biggest and most successful fintechs are generating enquiries and profiles on customers, but where they fall over is that they have to use brokers for the face-toface element because the customer wants validation of the decisions they have made, and that will continue. We see this as the broker’s opportunity for their customer relationships to flourish.” The synergy between lenders and their apparent fintech competitors may seem disparate at the moment, but the fact that several majors have taken stakes in digital banking start-ups may signal where the industry is heading: the nimble and independently branded companies will be funded to test drive tomorrow’s software ahead of a major acquisition further down the line. What remains to be seen is how the hybrid broker model that is emerging in the interim will fit into the equation. AB www.brokernews.com.au
17
PEOPLE
Have an interesting deal? Had a particularly difficult or interesting deal? Why not share it with us? Email:
rebecca.pike@keymedia.com
A BIG DEAL
A broker will have a number of big deals over the course of their career, but as Harley Radovan, founder and MD of Focused on Finance, discovered, sometimes the biggest ones are those you can’t put a price on THE FACTS
managing their finances and were proactive and responsible borrowers. Bankwest was sold and we received a formal approval only a few days after submitting the application. The solution covered everything the couple were hoping to achieve. We dropped their rate by more than 0.5%, and we consolidated their two small personal loans into the home loan. As a result, their cash flow improved in excess of the $800 per month target, and the cherry on top was they no longer had a guarantor involved in their loan. THE TAKEAWAY
Loan size and term $355,000 for 30 years
Client
Goal
Location
Lender
Aggregator
Young family with two children
To refinance existing home loan with debt consolidation
Bunbury, WA
Bankwest
PLAN Australia, Specialist Finance Group
THE SCENARIO
I met this client through a social media competition I ran in 2017, generating the lead from data collected from the entries and follow-up conversations. What really caught my attention was that, although they were a young couple with two small children, they had clear-cut financial goals to achieve. To keep up with their existing commitments, the main applicant was working full-time as an accountant and also working a second job every weekend, rarely taking a day off – a schedule he even managed to maintain while completing his accountancy degree last year. His wife was a fulltime mum and they wanted to spend weekends together as a family. However, finances were too tight after the arrival of their second child 12 months earlier. With an eye for figures, they already knew how they could save some cash. They wanted to refinance their mortgage to improve cash flow and trim their household expenditure via an interest rate reduction and the consolidation of two small loans. These two simple measures would save them $800 per month – a transformative amount when money was so tight. Finally, they wanted to remove the guarantor from their mortgage to show their family, friends and lenders that they were standing on their own feet. 18
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THE SOLUTION
Despite their clear-cut and well-thoughtout plans, an initial consultation with their existing bank brought little success, and the lender was unable to help, even with an interest rate reduction.
This deal didn’t require an overly complicated strategy, or months and months to work through. Despite the small hurdles, it was a straightforward refinance that most brokers would easily be able to assist with, and overall it was one of my easier loans that month. However, I have met many people over the years who have been turned away in these circumstances – by brokers and banks – and it would be very easy to have turned this family away due to the tight servicing and equity. What I enjoyed about this deal was that the additional effort on my side changed life for them as a young family. In what has been a tough year for most brokers, including myself, this deal reignited my passion for my career and reminded me why I love coming to
In what has been a tough year for most brokers, including myself, this reignited my passion for my career and reminded me why I love coming to work every day
Harley Radovan Founder and MD of Focused on Finance
I sat down with them to review their finances and see what other options were available. After the initial review, I realised there were a few challenges: not only was servicing going to be tough due to the tightening of lending guidelines, but there was also a risk that we would fall short on equity. I was aware that some valuations were excessively low, and experience told me that we would need more than one valuation to ensure the equity position enabled the 90% LVR – and would subsequently reduce the LMI premium. Bankwest was able to approve the loan, but servicing was tight. I put together a strong submission that clearly demonstrated the couple were currently
work every day: not to write home loan applications or research bank policy, or sit on the phone listening to hold music; I love coming to work as I get to help people and make a real difference in their lives. Whether that is through helping first home buyers get onto the property ladder, overcoming complicated scenarios to get deals across the line, or just doing an ordinary refinance, helping people achieve their goals helps me strive to be the best broker I can be. In an industry where everything is measured on monetary value, it’s both refreshing and humbling to achieve an outcome that is truly invaluable to the client. AB
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IN THE NE WS
HOLD THE FRONT PAGE Mortgage brokers have had a bad run in the mainstream press this year, but new data suggests this has done little to tarnish their reputation. With plans to present the evidence to government and regulators, MFAA CEO Mike Felton catches up with Australian Broker satisfaction is at a record 92%. “We are using relevant facts and actual data to show that the picture being portrayed – one of cultural, systemic issues and poor outcomes – is not accurate as to what is
“ASIC and Sedgwick found no evidence of systemic harm, and the industry is producing great outcomes because a broker’s entire business model is built on those outcomes,” Felton says.
