MARCH 2019 ISSUE 16.05
The alt-fi outlook The major events powering the future of alternative lending /16
Back to basics The A to Z of turning challenges on their head /20
ARIS ALLEGOS The CEO of Moula talks about funding lines, finance terms and fintech sector growth /14
A big deal How a combination of traditional and digital solutions secured a loan /22
ALSO IN THIS ISSUE‌ From the forum Brokers comment on the latest trending news /24 Housing market data Victoria in the spotlight as Melbourne draws investors in /26 In the hot seat REA Group’s Andrew Russell on maximising opportunities /30
NEWS
IN THIS SECTION
Lenders Bank posts 271% net loan growth /04
Aggregators Uncertain future for broker group and founder /06
Technology Marketplace lender shows 164% annual loan growth /10
Regulators Prudential regulator sets 2019 agenda /12
Market Speculation mounts of a RBA rate cut /08
www.brokernews.com.au MARCH 2O19 EDITORIAL Editor Melanie Mingas News Editor Madison Utley Production Editor Roslyn Meredith
DATES TO WATCH
Upcoming can’t-miss events
2 APRIL Federal budget The next federal budget will be delivered a month earlier than usual, after Prime Minister Scott Morrison announced last year that he would deliver the budget before calling the May election. The IMF has warned Australia that bigger surpluses will be needed to protect the country from overseas economic shocks.
4 A P R I L FBAA Brisbane Summit One of 12 professional development opportunities taking place around the country, the latest event in the FBAA’s PD series will see managing director Peter White give an update on the royal commission’s final report, while other presenters will explore the impact of physical and emotional energy on a business.
5 A P R I L CEDA’s Building Leadership in a Post-commission Era Organised by the Committee for Economic Development in Australia (CEDA), this breakfast session in Perth will feature speakers from Bankwest, Australian Super and law firm Clayton Utz. The agenda will cover business lessons from the royal commission, and is open to both members (pricing from $180) and non-members (from $285).
SALES & MARKETING Sales Manager Simon Kerslake Marketing Manager Danica Mendoza
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ART & PRODUCTION
Chief Executive Officer Mike Shipley
Designer Martin Cosme
Chief Operating Officer George Walmsley
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Managing Director Justin Kennedy Publisher Simon Kerslake Chief Information Officer Colin Chan Human Resources Manager Julia Bookallil
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13 APRIL
15 APRIL
1 M AY
National Property and Economic Update
AltFi Australasia Summit 2019
Loan Origination and Experience Conference
The third and final instalment in the series will cover property market updates, historic trends, how to capitalise on real estate cycles, and structuring assets to maximise returns. The event runs for a full day at Melbourne’s Exhibition Centre.
Tracking the growth of the alternative finance space, the fourth annual AltFi summit features speakers from Volt Bank, OnDeck, KPMG, illion, AfterPay and RateSetter. Their presentations will cover the latest developments in P2P and marketplace lending, robo-advice, challenger banks, and crypto and blockchain technology.
Organised by IQPC, this two-day event will cover case studies on the lending frameworks of major, neo and digital banks, and feature speakers from MoneyPlace, Wisr, CBA, Elder Home Loans and Suncorp. Providing a chance to cover the banking industry in the Netherlands, ABN Amro will also deliver a session.
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2 M AY MFAA National Roadshow and State Excellence Awards The association’s annual roadshow and awards kicks off in Sydney before taking in Adelaide, Perth, Brisbane and Melbourne, concluding with the national awards in Melbourne on 25 July. The roadshow will feature workshop and conference sessions and networking opportunities. Nominations for the awards are now open.
5 J U N E
1 J U LY
Broker Business Exchange BBX returns to the Westin Sydney this June, and in light of Commissioner Hayne’s recommendations Key Media has waived the registration fee for brokers at the day-long education and networking event. The exchange will comprise conference and workshop sessions and an exhibition of leading industry names.
Open banking Phased implementation of open banking begins on 1 July for the majors, with mortgage data available from 1 February 2020 and data for remaining products, including personal loans, business loans, consumer leases and overdrafts, available by 1 July 2020. Non-major banks are required to participate 12 months after the majors.
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 VIRGIN INTRODUCES FIRST HOME BUYER OFFER home buyers applying for a Virgin Money Reward Me home loan between now and 31 May 2019 can enjoy a two-year fixed rate of 3.68% p.a. on owner-occupier principal and interest home loans with an LVR of up to 90%. Approved applicants will get a 20% discount on LMI for eligible loans, and their $150 settlement fee will be waived. Lifestyle rewards on the loan include Velocity miles with Virgin Australia.
AUSSIE CONSUMERS WARY OF DEBT Personal (non-housing) credit, annual % change
Source: CommSec
2%
FIRST
1%
0%
-1%
-2%
9-year low -3% Jan 2011
BANK OF SYDNEY SECURES NEW HQ new signature branch and THE Australian head office of Bank of Sydney will soon move to the city’s 62 Pitt Street premises following an agreement to buy the property. “This move underlines our commitment to the Australian market and will cater to our future growth. A top-class CBD location will lift the bank’s profile and enhance our retail presence with access for all customers,” said the bank’s head of third party distribution, Steve Sampson.
“Phil [Chronican] did not intend to be considered for the CEO role, enabling us to move quickly to appoint him as chairman” David Armstrong Director, NAB
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Jan 2013
Jan 2015
BANK REPORTS NET LOAN GROWTH OF 271% An award-winning non-major bank has posted its half-year financial results, showing strong loan growth and solid profit net loan growth for the six months to 31 December 2018 stood at $164.85m, up 271.61% from the $44.36m posted for the comparable period in 2017. Loan approvals were up 20.31% from the previous year and valued at $963.53m. CEO of Heritage Bank Peter Lock said, “Our business is strong, and we have also been able to provide customers with great value, great products and great service. That’s what a customerowned bank is all about. “We hope that the royal commission revelations of poor practices at the big banks will open people’s eyes to the value of the customer-owned option as HERITAGE BANK’S
a genuine alternative.” Heritage reported an after-tax profit of $25.15m in the six months to 31 December 2018. This is down 4.26% from the previous year’s particularly strong figures but shows a strong gain on the previous six-month period, when after-tax profits stood at $17.77m. “The ongoing commitment to our customers and our branch network is reflected in our ability to attract consistent growth in retail deposits,” said Lock. “We have also managed to secure a significant uplift in loan volumes, despite difficult market conditions characterised by falling property prices in certain geographies and a slowdown in credit growth across the banking sector.”
Jan 2017
Jan 2019
Lock credited the solid figures to the “disciplined expense management” and “effective capital allocation” of Heritage Bank’s staff. The half-year results position the bank to continue its efforts to upgrade the technology platforms made available to customers. “We offer a proven banking model that’s safe and secure, while also giving customers better value and a more satisfying banking experience,” said bank chairman Kerry Betros, echoing Lock’s optimism about stretching forward into the next stage of strategic goals. In February, Heritage Bank won an award from Roy Morgan for customer satisfaction, beating the big four as well as other mutual and customer-owned institutions in the category. The latest Roy Morgan customer satisfaction scores show that big four banks have an overall rating of 75.6%, while other institutions are rated 84.2%.
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NEWS
A G G R E G AT O R S AUSSIE ANNOUNCES NEW BRAND CAMPAIGN than 1,000 franchisee brokers will be able to leverage a suite of new marketing and advertising materials later this year following the launch of a multimilliondollar brand campaign by Aussie Home Loans. “We’re so confident about the future of mortgage broking and the longevity of our business that we have big plans for our brand. It’s during challenging times that Aussie stands tall,” said Aussie’s chief customer officer, David Smith. MORE
UNCERTAIN FUTURE FOR BROKER GROUP AND FOUNDER YBR executive chairman Mark Bouris pledged to resign if the aggregator fails to generate a profit this year
executive chairman Mark Bouris, who publicly pledged to resign should the firm fail to generate a profit, could be held to his word following a net loss after tax of $34.15m in the six months to 31 December. Additionally, the company’s half-year report was filed late and YBR shares ceased trading for a one-week period before resuming on 8 March. In a statement to the ASX, Bouris said, “It has been an unusually tough six months… In all the years of being involved in the home loan business, I have never seen such difficult borrowing conditions.” The group has been dogged by YELLOW BRICK ROAD
financial trouble for years. In 2016, YBR restructured the senior executive team to cut costs. Those who remained with the company were expected to perform expanded duties in order to compensate for the newly eliminated positions. Bouris himself took part in the initiative, stepping in to act as executive chairman. The strategy seemed to work, and YBR reported a $400,000 net profit after tax the following year. But by the end of 2017 YBR had accumulated losses of $38.5m and its share price had plummeted by more than 84% in the previous five years. In August of 2018, a subsidiary of Mercantile Investment
Company offered YBR $0.09 per share in a takeover bid. “The takeover bid is unsolicited and, in the view of the board of directors of YBR, it materially undervalues the existing and future value of the company and is opportunistic in its nature, timing and pricing,” Bouris said in response. YBR shares finished at $0.054 in the week to 8 March. Despite his grandiose claim to see himself out should YBR fail to show a profit, Bouris seems to be planning to stick around for the time being. The self-proclaimed business mentor and executive chairman says the company is working on new lending products, while considering ways to simplify and cut costs even further. The board is currently assessing the wealth management arm of the business, as well as business structures, and is scheduled to post an update on its progress by the end of April.