“We are comfortable the consumer does not have a deficit of confidence in the broker channel”
MFAA CEO Mike Felton
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decided to examine additional real data for answers to bring an accurate presentation to government and to ASIC. The numbers don’t lie,” Felton says. Complaints to major bodies, such as the Credit and Investment Ombudsman, the Financial Ombudsman Service, ASIC and the MFAA itself have declined sharply (see infographic), and consumer
The non-major lenders also benefit from brokers, seeing an increase of 21.5%–28% in broker-originated loans. What remains to be seen is whether these figures will be considered in any regulatory revisions that emerge over the coming months. “Our desired outcome is to allow the industry to continue the process [of self-regulation]. The governance framework is self-correcting, self-assessing and self-approving, and we will constantly look at behaviour, remuneration and outcomes and make the adjustments necessary,” Felton says. “We are comfortable the consumer does not have a deficit of confidence in the broker channel. We have seen in the height of this in the last three months that it has continued to grow. We believe this data will demonstrate to the broker, and the broker’s customers, that the channel is very sound.” AB
COMPLAINTS DATA FROM MFAA VS INDUSTRY ACTIVITY
300
600,000
250
500,000
200
400,000
150
300,000
100
200,000
50
100,000
0
2008
2009
2010
2011
Number of home loans originated by brokers
2012
2013
2014
2015
Complaint matters received by the MFAA
2016
2017
Matters referred to IO
0
Number of mortgage loans originated by brokers
Source: MFAA
Complaints received by the MFAA/matters referred to the investigating officer (IO) compared to industry activity Number of complaints
brokers being scapegoated by the lenders and slammed in the press, 2018 has been far from rosy; however, data published in early June shows consumer confidence in the channel is at an all-time high. Broker activity has doubled since 2008, and brokers are now arranging 509,520 loans per year on average. Consumer NPS results for the broker channel sit at +70; complaints to the MFAA alone are down 78%. The figures will be presented to both the federal government and ASIC by MFAA CEO Mike Felton over the coming weeks, with the intention of reminding Australia about the value the channel brings – not only to the finance sector but the wider economy. Infographics and marketing materials are also available for brokers to download from the MFAA website and share with their customers. “While consumers benefit from the service brokers provide, we continue to be criticised as though the broker channel is systemically rotten. So we WITH
happening in the industry,” Felton tells Australian Broker. “You see exposure of wrongdoing in the royal commission, and that by nature only focuses on the negative. We would certainly say that there is always wrongdoing in every industry, but we feel the data strongly shows that it’s not at the core of our industry, it’s at the fringe.” In addition to complaints, that data covers arrears, commissions and industry competition – all of which show a positive outcome for brokers, as well as their customers. ASIC has already confirmed there “does not appear to be any significant relationship” between the level of broker commissions and arrears. Additional data from Smartline shows that in 2017 the lender paying the highest upfront commission received the lowest share of business through the broker channel of all the big four banks.
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OPINION
RISE OF THE ETHICAL BORROWER Across Australia, demand for ethical banking has increased fourfold in three years. Mark Middleton, head of third party distribution at Teachers Mutual, explains what matters to consumers and how brokers can choose lenders that reflect their values
many Australians the decision to take out a mortgage on their dream home is the single biggest financial decision they make in their life. However, the decision-making process increasingly considers more than just the community, schools and grocery stores on offer. There is a growing awareness among consumers that to take out a loan with a financial institution is to support its business and wider impact. So it’s little wonder that we increasingly see the borrower’s choice of lender being considered from an ethical perspective. According to research by the Responsible Investment Association Australia, responsible investments alone increased fourfold in the three years to 2017. In short, a growing number of Australians see their choice of lender as an endorsement of their values. As a result, there is a desire to switch to financial institutions that have embedded
ethical practices across their businesses. What matters to consumers is not tokenism but tangible and assessable ethical policies and practices being instituted. Consumers are growing dissatisfied with statements from
FOR
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policies they are instituting across their businesses. Providing this information to mortgagors not only gives them a more holistic understanding of the business practices of their potential lenders but increases the financial literacy of consumers seeking to understand how their loan supports their lender of choice. So how do you spot a genuinely ethical bank? There are a couple of key tells. Look for an institution that has implemented ethical practices in its business over a number of years. This shows the organisation believes ethical practices should be a priority in how it conducts business. Beyond annual reports, being open with customers about the impact of community investment is important. At Teachers Mutual Bank Limited, we focus on using the internationally recognised London Benchmarking Group measures to track our community investment level year-on-year. This currently sits at 23 times the financial sector average for last year, at 6.86% of our net profit before tax. We’re proud to punch above our weight on this metric. Other institutions may use other benchmarks, but a good rule of thumb is that meaningful ethical standards should be external to the organisation, transparent, and reliable. We are open about our belief that we have environmental obligations as a financial institution: we are a carbonneutral bank that doesn’t lend to fossil fuel companies; we place an emphasis on treating our customers with respect; as a mutual bank we have no clash of interest between customers and shareholders; and we don’t make political donations as part of lobbying efforts. Between increased regulation, a continuing low interest rate environment, and the rapid pace of technological change, we’ll have to work hard as a sector to continue to grow sustainably
For brokers, this ethical shift will require an increased awareness of the ethical practices of lenders and their environmental, lending and governance policies Mark Middleton Head of third party distribution at Teachers Mutual
financial institutions claiming that they care about ethics; they want to be pointed towards real policies. For brokers, this ethical shift will require an increased awareness of the ethical practices of lenders and the environmental, lending and governance
over the next few years. In all of this, however, ethical practices will be at the core of whether consumers believe they can trust our industry to do the right thing by them, and by their community. Make no mistake – what is right will increasingly be popular. AB
19 October • The Star Sydney
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PEOPLE
CAUGHT ON CAMERA Key Media’s inaugural Broker Business Exchange took place on 6 June at the Westin Sydney. This new event hosted by Australian Broker and MPA is designed to keep brokers ahead of the latest industry developments and market opportunities. With more than 400 brokers in attendance, BBX comprised diversification masterclasses and a co-located conference chaired by master of ceremonies John Manciameli, founder and director of Slipstream Australia. The speaker line-up included Warren Shaw, head of third party distribution at Westpac; Renee Blethyn, national partnerships manager at Suncorp; Alex Brgudac, head of partnerships at Prospa; Michael Burke, head of sales at OnDeck Australia; John Mohnacheff, group sales manager at Liberty; and Thinktank head of sales and distribution Peter Vala and regional executive Heather Noonan.
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25
DATA
VICTORIA
SA SPOTLIGHT