LEADING LADIES SUMMIT ANNOUNCED year’s edition of the Leading Ladies of Loan Market growth summit will take place in Byron Bay from 27 to 28 May. Leading the agenda, Alison Hill, CEO of Pragmatic Thinking, will deliver the keynote address, followed by a line-up of inspirational female speakers. Loan Market executive chairman Sam White said, “Today, no industry should be dominated by one gender, but we continue to see disparities across many occupations, including broking.” THIS
“Brokers and aggregators are an important voice in how the industry needs to be reshaped with a more ethical customer focus” Julia Angrisano National secretary, Finance Sector Union
Helping borrowers since 1946. When borrowing gets difficult, talk to Australia’s most experienced non-bank lender, with 70+ years experience. 03 8600 7900 I brokersupport@vicgroup.com.au
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WITHOUT A MORTGAGE BROKER, Y O U C O U L D H A V E N O A LT E R N AT I V E , B U T T O PAY T H E P R I C E .
DO YOU WANT FEWER LENDERS TO CHOOSE FROM? Each year more than half a million Australians take out a mortgage with the help of a mortgage broker. Possible legislation change threatens the mortgage broking industry, which could see all Australians having less access to smaller lenders and even less access to credit. As competition and choice declines, bank power and the risk of higher interest rates increases. Without mortgage brokers, finding a home loan will be harder and could become more expensive for home buyers.
PROTECT COMPETITION, SIGN OUR PETITION AT brokerbehindyou.com.au
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NEWS
MARKET NEW BUYER TRENDS EMERGE IN SURVEY Adelaide Bank/REIA Housing Affordability Report for the December quarter showed a national increase of 3.3% in the number of loans; however, quarter-on-quarter figures are still down. “We are still looking at a decrease of 9.4% compared with the same quarter last year, and we have also seen a decrease in average loan size to first home buyers to $337,500,” said Darren Kasehagen, head of third party banking. THE
SURVEY SHOWS CHANGED ATTITUDE TO DEBT Financial Fitness whitepaper by Mortgage Choice and CoreData has revealed that more than 18% of Australians save nothing from their monthly pay packet. Further, more than two in five survey respondents reported that they were embarrassed by their debt. “It is no secret that a sound financial plan with defined objectives gives people looking to get financially fit a clear purpose and, subsequently, peace of mind,” said Mortgage Choice CEO Susan Mitchell. THE
“Sales of new residential lots, new home sales, building approvals and housing finance all deteriorated quite significantly during the latter stages of 2018” Geordan Murray Senior economist, HIA
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SPECULATION MOUNTS OF A RATE CUT BY THE RBA Industry heads say an RBA rate cut is “inevitable” due to current economic conditions and the slowing property market Reserve Bank of Australia may have announced another cash rate hold, but key industry players point to warning signs that they believe indicate a cut is coming. “A rate cut seems inevitable with so many negative factors weighing down economic activity, such as the falling property market, the impact of the Hayne royal commission, concerns about unemployment, the election, the US-China trade war and the Brexit debacle,” said John Kolenda, managing director at mortgage aggregator Finsure. The 1.5% rate, which has been on hold since August 2016, was again maintained by the RBA in March, with the intention of encouraging “sustainable growth” THE
and reducing inflation in the national economy. CoreLogic head of research Tim Lawless weighed in saying, “The strong labour market report for January was likely a key factor in keeping rates on hold; however, in balance, wages have grown at a consistently low rate and inflation remains stubbornly below the target range.” Lawless believes a decline in the performance of the housing sector would likely correlate to a rate cut later this year. “The sharp slowdown in residential construction activity and relatively benign retail trade figures may be hinting that weak housing market conditions are already spilling over to the broader
economy,” he explained. The housing market has continued to struggle and stagnate, despite banks steadily releasing products and special offers intended to draw in more customers. Data provided by RateCity shows that more than 22 lenders have slashed rates on more than 150 mortgage products this year as they battle to attract new borrowers. In Kolenda’s opinion, the central bank is biding its time as it waits for the federal budget to be handed down in April and the federal election to play out in May, before deciding on an altered rate. He believes the recent commotion in the industry has caused further harm and also speaks to the likelihood of a future cut. “We have seen a dramatic reduction in borrowing capacity for consumers, with many being disheartened by the scrutiny of the major banks in analysing their expenses and activities,” he said.
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NEWS
TECHNOLOGY
FINTECH CONFIRMS FUNDING BOOST has secured an additional $250m to fund SMEs. Additionally, the fintech has extended its loan terms to 36 months and doubled its maximum loan value. CEO Aris Allegos said, “Injecting a quarter-of-a-billion dollars into Australia’s businesses and making our financing terms more flexible will ensure that hard-working business owners aren’t locked out of accessing funding and are able to seize growth opportunities.” For more on this story, turn to page 14. MOULA
MARKETPLACE LENDER SHOWS 164% ANNUAL LOAN GROWTH Marketplace lender SocietyOne launched its broker channel in mid-2018 and has just been added to another lending panel a record holiday period in 2018, one marketplace lender has passed the $600m milestone in loan originations, exhibiting average annual growth of 164% over the past four years. SocietyOne recorded $64.9m in originations over the past three months alone, up dramatically from $39.5m over the same three-month period the previous year. “We are thrilled to be growing so strongly as it’s a sure sign that Australians are increasingly turning away from one-size-fits-all options and instead using our easy, transparent, individually tailored online loans than can be accessed from a bank,’’ said CEO Mark Jones. Six months ago Jones was named as CEO and promptly implemented AFTER
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several measures that transformed the business and led to further success. Among the initiatives was the introduction of a new credit scorecard in June, as well as a marketing campaign that went live in October. SocietyOne also launched a broker channel in mid-2018, which added more than $4m in new monthly originations. It currently receives in excess of 300 broker-originated loan applications each month. According to COO Jonathan Chan, brokers have been “extremely positive” about the lender’s “competitive and transparent” pricing, lack of fees, and level of service. “The acceleration in loan
take-up, especially in the last six to 12 months, reflects the improved customer experience, increased use of broker channels, and the return of existing customers,” Jones said. “We’re now seeing real momentum in the business that we fully expect to continue, and which should see us achieve our goals of breaking even in the coming months, and reach $1bn in loan originations by the first half of 2020.” Further growth is on the cards for the coming year after SocietyOne was added to Loan Market’s lending panel in mid-March. The Loan Market panel features more than 45 lenders and the aggregator counts more than 650 brokers in its nationwide network. “The royal commission has uncovered a large number of issues within the consumer lending market, and both brokers and their retail customers have been equally exposed to the publicity surrounding this,” said Jones.