Melbourne has an ace in the hole: population growth “While future capital growth will be a little slower than in the last few years, Melbourne’s property prices are underpinned by strong population growth and the influx of 35% of all overseas migrants,” says Dona James-Wells, buyer’s agent at Metropole Property Strategists. “Melbourne now rates as one of the 10 fastestgrowing large cities in the developed world, with population growth of 10% expected to 2021.” The plan to facilitate even greater population growth in future could stave off decline for a while by creating demand. Could Melbourne have another six to 12 months of stable, moderate growth before interest rate increases start to bite? “Melbourne has seen incredible population growth, and this will continue,” says Matthew Lewison, director of OpenCorp. “With the 2.1% vacancy rates suggesting there isn’t much spare capacity in the rental market, buyers are still going to be pushing to get in.” Area
Type Median value
Quarterly
12-month
growth
growth
Melbourne
H
$720,000
-6.1%
13.1%
Vic country
H
$350,000
0.0%
7.3%
Melbourne
U
$525,000
-2.8%
6.3%
Vic country
U
$272,000
-3.0%
4.2%
QUEENSLAND
Interstate demand generates population growth across Queensland “Given the lifestyle market in the Gold Coast and Sunshine Coast, [buyers] could be saving themselves $100,000–$200,000 on purchase price,” says Damien Lee, head of acquisitions at Caifu Property. "Brisbane is more expensive now for purchasers." Nonetheless, it remains the ideal option for interstate buyers, which is leading to a growing population. "It's more affordable to buy and construct real estate in Brisbane. [In terms of] median price, [Brisbane] wins based on how much profit and ... growth you're going to get out of that city, Lee says. Not all regional markets in Queensland are experiencing this upward trend. According to the Real Estate Institute of Queensland, Toowoomba is winding down after a strong 2015: its median house price increased by only 1.4% in 2017, while its median unit value fell by 1.3%. In Gladstone, house prices dropped by 13.9%. However, the Cairns housing market is recording a remarkable performance driven by strong tourism. Area
Type Median value
Quarterly
12-month
growth
growth
FIRST HOME BUYER BOOM Affordable rents have set Adelaide apart from the pack, paving the way for first home buyers to move in
is a little good news for Adelaide landlords from a rental perspective, as this city has recorded the lowest weekly rent of all the capitals. According to CoreLogic’s first 2018 Quarterly Rental Review, Adelaide’s median weekly rental rate is just $374, a stark contrast to Sydney’s $582. This follows a 2.2% rise in rental rates over the 12 months to the first quarter of 2018. CoreLogic also reports that Adelaide Central and Adelaide Hills had the highest rental growth this quarter, at 1.7%, making these the most expensive areas for tenants in the state. The South Australian Outback has the secondhighest rental growth, at 1.6%, and is regarded as the district with the most affordable weekly rent, at $243. It is also the region that has seen the highest annual change to rental rates (an increase of 13.9%) and the greatest rental returns, at 7.1%. However, while rents and returns have jumped, property values have been sliding in the regional hubs. With affordability increasing, first home buyers have started staking out their claims across the state. CoreLogic’s April 2018 Property Pulse report indicates that the number of first home buyer housing finance commitments rose to 443 in February 2018, representing an increase of 17.8% compared to the same time a year before. “It’s great to see young South Australians entering the market, and it’s likely due to lower median house prices,” says Gregg Harris, general manager of NAB Retail. NAB’s Q1 2018 Residential Property survey showed that first home buyers have become the most active group of buyers in the state: about 50% of established dwellings and 45% of new properties are sold to those newly entering the market. AB THERE
H
$525,000
-3.1%
2.7%
Median price (houses)
QLD country
H
$435,000
-1.1%
1.7%
$766,040
Brisbane
U
$400,000
-3.4%
-1.9%
QLD country
U
$385,000
-1.3%
2.6%
www.brokernews.com.au
Affordability and steady growth attract first home buyers to the Adelaide market The Adelaide market appears stable, with pockets of high performance. A notable uplift in enquiries from first home buyers can be traced as far back as 12 months, and this segment has seen a good mix of both house and land packages, as well as established purchases. When measured against interstate areas, the affordability for first home owners is strong in Adelaide, given its stable median house price and steady price growth. Many first home buyers are moving to Mount Barker because of its larger block sizes, value for money and the prestige of the area, which offers a country lifestyle only 30 minutes from the CBD. Other pockets within 15km of the CBD remain popular with this buyer group due to attractive pricing. However, after the closure of the Holden car plant – Australia’s last car production line and employer of 1,000 workers – pockets in the outer north are not performing as well as the rest of the metro area.
Aaron McKinnon Personal mortgage adviser, Elders Home Loans
SUBURB TO WATCH: GOODWOOD
Brisbane
26
BROKER PERSPECTIVE
Median price (units) $344,409
Source: CoreLogic
12-month growth
3-year growth
5-year growth
Indicative gross rental yield
11.2%
12.8%
15.1%
3.4%
12-month growth
3-year growth
5-year growth
Indicative gross rental yield
1.5%
6.5%
15.2%
5.0%
AUSTRALIAN CAPITAL TERRITORY
Rents are high in Canberra, but investor sentiment has been knocked by tax OPPORTUNITIES AND KEY INFRASTRUCTURE
First home buyers
Rentals
Roads and transport
Forecast
Finance commitments up 17.8% YOY