WHITE LABEL DIGITAL LOAN DEBUTS has launched Bendigo Express, built on proprietary technology developed by Tic:Toc. The white label partnership makes Bendigo the first Australian bank to offer an own-brand digital mortgage. Bendigo Express offers a 3.89% variable rate principal and interest loan for owner-occupiers and 4.44% for P&I residential investment loans. Marnie Baker, managing director of Bendigo and Adelaide Bank, said, “We are committed to investing in new capability and innovation for our customers.” BENDIGO BANK
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NEWS
R E G U L AT O R S
ASIC DOUBLES DOWN ON FEE SCANDAL has expressed its frustration over the “unreasonably delayed” response to the fees for no service review that six institutions were directed to carry out. AMP, ANZ, CBA, Macquarie, NAB and Westpac have all failed to implement measures beyond what was directly enforced. Commissioner Danielle Press said, “ASIC acknowledges that these are large-scale reviews. However, we believe the institutions have failed to sufficiently prioritise and resource their reviews.” ASIC
PRUDENTIAL REGULATOR SETS AGENDA FOR 2019 APRA’s plan for the coming 18 months prioritises residential mortgages, executive remuneration and formal enforcement actions regulator APRA has set out its agenda for the coming 18 months, prioritising residential mortgages, executive remuneration and formal enforcement actions. The regulator says the focus will fall on strengthening prudential frameworks in order to “lift the bar for industry” in terms of governance, remuneration practices and the management of non-financial risks. Residential mortgages will be tackled under ongoing revisions to the capital framework for authorised deposit-taking institutions. Specifically, APRA says it will “revise requirements for credit and operational risk, including for residential mortgages PRUDENTIAL
LAW FIRM SUPPLIES DOCUMENTS firm Clayton Utz has LAW backed down on its refusal to supply ASIC with key documents in an ongoing case against AMP. The documents, which Clayton Utz claimed were subject to legal professional privilege, related to ASIC’s ongoing investigation into AMP Group with regard to fees for no service and related false or misleading statements made to the regulator. The documents were produced on 7 March with no claims of privilege.
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and constraints on advanced modelling approaches”. It will also “simplify treatment” for smaller ADIs in this area. Executive remuneration will also come under the microscope. APRA chair Wayne Byers made specific reference to the regulator’s inquiry into CBA, which he said highlighted the importance of looking into culture and accountability as well as balance sheets when assessing an institution’s overall performance. “These issues were further emphasised during the royal commission, where a lack of accountability often lay at the heart of misconduct and poor consumer outcomes,” he said. “To address these issues, we will further
strengthen our prudential requirements on executive remuneration, with consultation on a revised prudential standard due to start mid-year. “We will also review our cross-industry governance and risk management standards this year to ensure they encourage a sharper focus on non-financial risks.” The royal commission also made recommendations in this area, including that frameworks in each organisation should also address misconduct, compliance and other non-financial risks, as well as other aspects of “remuneration design”. Revised prudential standards will be released for consultation in mid-2019. Other areas of focus include the capital requirements for ADIs; implementation of the BEAR regime for ADIs; and updated standards for outsourcing, business continuity and information security, applicable specifically to businesses in the banking, insurance and super sectors.
30/06/2003
ASIC LICENSING APPLICATIONS 2017–18 29%
44%
ACL applications
approved for AFS licence
12 2,879
1,383
applications received
applications approved
60% AFS licences
11%
52%
professional auditor registrations
approved for credit licence
credit licences suspended
319 credit licences cancelled
Mary: 105 No.3* We will get to Mary in a minute.
Mary
You
3rd Highest
But John is married to Mary. Mary is not only a healthy Australian woman who eats and sleeps well, exercises, has low blood pressure and low cholesterol, but she also has genetic predisposition on top of her existing health and lifestyle. Her parents and grand parents lived well beyond their life expectancy. She is not superwoman, but she is in good shape with good genes. This makes Mary’s current life expectancy 105! This doesn’t mean that all women will live to 105, but it does mean there is a large part of the Australian population, mainly women, that have both health and genes on their side that will easily live beyond 100. Funding a retirement of this length is the greatest challenge of our time.
If you still are reading this, you are probably the type of mortgage broker we want to talk to. The type of mortgage broker who wants to help your clients build wealth for their future.
In 1908 when the age pension was first launched in Australia, the life expectancy of a newborn boy was 55 but the age pension kicked in at 65. The original design and intent of the age pension was to support a very small number of people who happened to live well beyond normal life expectancy. Fast forward to 1971 and life expectancy of that same newborn boy had increased to about 70. Australia today has the 3rd highest life expectancy in the world, just behind Japan and Switzerland with an average national life expectancy of 82 (80 men, 84 women). As you get older, your life expectancy increases a bit, so a 65-year-old man would have a life expectancy of 85. It wasn’t always like this; life expectancy has shifted dramatically in a relatively short period of time. You are probably thinking, what does this have to do with mortgage broking? Patience my friend, it’s a fair question that will be soon answered. 4% Life expectancy is an average of a very large sample of people. Being an average, only 4% of people pass away at their actuarial life expectancy. So, if we found 1,000 Australian men aged 65 today their life expectancy would be 85. That means only 40 would pass away at 85 and the rest would pass away evenly before and after 85. John Let’s pick one of the men in this sample and let’s call him John. John is a healthy 65-yearold Australian who generally looks after himself. If he was planning his retirement it is entirely reasonable that he would plan for an additional 10 years beyond average life expectancy, considering his health, to say 95. That is a 30-year journey in retirement that no one in Australia has historically had to plan for.
The Gap Today’s average 65-year-old couple has about $350,000 in super. Clearly this is nowhere near enough for what lies ahead. This leaves most Australians with a large retirement Gap, which is the difference between what they need to retire comfortably and what they have or are on track for. For most, The Gap is too big to fill up with savings (super) alone. A growth strategy is required: a strategy that involves borrowing and buying something that will increase in value and create capital growth. Property is the only practical growth strategy for most Australians.
If so, let’s meet.
Blue Wealth Property We are Australia’s largest client-focused property research group, with a select network of accredited brokers, accountants and advisers that work with us to help their clients secure their futures with researched investment property solutions. Our research, marketing and events become an extension of your business. Working together you can grow your revenue, your referrals, your repeat business and client retention. Accreditation and engagement will make your business better. You can find out more at www.bluewealth. com.au/partners. Would you like to join us? If so, give us a call on (02) 9743 0077 or email us on partners@bluewealth.com.au
Brokers Investing in researched, well-located properties and holding them long term is the primary wealth solution for most Australians to bridge The Gap (see Australian Broker, Issue 15.17). Everyday Australians are looking for a solution and mortgage brokers are perfectly situated to begin conversations with clients about their future especially as it relates to investing in property. Brokers are discussing property, equity and financing strategies daily and are well positioned to prompt their clients to plan for their future.
*No.3 in a series of thoughts & insights Level 2, 8 Australia Avenue, Sydney Olympic Park, NSW 2127 P: (02) 9743 0077 | E: enquiries@bluewealth.com.au | W: www.bluewealth.com.au
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FE AT URES
SPECIAL REPORT
SHOW ME THE MOULA
Fintech CEO Aris Allegos tells the story behind Moula’s multimillion-dollar securitisation program and how the lender’s success to date puts it on an even keel with the majors
KEY BUSINESS METRICS
$250M
funding raised through securitisation program
$500,000
maximum loan value under extended terms
36-MONTH
maximum repayment term
100%
per annum broker channel growth
10-STRONG
BDM team will expand nationwide
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early March, online business lender Moula secured an additional $250m in funding to lend to Australian businesses, which was raised through the latest round of a securitisation program launched in 2015. To enhance the impact of the funds on the business sector, Moula also adjusted its terms and conditions, extending repayments from 24 to 36 months and doubling the maximum loan amount to $500,000. In a move it says is “unprecedented” in the online lending space, pricing starts at 15.95%, with no establishment or direct debit fees and no early repayment penalties. So high is the demand for flexible finance that CEO Aris Allegos predicts the entire pot will be loaned within 12 months. “Ultimately, the $250m is a number that has been sized very much on the basis of our forecast. The appetite is there from SMEs, and it really speaks to the environment right now,” Allegos says. A number of major online business lenders have landed new funding lines over recent months. In part the trend is a testament to the strength of the Australia fintech sector. Given that the small business unsecured lending space was virtually non-existent five years ago, it’s impressive progress. In part this is due to the Code of Lending Practice signed last year by Moula, OnDeck, Prospa, GetCapital, Lumi, Spotcap and Capify. Pioneered by the Australian Finance Industry Association, the code was designed to bring transparency to the sector and IN
standardise loan terms. Supporting this, the SMART Box – a one-page document that displays four key loan details as well as seven pricing metrics – was rolled out in February of this year. “Our core philosophies are transparency and responsible lending, providing a solution that is easy to use and ultimately motivated by customer outcomes,” Allegos says. However, there is another trend driving demand. Despite the emergence of this somewhat
the brand propositions Allegos attributes Moula’s success to. The other is a fresh take on underwriting. According to Allegos, the development of Moula’s underwriting models is the key reason the lender is now operating in a market segment that is much more closely aligned with the territory banks play in – that is north of $250,000. It’s a strategy Allegos gleaned from his previous experience working in credit analysis and accounting, not to mention the lessons he learned from his entrepreneurial parents while growing up. According to Allegos, it’s the foundation of Moula’s success to date. “In any underwriting model in any lending business, it’s about learning and experience. Because the small business unsecured sector didn’t exist until recently, there were no established models that anyone could
“We now have significant capability so far as understanding how to underwrite, how to price and ultimately how to execute” Aris Allegos, CEO, Moula niche lending market, the banks haven’t diversified to offer the same funds under the same terms and conditions as the fintechs. “It has become really challenging for the big four to underwrite small business loans, particularly those sub-$250,000, without effectively requesting security. Our ability to access data and use that data to make informed decisions is the differentiator. The established banks use legacy systems and processes that are obviously quite dated,” says Allegos. Data – specifically data that is overlayed from bank transactions and accounting APIs in order to measure serviceability – is one of
have utilised to assess the target loss rate, or where the most appropriate pricing benchmarks were,” he says. “With the benefit of experience and having seen more volume than most in the category, we now have significant capability so far as understanding how to underwrite, how to price and ultimately how to execute.” In short, Allegos says the approach allows Moula to assess borrowers in more depth than the majors can. Growth trajectory As with any fintech, the finance aspect is only one side of the equation. What needs to be equally robust is the technology, at both
In partnership with
Aris Allegos, CEO, Moula
the front and back end. Moula says it has ploughed “significant” investment into its tech platforms, building the entire business to service “Australian businesses and Australian brokers”. Third party originations have been core to the business since the first loan was written in 2014, and have taken on a life of their own since 2016, when compound growth rates for the channel hit 100% per annum for the first time. As Moula’s SME borrowers work to escape the restrictions of mainstream finance, Allegos predicts the broker channel will gain even further significance. In response, Moula is boosting its
BDM head count across the country hand in hand with its suite of broker-focused educational tools. These include case studies to enhance understanding of where a loan might be relevant, pricing calculators, and the “partner portal”. However, Allegos says the real point of difference is the elimination of manual processes. “It’s obviously common these days but we ensure that we have a seamless process right the way from referral all the way through to the underwrite and the execution,” he says. “A broker who hasn’t engaged a fintech previously and is interested to understand the Moula process
and the nature of the Moula product would be very pleasantly surprised when they write one of our loans.” The proposition is well timed. Scottish Pacific’s SME Growth Index for September 2018 showed that, while SMEs were experiencing the strongest growth outlook in almost three years, cash flow remained a top concern for 79% of business owners. According to the report, these SMEs were operating in an environment in which they could have generated 17% more revenue if cash flow had been better. According to calculations quoted in the report, this equates
to an annual $234.6bn hit to the national economy. “The royal commission ultimately demonstrated that the larger banks were motivated by profit and greed. Here at Moula and within the fintech community more broadly, we are motivated by customer outcomes. If a broker is going to call up with a problem, our focus is on the solution, and therefore it’s a refreshing experience,” Allegos says. His observations are reflected in the SME Growth Index, which found that 96% of SME owners would consider an alternative lender when seeking finance. Their reasons include the rapid approval process, unsecured options and, unsurprisingly, the revelations that came out during the royal commission. In future, based on the rapid development of products in the fintech space, they are also likely to cite price and transparency. “The royal commission really highlighted a lot of concerns people have within financial services, particularly as they apply to the majors,” Allegos says. “Obviously brokers must be very much aware of the pricing construct and continue to focus on customer outcomes. That is paramount in terms of meeting or fulfilling the opportunity that is in the market today. Those customer outcomes should be about providing a responsible solution, and that again comes back to transparency.” The outlook for the Australian fintech sector remains strong. The EY Fintech Census for 2018 counted almost 700 fintechs in operation – although not all are lenders – and 43% of these have been operating for three years or more. Further, APRA’s recent legislative amendments have paved the way for a new wave of lenders and neobanks, building on the legitimacy that the Code of Lending Practice underpins. With its loans now larger and longer, Moula is well placed to compete. AB www.brokernews.com.au
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BUSINESS PROFILE
THE ALT-FI OUTLOOK Alternative lenders are playing an increasingly important role in the financial environment, with products ranging from business to home and personal loans. Australian Broker speaks to the sector’s leading players about the runaway success of recent months, and the future of non-traditional finance
most recent research into the alternative finance sector confirmed that in 2017 Australia’s share of the market reached values in excess of US$1bn and showed growth of 88% against the previous year. Second only to China, Australia now accounts for 32% of this market in Asia-Pacific. Part of the growth is down to the proliferation of product options. The alternative finance space now offers home, personal and business loans predominantly designed to fill the gap left by traditional lenders. The other feature is the technology used, as naturally many alternative finance lenders also play in the fintech space, competing on key points such as speed, price and overall customer experience. Aaron Milburn, director of sales and distribution at Pepper Money, says the growth in alt-fi is largely down to the broker channel. “Brokers and their customers have really come to embrace and understand the alternative finance category. By providing a wide variety of loan choices to borrowers from all walks of life, something the banks frequently do not do, brokers have become the go-to source for lending,” he says. Further, Milburn says the current growth trajectory will continue in the foreseeable future, driven by the declining appetite of traditional lenders, the proliferation of product options, and borrower demand. “As long as the banks’ appetite to lend continues to decrease, the opportunity exists for alternative lenders to fill that gap. Regardless of KPMG’S
16
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market conditions, there are always willing buyers, sellers and refinancers in any market,” he says. In the last 12 months, the influence of the royal commission on traditional credit flows has been undeniable, but it’s far from the end
“Both these factors will place continued pressure on major lenders to be conservative in their lending standards, which in turn will necessitate alternative avenues to loan solutions for borrowers in need,” D’Vaz says.
“Brokers are so vital, and their knowledge and ability to source the right loan for a customer’s circumstances means they are an integral part of the lending landscape” Aaron Milburn, director of sales and distribution, Pepper Money of the story. According to Royden D’Vaz, head of sales and marketing at Bluestone, the upcoming election is also likely to have an impact on the future growth of the sector.
Brokers bring in 97% of Bluestone’s business, and the lender, which specialises in near prime home loans for a range of borrower profiles, saw its loan book grow by
almost 60% over CY2017–18. As a lender, Bluestone judges serviceability by assessing the individual rather than fitting each potential borrower into predetermined risk criteria. This approach is commonly adopted by alternative lenders, which tend to amalgamate the best parts of the operational models and underwriting systems that have been tried and tested overseas and locally. “We are able to offer loans to a wider range of borrowers because we don’t use credit scorecards and instead assess each deal on its individual merits. This enables us to understand the circumstances of each borrower and gain a more holistic understanding of their needs and goals,” D’Vaz says. “Bluestone prides itself on solutions that can fit a wide range of borrowers and superior customer and broker support.” Another reason for the strong national growth in alternative finance sources is the ongoing funding gap faced by small to medium-sized businesses. Among alternative finance lenders, KPMG says business lending increased 164% in 2017. “Banks can’t assess small business credit risk economically, and historically haven’t had the risk appetite to do so,” says Matt Bauld, GM for sales and business development at Prospa. “But small businesses need capital to grow, and many can’t or don’t want to secure their business venture against a family home. This is the basic premise that Prospa was founded on, and our solution is designed for small business.” When it comes to business lending, the alternative finance sector takes on
AUSTRALIAN ALT-FI Source: KPMG
Total market growth 2013–17 ($m) $1,400m
$1,148.52m
$1,200m $1,000m $800m
$609.60m
$600m
$397.61m
$400m $200m
$26.69m
$104.26m
$0m 2013
2014
2015
2016
2017
BLUESTONE
58.5%
loan book growth in calendar year 2017–18
19 years
operating in the alt lending space
Aaron Milburn, director of sales and distribution, Pepper Money
Royden D’Vaz, head of sales and marketing, Bluestone APAC
97%
a whole new level of meaning. Prospa counts 2.2 million small businesses in Australia; these employ 44% of the private sector workforce and generate 35% of GDP. When it comes to the growth outlook for Prospa’s corner of the market, the lender believes the opportunity could exceed $20bn per annum. “If 2018 is anything to go by, this year will be huge for the alternative lending space, and the opportunity
Building credibility Although a number of factors have spurred the growth reported by alternative lenders, the increasing trust of borrowers could be one of the most significant. In August, Deloitte asked 2,072 people about their level of trust in traditional financial institutions. When talking about the general banking industry, 21% believed banks had their customers’ interests at heart; 20% believed banks did
“For brokers who are looking to expand their horizons an even bigger opportunity awaits, as non-banks can offer fantastic scope for business growth” Royden D’Vaz, head of sales and marketing, Bluestone for alternative lenders and the brokers who partner with them is enormous. We estimate that there is an addressable market for small business lending of more than $20bn per annum,” says Bauld. “It’s always been hard to access finance from traditional banks and lenders, and it’s only getting harder, so alternative solutions are becoming more and more important.”
what was ‘good, right and fair’ in terms of ethics; and 26% believed banks kept their promises. Meanwhile, Bauld says borrowers views of fintech and alternative lenders reveal a stronger reputation. “More and more customers are turning their backs on the banks and embracing alternative product offerings in both the consumer and commercial space,” he says.