Adelaide posts lowest weekly rent of all the capitals
SA is set to receive $1.8bn for road and rail projects
Experts predict 2.5% house price growth in the next two years
HIGHEST-YIELD SUBURBS IN SOUTH AUSTRALIA Suburb
Type
Median price
12-month growth
Gross rental yield
Peterborough
H
$75,000
-4%
-12%
Whyalla Norrie
U
$80,000
-1%
-11%
Whyalla Stuart
U
$72,000
-1%
-15%
Port Pirie West
H
$107,500
-2%
-4%
Solomontown
H
$122,500
3%
-7%
Canberra’s median rent per week stands at $528, not far below Sydney’s $582. However, with tax increases looming, buyers could still be hedging their bets. “Increases to land tax and high council rates are reportedly leaving some Canberra investors disenchanted,” says Simon Pressley, managing director of Propertyology. But with demand matched by low supply, tenants may have limited choice of rentals, and this could hold investor attention. “Vacancy rates are incredibly low as there are very high levels of demand for rentals, and this points to even higher rents going forward,” says Kate Forbes, national director of property strategy at Metropole Property Strategists. While investors hesitate, CoreLogic data suggest that first home buyers are more active, with finance commitments up 177.7% in the year to February 2018. They made up 25.6% of the owner-occupier population – the highest percentage in nearly decade. Area
Type Median value
Quarterly
12-month
growth
growth
Canberra
H
$690,000
-1.4%
7.9%
Canberra
U
$430,000
-3.4%
0.0%
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DATA
NEW SOUTH WALES
12-month
growth
growth
Sydney
H
$902,500
-14.0%
7.5%
NSW country
H
$460,000
-1.9%
5.7%
Sydney
U
$700,000
-3.0%
3.0%
NSW country
U
$385,250
-1.2%
5.4%
MEDIAN HOUSE AND UNIT PRICES
Perth sees rise in active buyers, but demand suffers a lack of urgency
$1,000,000
Quarterly
12-month
growth
growth
Perth
H
$500,000
-2.9%
-1.9%
WA country
H
$335,000
-4.3%
-4.2%
Perth
U
$383,000
-6.6%
-3.0%
WA country
U
$265,000
10.4%
-4.9%
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99
Cleared
45
Uncleared
21
Clearance rate
68.2%
PERTH Total auctions
24
Cleared
4
Uncleared
11 26.7%
Houses
Sydney Melbourne Brisbane Adelaide
Perth
Hobart
$522,000
$465,000
$307,000
$0
$385,000
$100,000
$505,000
$200,000
$308,000
$300,000
$454,000
$500,000 $400,000
$555,000
$600,000
$730,000
$700,000
$700,000
$800,000
$895,000
$900,000
While big markets like Melbourne and Sydney are starting to fall back in terms of settled sales, the once-flailing market of Perth is beginning to build itself back up. However, despite the number of buyers increasing in Perth, there is a lack of urgency in demand. “There are active buyers out there, but there’s no urgency in the market. Apartments have started to see a slight increase in sales volumes (according to real estate agents), but that is most likely investor activity starting to pick up,” says OpenCorp director Matthew Lewison. He believes a change in Perth’s status will be clear once owneroccupiers come in to snap up established houses. “This will then feed into the new housing market; so the things to watch this year will be the middle-ring suburban sales results,” he says. “Once these get going, the good-quality land estates will start to shift in higher volume, and that will lead to more construction work and improving confidence.”
Type Median value
Total auctions
Clearance rate
WESTERN AUSTRALIA
Area
ADELAIDE
Darwin
Units
$421,250
Quarterly
$400,000
Type Median value
The first week of winter saw auction volumes remain steady across the combined capital cities, with 2,272 homes taken to auction, returning a preliminary clearance rate of 57.6%. While the preliminary clearance rate shows a week-on-week improvement, it’s likely that as final results are collected the weighted average will fall to remain at a similar if not lower level than recorded last week. Over the past month weekly results have seen the combined capital city clearance rate progressively weaken, with last week returning the lowest clearance rate since early 2013, with only 56.2% of homes successful at auction. Auction volumes, however, have remained at relatively consistent levels over each week, with 2,297 held last week. Compared to results in the same week last year, the auction market performed quite differently, with a much higher 69.8% of homes selling last year, over 2,578 auctions. However, it did mark the first week in which clearance rates commenced their downward trend as market conditions declined over the last 12 months.
$537,750
Area
WEEK ENDING 3 JUNE 2018
$642,500
With CoreLogic numbers showing price declines throughout Sydney since the latter part of 2017, the lack of growth is starting to affect investor perception. Lack of affordability is another factor stifling the demand for houses, given that the stamp duty concession for first home buyers is limited to $750,000. As a result, residents are leaving for greener – and lower-priced – pastures. “If the trend towards an improving rate of decline persists, the Sydney housing market may have already moved through its peak rate of decline,” Lawless says. If that is the case, Sydney is primed to experience a period of stagnation as it regains its footing. “When the Sydney market gets momentum, it runs for a longer period than most of the other capital cities in Australia, but once that momentum runs out it can stagnate for longer periods too. This could be five to seven years,” says OpenCorp director Matthew Lewison.