“Small business owners are becoming increasingly time-poor and more demanding of a transparent, hassle-free experience. A seamless customer journey will be essential for success this year and will set the best alternative lenders apart from the banks.” Aside from the loan book growth reported by alternative lenders – and the regional growth highlighted by KPMG – there are few figures to quantify how much borrowers trust the alternative market. However, Michael Burke, head of sales at OnDeck Australia, says transparency, credibility and awareness of how alternative finance works all help to increase trust and therefore demand. Through technology, automation and data analytics OnDeck can underwrite and fund more efficiently than the traditional banks. As a result, the lender’s Australian loan book increased 100% between 2017 and 2018, followed by a 346% increase in the broker channel in 2018. When these figures are combined with those of its US parent company, OnDeck has funded in excess of $10bn in loans for 100,000 SMEs in the last decade. “The industry is striving to deliver great products through a responsible lending mindset, and this, in
of loans originated through brokers
ONDECK
100%
loan book growth in calendar year 2017–18
3 years
operating in the alt lending space
30%
of loans originated through brokers
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FE AT URES
“Internet and mobile-based lending platforms are transforming how small businesses access and secure financial services by increasing efficiencies, decreasing transaction costs, improving customer experiences, and promoting greater financial inclusion,” Burke adds. According to KPMG, research and development receives an average of 24% of an alternative lender’s budget in the APAC region. The result is product solutions that are as individual as the borrowers themselves.
education and recently launched the Pepper Product Selector. The broker inputs their client’s details and the selector returns a product match, with an indicative interest rate and details of the associated fees. The tool also completes a soft credit check at no cost. “Brokers are so vital, and their knowledge and ability to source the right loan for a customer’s circumstances means they are an integral part of the lending landscape,” Milburn says.
“Now is the time for brokers to expand their businesses so they’re able to support their clients across a variety of finance needs” Matt Bauld, GM for sales and business development, Prospa
Matt Bauld, GM for sales and business development, Prospa
combination with transparency and greater usage, will continue to build credibility in the sector and ultimately more usage,” Burke says. As an international asset-backed business lender, OnDeck has seen many of the same trends play out in its native US market and thus has a strong grasp of how the Australian market could develop. “With more than 10 years of experience and learnings, OnDeck has advanced credit models that allow for responsible credit decisioning through, among other things, the assessment of three months of the business’s bank statements and credit bureau data,” Burke says. “Our proprietary credit scoring model uses credit and transactional data that builds on years of adaptive learning and engineering.” Alternative innovation Today, it isn’t enough to simply provide an alternative – that alternative must innovate on what has been done before. When it comes to lending, this is true regardless of the type of loan. In a wider context this is driven by customer demand and the expectation across all walks of life that digitisation of a service equates to a near-instantaneous solution. As a result, the majority of alternative lenders, irrespective of 18
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their individual business models, innovate the wider finance environment in some way with each new product and launch. To give an example, Burke says, “Long processing times prevent SMEs from taking advantage of near-term growth opportunities and being agile in their day-to-day operations. “Online lenders are focused on solving this challenge by providing smart, efficient application, underwriting and funding processes that can deliver funds to SME owners in as little as 24 hours.” The bottom line is that the lender must move at the same speed as their borrower’s business.
As Milburn explains, Pepper Money was founded on the principle that meeting market demand requires flexibility, innovation and an understanding of individual customers’ circumstances. “Pepper was founded on the proposition that there were whole segments of the Australian market that were underserviced, or even ignored, by traditional banks and other prime lenders,” Milburn says. To meet the demand of a growing pool of borrowers, Pepper built its business on bespoke credit underwriting practices, honed over two decades. Because more than 90% of its loans are originated through the broker channel, Pepper invests heavily in broker
Leveraging opportunity The role of brokers in the alternative finance space is undeniable, and is highlighted by their significant share of origination reported by the leading alternative lenders. However, gaps remain in how brokers utilise alternative finance – and with diversification of the broker business model still a hot topic, addressing those gaps will create a win-win situation. “Now is the time for brokers to expand their businesses so they’re able to support their clients across a variety of finance needs,” says Bauld. “Customers want a finance solution that works for them, from a partner they can trust to have their best interests at heart. Brokers should
AROUND AUSTRALIA Source: Equifax
Consumer demand for alternative finance, state by state Western Australia +150% Victoria +143% Queensland +139% New South Wales +128%
work with providers that have an established track record and provide excellent customer experiences.” Prospa provides brokers with a range of marketing and education resources customised for their needs, including webinars, EDMs, and dynamic landing pages. “The royal commission has demonstrated the importance of putting customers first, so brokers should make sure they are working with alternative finance partners that take this seriously and are compliant with the Code of Lending Practice. “This not only helps brokers maintain that trusted relationship with their clients but will also help them build a more sustainable business,” Bauld says. In alternative business lending, strong demand coupled with low marketplace awareness among consumers is a match made in heaven for most brokers. Research conducted by OnDeck reveals that only 42% of SME owners know the purpose of a credit score, and a mere 7% know what that actual score is. “There is clearly strong demand for SME finance, making this a revenue channel that brokers cannot afford to overlook,” says Burke. “Moreover, our discussions with brokers indicate that, on average, approximately one in four of a broker’s existing home loan clients are SME owners, providing a ready base for brokers to market their services in the SME lending space to.”
Michael Burke, head of sales, OnDeck Australia
expand their horizons an even bigger opportunity awaits, as non-banks can offer fantastic scope for business growth and diversification via specialised solutions for segments like self-employed borrowers, property investors and borrowers with credit impairments in their past.” Thanks to the royal commission the broker channel has received an inadvertent PR boost over recent weeks, and the role and prominence
“There is clearly a strong demand for SME finance, making this a revenue channel that brokers can’t afford to overlook” Michael Burke, head of sales, OnDeck Australia For those who wish to stick to their established client profile, the sector still provides opportunities, due to continuing shifts in lender criteria. “Becoming familiar with the offering of non-banks like Bluestone can pay off even for brokers who prefer to only deal in straightforward vanilla lending, as increasingly even those borrowers can struggle to be approved at the major banks,” D’Vaz says. “But for brokers who are looking to
of the broker channel is set to grow as a result. While it’s been a long road to get to this point, it means that fresh opportunities currently abound. “This will establish a broker as a customer’s trusted adviser and perhaps create a customer for life. Ongoing education of consumers will become key, and a broker can find their point of difference as a subject-matter expert for their customers,” Milburn says. AB
PEPPER
PROSPA
51%
loan book growth in calendar year 2017–18
18 years
operating in the alt lending space
>90%
of loans originated through brokers
$427m
total loan originations in 2018
7 years
operating in the alt lending space
70%
of loans originated through brokers
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19
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OPINION
BACK TO THE BASICS OF BROKING Michael Trencher, director of Impact Consulting, says brokers should go back to basics, turn off from the royal commission’s distractions and ask one simple question: how can I react to these challenges and create opportunities?
fair to say the royal commission findings have caught most, if not all, of the people involved in the mortgage broking industry completely by surprise. On top of that, the subsequent confusion and lack of clarity that ensued has caused significant concern particularly when viewed through the eyes of experienced operators across various points in the supply chain. In an astounding manner, the broker industry was thrust into the spotlight for reasons we are still looking for. To add to our amazement, suggestions as to how to structure the industry were put forward, which appear to be contrary to the very reason for having the royal commission in the first place. It is encouraging to see the rhetoric from both side of politics softening into a more feasible solution, and this has, to some extent, released some pressure on the broker community – although there is still some way to go. So, what positives can we look to from here?
During the weeks leading up to the royal commission report and in the last few weeks since its release, I have spoken to many brokers, and a key theme in my
IT’S
20
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and this has been steadily growing. The customer experience delivered by the industry simply speaks for itself when you see how many successful businesses there are and how customers value the service they deliver. Secondly, in an ironic way, the 40% who don’t or haven’t used a broker will certainly now know more about the broker industry from all the publicity generated by various petitions and public campaigns. So, an opportunity has emerged for the industry to see further levels of growth. As we move forward it has become imperative that we focus on the customer at every turn, whether through delivering great customer outcomes or attracting new customers to the broker experience. The other main theme evident from my discussions with brokers has been the all-consuming commentary on the royal commission and the subsequent distractions this has caused. However, there are key areas that may assist you in sharpening your focus as a business owner. For example, review your cash flow forecast immediately to understand exactly where your business stands. This will allow you to focus your activities in a more targeted manner. Then look at streamlining your business with a view to scrutinising all your costs and identifying where there can be some savings. Is this the time to offshore loan processing, for instance? It’s also important to ensure your referral partners and calling programs are not being neglected or distracted. Next, revisit your customer database to ensure you are staying close to your customers and they are aware of your service and value. Finally, review all of the above on a
In an ironic way, the 40% who don’t or haven’t used a broker would certainly now know more about the industry Michael Trencher, director, Impact Consulting
Michael Trencher Director, Impact Consulting
discussions has been the customer. We have heard the statistic that 60% of Australians who are looking for a mortgage use a mortgage broker, and of all the statistics being spoken to, this one is crucial for two reasons. Firstly, it means that brokers have sound, robust and tested customer charters, practices and track records, which result in new and repeat business,
regular basis to ensure they become part of your ongoing processes. Although the last few weeks have been destabilising for so many people, heading back to basics while remembering your customers will, over time, prove to be a winning formula. A key question to ask yourself is: how can I react to these challenges and create opportunities? AB
www.brokernews.com.au
21
PEOPLE
Have an interesting deal? Had a particularly difficult or interesting deal? Why not share it with us? Email:
Melanie.Mingas@keymedia.com
A BIG DEAL
When two prospective buyers were let down by an online broker, Lend Wright Brokerage director Michelle Milsom-Wright combined traditional and digital approaches to secure an investment property that was destined to become their retirement home
THE TAKEAWAY
THE FACTS
Loan size and term $220,000 + $6,000 for 20 years
Client Self-employed couple in their 50s
Goal To purchase investment/ retirement property
Location
Curra, Queensland
Like many industries, broking and finance are shifting to digital solutions. Whether a customer wants to do an online loan application or source a broker through an app or website, most things today can be done without speaking to another person. However, as convenient as these solutions can be, they don’t always work. Last year, I was approached by two potential buyers who had applied for a loan through an online broker. Their application was confirmed by the website, but despite several follow-ups the ‘broker’ assigned to them had fallen off the face of the earth. Calls and emails were left unanswered and, with time ticking away, the couple had to seek an extension or face losing their purchase. They were understandably panicked; an extension had been granted but still no progress was being made. After conversations with their realtor and solicitor, they were given my number. I met with them and listened to their story. Their existing extension was coming to an end, so it was clear that we would have to move quickly to avoid losing this potential purchase. The initial priority was to secure a second extension, which I requested through their solicitor, and thankfully the seller agreed. Next, I had to confirm www.abonline.com.au
Lender Resimac
Aggregator LoanKit
if an application had been lodged and, if so, what its status was at this point. After several enquiries it came to light that there was no existing application and that it was, in fact, a case of starting from scratch.
THE SCENARIO
22
and the mortgage lender, Resimac, was happy for a personal loan to be considered in their serviceability in order to secure the deal. But there were still some creases to iron out. Due to the couple’s age – and the small superannuation balances they held – the lender was concerned about their exit strategy. Returning to the drawing board, I devised a solution that would amortise the prospective loan to clear the balance over a shorter period.
There’s a certain irony in this story that speaks volumes about the importance of brokers and their place in an increasingly digital world. Throughout this deal I mostly worked remotely, communicating with the clients by phone, email and even SMS in order to keep things moving. To reassure the clients after their earlier experience, I gave nearconstant updates on the status and progress of the loan applications. This was obviously of great comfort to them, and I was delighted to gain the couple’s trust. Although this approach leveraged technology, it did so in a way that complemented – rather than attempted to replace – the approaches a broker typically utilises to secure a result.
There’s a certain irony in this story that speaks volumes about the importance of brokers and their place in an increasingly digital world THE SOLUTION
Michelle Milsom-Wright Director and senior broker, Lend Wright
The clients were a self-employed couple in their 50s who were looking to secure their future with an investment property they could eventually retire in – it was a clear-cut specialist case. I collected the information required for the loan in order to find a product that would suit their circumstances and secure the property they had found. However, during this process I discovered there was an outstanding tax debt of $6,000 that would need to be cleared in order to receive final approval. To do this, I guided the clients to Wisr and we were able to lodge a personal loan application in both their names. This allowed us to split the liabilities,
This isn’t the first time a client has come to me after being let down by an online broker, and as such there are several lessons to learn. Firstly, while the online model’s loss is my gain, it also undermines and trivialises the value of the ‘offline’ broker. Secondly, in terms of finding solutions, there is a loan for every client – it’s just that sometimes you need to look outside of the box to find it, for example by combining a fintech and a specialist lender. Lastly, networks are everything; not only do they bring you more business, but in an industry where so many work alone they are also fun to build. This experience just goes to show that there really is no replacement for the human touch. AB
www.abonline.com.au
23
PEOPLE
Get involved in the discussion Share your thoughts at
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FROM THE FORUM
Top comments from trending stories on brokernews.com.au
24
MAJOR BANK SUSPENDS DEMERGER
GOVERNMENT U-TURN ON BROKER COMMISSION
Commonwealth Bank of Australia has announced its plans to suspend the upcoming demerger of its wealth management and mortgage broking businesses indefinitely. It said this would allow CBA to focus more closely on implementing the royal commission’s recommendations. Despite the change in plans, a statement from the bank emphasised that “CBA remains committed to its strategy to become a simpler, better bank, including ultimately the exit of its wealth management and mortgage broking businesses”. Several months ago, CBA announced that Jason Yetton and Andrew Morgan were to head the new wealth management and mortgage broking entity NewCo, as CEO and CFO respectively. A spokesperson for the bank said “nothing has changed” with regard to their positions.
The Coalition Government has announced a dramatic change to its position on the future of trail commissions, with Treasurer Josh Frydenberg confirming that payments will remain in place, subject to a review in three years. “The Government wants to see more mortgage brokers – not less,” the media release stated. MFAA CEO Mike Felton said, “The case for the removal of mortgage broker trail commission has not been made, nor has it been demonstrated that existing trail arrangements lead to poor customer outcomes. “As such, it is an important control mechanism that aligns the interests of brokers and their customers, and ensures that the broker focuses on the customer relationship rather than simply pursuing the next transaction.”
And the fact that the government has now changed its stance on trailing commissions has had no play in that – CBA must think people are fools. Support your local credit unions!
Just kicking the can down the road, nothing to celebrate here; it will be seven years of ongoing reviews by then – what a joke
Dean Semchyshyn, 14 Mar 2019, 10:34 AM
The above comment written by Bill Shorten and seconded by Chris Bowen.
CBA was the last to embrace the broker space and only did so because they were losing market share. They then held themselves up to be the pioneer, but at the same time were doing everything in their power to undermine brokers. That failed so they took over Aussie in response to NAB’s Plan, Choice and FAST move and joined the broker ranks while at the same time plotting to get rid of commissions. Give me a break.
David | 13 Mar 2019, 09:26 AM
Larz, 14 Mar 2019, 12:42 PM
ktf theo | 13 Mar 2019, 02:30 PM
More corporate jokes from CBA; like Westpac in 2008 they have kicked an own goal, probably three in fact, but their overall attitude is far worse than any other lender, ever. Their market share from brokers will get hammered and never recover. Surely all brokers have now finally woken up.