CAPITAL CITY AUCTION CLEARANCE RATES
$380,000
Prices decline in Sydney and investor sentiment dips
Canberra
CAPITAL CITY HOME VALUE CHANGES Capital city
Weekly change
Monthly change
Year-to-date change
12-month change
Sydney
-0.1%
-0.2%
-2.4%
-4.2%
Melbourne
-0.1%
-0.5%
-1.4%
2.1%
Brisbane
0.1%
0.2%
0.2%
1.0%
Adelaide
0.1%
0.5%
0.1%
0.6%
Perth
0.0%
-0.1%
-0.3%
-1.7%
0.1%
-0.2%
-1.5%
-1.3%
Combined 5 capitals
*The monthly change is the change over the past 28 days
BRISBANE CANBERRA Total auctions
106
Cleared
60
Uncleared
31
Clearance rate
Total auctions
131
Cleared
44
Uncleared
43
Clearance rate
50.6%
65.9%
SYDNEY Total auctions
830
Cleared
310
Uncleared
283
Clearance rate
TASMANIA
MELBOURNE Total auctions
52.3%
1,079
Total auctions
3
Cleared
559
Cleared
0
Uncleared
348
Uncleared
1
Clearance rate
Clearance rate
61.6%
TASMANIA
Area
Regional Tasmania booms as it benefits from Sydney's losses In addition to benefiting from migration, regional Tasmania is also enjoying the increased capital coming in from Sydney and Melbourne. According to CoreLogic’s head of research, Tim Lawless, incoming residents are jumping on the low house prices and strengthening economy. As a result, dwelling prices increased 5.4% in the 12 months to March 2018. The southeast region's rental market reported the highest quarterly change in prices, which increased 14.5% in the first quarter of 2018. Over the year to March, rents rose by nearly 50%. Southeast Tasmania is also the sole district in the Apple Isle to show an increase in rental yields. With a 1.2% boost, it offers the highest returns in the state, at 6.4%. The number of first home buyers in Tasmania only inched up slightly compared to February 2017.
n.a.
Type
Median value
Quarterly growth
12-month growth
Hobart
H
$431,000
2.2%
7.1%
TAS country
H
$285,000
0.8%
6.5%
Hobart
U
$340,000
6.3%
3.8%
TAS country
U
$234,000
-4.3%
2.3%
All data sourced from CoreLogic.com.au
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29
PEOPLE
Aggregator Connective
IN THE HOT SEAT Matthew Andrews, GM of Pivotal Financial, reflects on the launch of RE/MAX Australia’s finance arm, his first job, and the lessons he has learned from a 20-year career in finance
What’s one of your recent career highlights? I have enjoyed many career highlights during my 20-plus A years in financial services. One recent highlight was launching Pivotal Financial with RE/MAX Australia in August last year and leading the real estate brand’s finance arm into an exciting new era of growth along with growing a relationship with Connective as our aggregator. Pivotal Financial shares the same core values and beliefs as RE/MAX Australia, and the shared vision is to be a leader in innovation in a continually changing industry. Driving innovation is the experience we want for our finance and real estate arms. I have worked hard to implement new ideas and improve our existing processes, services and productivity for the benefit of the end consumer. Innovation keeps us one step ahead of our competitors and is a major catalyst for growth and the success of our business.
Q
What do you wish you’d known when you started out in finance? You don’t have to be rich to invest. There’s a big notion that A only those with a lot of money have the capability to invest in stocks or funds. Even though you most likely won’t be rich overnight, it’s never a bad idea to use investments as a way of saving.
Q
What was your first job? My first job was as a paperboy, delivering the local paper by A pushbike. I would ride around the local area for four hours, with a milk crate strapped to the front of my bike, to earn a grand sum of $35. Getting chased by dogs and avoiding potholes was a highlight! These days I enjoy getting out on my bike whenever I have a chance. There are so many great cycle paths and trails in and around Brisbane, and it’s a wonderful way to enjoy the fresh air and sunshine.
Q
If you had the MFAA’s CEO over for dinner, what would you serve? I love to cook for family and friends when I have the time. A For the CEO, I would serve Peking duck. It is my signature dish, which I enjoy cooking with my wife. I would offer it with a bottle of Central Otago pinot noir. I do enjoy a glass of red while I’m cooking! AB
Q
30
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