The surest way to destroy an economy is for the government to put its ugly head in.
Broker, 14 Mar 2019, 07:42 PM
Well done | 14 Mar 2019, 09:39 AM
www.brokernews.com.au
Broker | 13 Mar 2019, 07:53 AM
What is Labor’s stance? Still looking to destroy small businesses? Broker Staff | 13 Mar 2019, 09:29 AM
Industry has never been so ridiculous before but can celebrate now, except the market is almost dying away for losing confidence, thanks to overregulation.
SEQ Broker | 14 Mar 2019, 09:36 AM
Correct and courageous decision by the Liberals/Nationals. Common sense is rare, but when it comes along it’s to be applauded...
Wednesday 5 June • The Westin Sydney
FUTURE-PROOF YOUR BUSINESS
There’s never been a more important time for a national forum to address the issues impacting the industry.
Hear from award-winning brokers:
Karen Bashford General Manager South Coast Business and Financial Solutions MPA Top 100 Brokers 2018
8
Hannah Nguyen Director HAH Finance Solutions MPA Top 100 Brokers 2018
Andrew Mirams Managing Director Intuitive Finance MPA Top 100 Brokers 2018
8
8
Navjeet Singh Matta CEO Gain Home Loans MPA Top 100 Brokers 2018
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2 2018
Alycia Inglis Director Stoneturn MPA Top 100 Brokers 2018
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Shawn Allen Principal Owner Matrix Mortgage Global Canada’s Top Mortgage Broker
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As a continuation of our support of the broker channel, MPA is waiving the registration fee for brokers to attend.
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25
DATA
WESTERN AUSTRALIA
VIC SPOTLIGHT
Perth's affordable housing and wealth of amenities are positives for buyers Perth has come out on the other side of its prolonged struggle, and plans are in place to keep its upward momentum going. “The state government’s International Education Strategy and Graduate Skilled Migration list that was introduced in 2018, along with changes to immigration policies by both the state and federal government in 2019, could be the catalyst for an increase in housing demand,” says J-Han Ho, property researcher and senior lecturer at Curtin University’s School of Economics, Finance and Property. He goes on to outline the perks Perth could offer buyers. “Perth’s housing market is very attractive when you consider the cost of housing, distance from the CBD or major activity centres, housing quality and size, and amenities available in every precinct,” he says. Further, planned mining investments and the development of retail centres should serve to enhance the job market in the state, as well as boost consumer confidence. Area
Type Median value
Quarterly
12-month
growth
growth
Perth
H
$490,000
-1.0%
-1.0%
WA Country
H
$320,000
-1.2%
-4.1%
Perth
U
$375,000
-2.5%
-4.9%
WA Country
U
$200,000
-2.2%
-13.7%
QUEENSLAND
Brisbane’s performance quells unit oversupply fears Brisbane’s recovering economy now contributes to the stability of the housing market. “That’s a factor that will continue to be supportive of housing,” says Nerida Conisbee, chief economist at REA Group. “The highest demand for buyer activity in Brisbane tends to be on the north side, and the Gold Coast has very high rental demand – that’s good if you’re looking to invest, because there will be lots of renters.” Apartments have been a rising star in the property market. While there have been concerns about oversupply in the last few years, demand for quality dwellings seems to have been adequate to stave off fears of a glut of empty apartments in the Sunshine State. “We’re not seeing the same level of development taking place anymore, so a lot of the problems associated with oversupply are passing through,” Conisbee says. Further, more buyers – particularly first home buyers – are favouring apartment lifestyles due to affordability and convenience. Area
Type Median value
Quarterly
12-month
growth
growth
MELBOURNE’S MIXED FORTUNES In the face of declining property values, Melbourne continues to offer attractive incentives for investors and first home buyers
may have had a hard time in other cities, but Australia’s property investors are seeing their dreams come true in Melbourne. The city’s dwelling values are still on a downward trend, but Melbourne remains in a better position than Sydney. According to CoreLogic’s Hedonic Home Value Index for January 2019, Melbourne recorded a 7% fall in property prices over the 2018 calendar year, just behind Sydney’s decrease of 8.9%. The decline has hit the top-quartile housing market especially strongly, with values in this market segment plummeting by 11.2%. By contrast, the lower-priced sectors are gaining momentum and reporting mild growth. “The stronger performance across lower-value properties likely reflects both affordability challenges and lending policies focused on reducing exposure to borrowers with high debt-to-income ratios. These factors, as well as incentives for first home buyers in NSW and Victoria, are likely channelling market activity towards the lower range of dwelling values,” says Tim Lawless, CoreLogic’s head of research. However, while rental yields across the country have been on the up in this period, Melbourne’s returns are still considerably below average, and it will take a while to see a notable boost in this area. “Considering rental conditions remained relatively soft, a recovery in gross rental yields is likely to be a long and gradual process,” Lawless says. The correction period for Melbourne won’t come to an end while housing affordability remains a problem for buyers. Lawless’s outlook for 2019 indicates that dwelling prices are still roughly eight times higher than typical household incomes. The rate of value decline has been increasing along with housing supply, and population growth is starting to ease as well. AB THEY
H
$535,000
0.0%
2.3%
Median price (houses)
QLD Country
H
$437,000
-0.4%
-0.1%
$565,915
Brisbane
U
$387,500
-0.6%
-2.5%
QLD Country
U
$370,000
-0.4%
0.7%
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Buyer mix continues to evolve due to market changes Despite sluggish auction clearance rates and low confidence, the March quarter has seen a noticeable re-entry of first home buyers and investors into the market. Outer Melbourne and in particular the Mornington Peninsula/Bayside region have been the star performers due to affordability and transport infrastructure. Regional Victoria experienced a 2.5% increase in the median house price in the December quarter, largely driven by first home buyers taking advantage of government incentives and spurred on by more affordable housing options. APRA lifting its cap on investment lending on 1 January, as well as the proposed changes to negative gearing and CGT post the federal election, has led to seasoned investors – who weren’t impacted by tightening lending conditions – re-entering the market after a period of absence. Loan applicants are noticeably more savvy with their data, and we believe this is due to the media attention given to the tightening lending conditions, with a particular focus on living expenses. Consumers are now educated enough to know what they need to provide to achieve a satisfactory outcome from the banks – which is quality data to support a quality application. Amanda Hardy Managing director, Two Acre Finance
SUBURB TO WATCH: MERNDA
Brisbane
26
BROKER PERSPECTIVE
Median price (units) $411,702
Source: CoreLogic
12-month growth
3-year growth
5-year growth
Indicative gross rental yield
-3.2%
26.4%
35.0%
3.5%
12-month growth
3-year growth
5-year growth
Indicative gross rental yield
6.9%
28.9%
40.1%
4.5%
HIGHEST-YIELD SUBURBS IN VICTORIA Suburb
OPPORTUNITIES AND KEY INFRASTRUCTURE
Type
Median price
Quarterly growth
12-month growth
Wycheproof
H
$110,000
-12%
-5%
Hopetoun
H
$87,500
-4%
-6%
Cann River
H
$128,000
1%
-5%
Wedderburn
H
$129,000
-1%
-23%
Ouyen
H
$90,000
-28%
-31%
Jeparit
H
$79,000
0%
22%
Birchip
H
$92,500
-8%
3%
Derrinallum
H
$118,751
-5%
-35%
Minyip
H
$84,500
0%
-6%
Murtoa
H
$112,475
3%
0%
Lynbrook
U
$240,750
1%
-45%
Warracknabeal
H
$113,750
-1%
8%
AUSTRALIAN CAPITAL TERRITORY
Area
Roads
Housing
Upwards of $260m will be invested in 14 road projects
12 new suburbs will accommodate 50,000 housing lots
Trains
Leisure
Metro Tunnel project will add five new underground stations by 2025
Melbourne Arts Precinct will feature 18,000sqm of public space
Type
Median value
Quarterly growth
12-month growth
Canberra
H
$680,000
1.0%
3.8%
Canberra
U
$430,000
0.0%
0.2%
Sentiment provides challenges, but ACT’s performance shines through The current slowdown in the national market has shaken the confidence of buyers in general, with sentiment in the March 2019 quarter trending down compared to the previous quarter. However, the ACT still has the highest confidence index in Australia next to SA, marking a strong start to the new year for Canberra. “This bodes well for an even busier 2019 in the nation’s capital,” says Adina Cirson, ACT executive director of the Property Council of Australia. The sentiment drop has been accompanied by increased confidence in the areas of construction and staffing, indicating a positive outlook where finance and employment are concerned. “The ACT is one of the fastest-growing regions in Australia. We continue to push the ACT government for streamlined planning approvals and the right tax framework and incentives in place to encourage development where and when it is needed,” Cirson says.
www.brokernews.com.au
27
DATA
SOUTH AUSTRALIA
12-month
growth
growth
Adelaide
H
$460,000
1.1%
2.2%
SA Country
H
$268,750
1.1%
-0.3%
Adelaide
U
$335,000
-0.2%
-0.9%
SA Country
U
$210,000
4.7%
0.0%
NEW SOUTH WALES
MEDIAN HOUSE AND UNIT PRICES
Sydney buyers’ market remains down, but renters have an edge
$1,000,000
Type Median value
Quarterly
12-month
growth
growth
Sydney
H
$940,000
-3.1%
-3.1%
NSW Country
H
$462,000
0.0%
3.3%
Sydney
U
$715,000
-0.7%
-1.4%
NSW Country
U
$400,000
0.0%
0.0%
28
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Total auctions
94
Sold
34
Not sold
37
Clearance rate
47.9%
PERTH Total auctions
15
Sold
2
Not sold
4
Clearance rate
33.3%
Houses
$900,000
Units
Sydney Melbourne Brisbane Adelaide
Perth
Hobart
$512,500
$460,000
$375,000
$0
$350,000
$100,000
$485,000
$200,000
$335,000
$300,000
$465,500
$500,000 $400,000
$505,000
$600,000
$680,000
$700,000
$661,000
$800,000
$817,000
It’s a good time to be renting in the metro areas of Sydney, according to the results of a December 2018 vacancy rate survey. “The rise [in rates] was driven by Middle Sydney, which jumped 1.6 percentage points to 5.1%, and Inner Sydney, which rose 0.5 percentage points to 3.0%. Outer Sydney increased 0.3 percentage points to 3.3%,” says Real Estate Institute of NSW president Leanne Pilkington. “Our feedback from agents suggests that the market is being flooded with new units.” This means, however, that older units are more difficult to rent. To boost interest from potential tenants, agents are decreasing rents and offering rent-free periods. The vacancy rates in metropolitan Sydney increased by 0.2 percentage points to 3.2% in the 12 months to December 2018, but on the flip side, regional NSW recorded a 1.2 percentage point drop in vacancies to 1.5%. With rental supply rising in the city, a fall in Sydney’s rental prices may be imminent. Area
ADELAIDE
Darwin
$433,750
Quarterly
$360,000
Type Median value
Auction rates continue to drop as 2,204 capital city homes were taken to auction this week, returning a preliminary weighted average clearance rate of 55%. This week’s volumes are slightly lower than the 2,293 auctions held last week, which was the busiest week so far this year. The higher volumes last week saw the clearance rate dip below 50%, and it’s likely, as volumes increase, that we will see clearance rates trend below this mark. Comparing results to one year ago, volumes are significantly lower than the 3,026 homes taken to auction over the same week in 2018. Given that the combined capital cities posted another month-on-month decline in home values in February, it's expected that vendors will remain reluctant to auction their properties while selling conditions remain challenging, and year-on-year volumes will continue to trend lower throughout the year. In Melbourne, Australia’s largest auction market, a preliminary auction clearance rate of 54.9% was recorded across 1,046 auctions, up from the 50.6% final clearance rate last week when volumes were higher (1,128).
$520,000
Area
WEEK ENDING 3 MARCH 2019
$635,100
Some of the top-performing suburbs in SA are in the inner and middle rings of Adelaide, such as Parkside, Kilburn, Newton and West Beach. The boost to the residential sector has been supported in part by the improvements to the industrial sector – for example, defence and science industry spending has increased in the 12 months to December 2018. This, along with initiatives for infrastructure improvements, has helped support the industrial sector, according to Herron Todd White’s Month in Review report for December 2018. Much effort has gone into road upgrades, such as the Torrens to Torrens and Darlington projects. In addition, the site of the former assembly plant for Mitsubishi Motors, Tonsley, is being developed into a mixed-use pocket for high-value manufacturing, commercial and residential purposes. Tonsley’s commercial centre makes use of what was once an 80,000sqm warehouse called the Main Assembly Hub, which now houses shops, cafes, services and retail facilities.
CAPITAL CITY AUCTION CLEARANCE RATES
$311,000
New economic drivers attract fresh demand
Canberra
CAPITAL CITY HOME VALUE CHANGES Capital city
Weekly change
Monthly change
Year-to-date change
12-month change
Sydney
-0.3%
-1.0%
-2.5%
-10.5%
Melbourne
-0.1%
-1.0%
-2.8%
-9.4%
Brisbane
-0.2%
-0.2%
-0.5%
-0.5%
Adelaide
0.0%
0.0%
-0.3%
0.9%
Perth
-0.4%
-1.4%
-2.6%
-7.0%
-0.3%
-0.9%
-2.2%
-8.2%
Combined 5 capitals
*The monthly change is the change over the past 28 days
BRISBANE CANBERRA Total auctions
121
Sold
46
Not sold
58
Clearance rate
Total auctions
124
Sold
24
Not sold
49
Clearance rate
32.9%
44.2%
SYDNEY Total auctions
799
Sold
339
Not sold
214
Clearance rate
TASMANIA
MELBOURNE Total auctions
61.3%
1,046
Total auctions
5
Sold
450
Sold
1
Not sold
369
Not sold
1
Clearance rate
Clearance rate
54.9%
TASMANIA
Area
Tourism trends echo through property market Tourism has transformed Hobart but could be a mixed blessing as investors seek to cash in through short-term rentals, which in turn has caused the rental market to slow down due to a shortage of long-term rentals and falling vacancy rates. “Prices will continue to grow because we continue to see very strong buyer activity. But we have seen a bit of a pullback in rental demand, so the Tasmanian market probably won’t continue to grow at double digits over the next couple of years,” says Nerida Conisbee, chief economist at REA Group. Real Estate Institute of Australia president Adrian Kelly says there is no easy fix if additional supply does not enter the market, since the local government is not keen to crack down on the short-term accommodation market that supports tourism to some extent. “In some ways, we have become a victim of our own success,” he says.
N/A
Type
Median value
Quarterly growth
12-month growth
Hobart
H
$450,000
2.3%
12.6%
TAS Country
H
$300,000
1.7%
7.3%
Hobart
U
$355,000
1.5%
10.0%
TAS Country
U
$242,000
0.0%
-2.0%
All data sourced from CoreLogic.com.au
www.brokernews.com.au
29
PEOPLE
IN THE HOT SEAT Andrew Russell, REA Group’s executive manager for financial services, explains why he first entered the finance industry and how others can maximise the opportunities that exist in it today
How did you first get into finance? I was working in strategy at Virgin and we had just A launched the Virgin credit card. We were deciding which retail product we should launch next, and I was tasked with writing a business case for mortgage entry. It all started right there, and now I’m fortunate enough to head up the financial services business at REA. It’s certainly been a fascinating journey so far!
Q
What’s the greatest challenge for brokers at this time? The challenge for most brokers is the ability to keep focused A on building and growing their businesses, while delivering great customer outcomes for their clients. Right now, doing all of this without getting distracted by the commentary around the industry is really adding an additional element to this challenge.
Q
What are your top survival tips for working in finance? I like to think of these as my top tips for maximising a A career in finance, rather than tips for survival. There’s no doubt a career in finance can be challenging at times, but I think these tips hold you in good stead to ride over those obstacles and enjoy success. Firstly, you need to be resilient. The challenges test you, but it’s how you overcome them that matters. Next, set business goals and review them regularly with honesty. You need to be willing to flex as circumstances change in your direct environment and the industry. And finally, keep asking yourself: how can I be better at what I do, how can I improve my knowledge and skills, how will my business need to compete tomorrow to win? Always ask yourself what you can do, not why something didn’t work as you had hoped or expected.
Q
If you won $1m, what would you do with it? Firstly, I would be so shocked as I have never even won a A raffle, let alone $1m. I would start by celebrating with my friends and family, nothing overly extravagant but I’d want to share it with them. A million dollars isn’t what it used to be, that’s for sure, but I think I’d spend the vast majority investing in property. AB
Q
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