Australian Broker magazine Issue 8.13

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ISSUE 8.13 July 2011

Exit fees banned, now time to move on

Tony Carn

 Brokers urged to

look forward as DEF ban introduced Homeloans general manager of third party sales Tony Carn has urged the market’s mortgage brokers to “move on” and put negativity behind them, following the successful banning of all exit fees – including deferred establishment fees – on 1 July.

Following the blanket ban on exit fees, as well as the widespread introduction of clawbacks among non-banks and mortgage managers in response, Carn said while the “autopsy” is still being done on

the legislative change, “we have to accept it’s now law and look ahead”.

Carn said that in the past, deferred establishment fees, or DEFs, have been a psychological barrier for clients – particularly since the GFC. With the introduction of the NCCP, exit fees have been propelled into the spotlight, he said, which has made it easier for brokers to recommend products that don’t have such fees.

“Now with the ban a reality, we need to think of this as a positive and how it will help enhance rather than destroy competition,” Carn said. “It’s just levelled the playing field for non-banks and their larger competitors.”

With non-bank market share

plummeting, Carn has urged brokers to use the opportunity provided by the abolition of DEFs to “vote with their feet” and recommend non-banks.

“Ever since cuts to upfront and trailing commissions started to permeate through the broking industry, there has been enormous concern about the volume of business the majors are getting,” Carn said. “So now the DEF ban is concrete, it’s a great opportunity for brokers to show their dissatisfaction.”

Carn said brokers could also use non-banks to provide independently labelled products without the risk of channel conflict in the future.

At the time of the legislation’s introduction, Advantedge Financial Services also took aim at major bank clawback structures.

The company previously announced its clawback structure would reclaim 50% of upfronts in the first 18 months, followed by no clawbacks thereafter. Advantedge general manager of lending distribution Brett Halliwell said the structure set a “new industry benchmark”.

“We’re now in the new world.

Exit fees are no longer a reality.

This is our response and to date we’ve seen very little action from the majors,” he said. “One-hundred per cent clawed back from a broker within 18 months of setting up a loan can massively impact on cash flows.”  For more on the introduction of the exit fee ban, see page 14

No clawback choice Client clawbacks denied for Mortgage Choice franchisees Page 2

Low-docs lauded Bankwest fights marginal stigma with product launch Page 6

No first degree FBAA slams MFAA degree plan Page 8

Inside this issue SPECIAL REPORT The exit fee ban fallout

14

Analysis The future of the FHOG

20

Viewpoint 22 Are your clients lying for credit?

Opinion 23 Brokers to survive online age Insight 24 Business health through sales fitness Market talk 26 Uniting through syndicates Caught on camera 28 Westpac hosts women brokers

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News Mortgage Choice says no to client clawback A policy document issued by Mortgage Choice to its franchisees attained exclusively by Australian Broker has ruled out imposing a fee on clients in the event of a lender clawback.

The document stated that “for the foreseeable future, Mortgage Choice will not be seeking to claim from our customers the reimbursement of commission clawbacks arising from the early discharge of their home loans”.

In the communication – sent to franchisees, their staff and general company staff – the group stated that clawing back commissions from customers “has the potential to be very damaging to the reputation of the brand and the overall integrity of our industry”.

The group said this impact on brand would be apparent even if the practice is properly disclosed in broker credit quote and proposal documentation, and is also determined to not be in breach of any statute or our lender agreements. In making its case, Mortgage Choice raised the

spectre of social media, which the group said, “now allows the sharing of one bad experience to easily spread a great distance at a lightning fast pace”.

The business also stated that the imposition of a clawback on clients up to two years after providing the initial credit assistance involved “a whole realm of integrity and logistical hurdles”, and could impact repeat and referral business.

“While we will continue to work hard to restrict the imposition of clawbacks, they are sadly a cost of doing business and are not designed by lenders to be a cost imposed on consumers,” the document stated.

“As a high profile national brand, Mortgage Choice’s reputation must be protected for everyone’s benefit and rest assured this matter has been given much consideration.”

However, Mortgage Choice indicated that it understood the challenges being faced by its franchisees. “Mortgage Choice is very sympathetic to the challenges

being encountered in a subdued housing market and is well aware franchisees are working harder than ever before on lower commissions. Nothing stings as bad as an unexpected lender clawback.”

Leeanne Scott on fee-for-service At an Australian BrokerNewsTV panel discussion, Mortgage Choice broker Leeanne Scott recently speculated that a clawback-related fee for clients may be the first type of fee to become more widespread among mortgage brokers, when compared with a pure financial planning style fee-for-service, and the much-talked about ‘no-go’ fee. To view the video and see what other top brokers have to say, see our video footage at www.brokernews.com.au/tv/ (Panel: Top brokers on fee-forservice), and Australian Broker’s recent cover story on successful FBC clawback clauses (FBC clawback clause up to the test, edition 8.11).

NZ diversification a model for Aussie brokers Brokers who are unconvinced about diversifying into risk insurance should look no further than the successful industry Darren Pratley transition taking place in New Zealand, according to NZMBA (New Zealand Mortgage Broking Association) chairman Darren Pratley.

Pratley said 60% of mortgage brokers in New Zealand are actively writing risk policies, or referring on risk business and being paid a percentage of the commission. He said this current market reality was

substantially different from three to four years ago, when broker attitudes reflected a desire not to sell additional related products.

Pratley said the market’s impetus for diversification came as broker market share grew and trail commissions were eventually slashed by the market’s major lenders.

However, Pratley said brokers found that products such as home and contents insurance, as well as life and income protection insurance, were products that “go neatly” with the mortgage transaction. He said that brokers were also finding that they were good at selling these additional

products, in addition to advising clients on their mortgages.

In New Zealand, Pratley claims that those who are making the effort to commit to risk insurance products, and integrate them as part of a more advice-based model of broking, are the ones getting the benefit of holding on to their customers long term.

“We need to be conscious that mortgage broking has been dependent on commission from providers who are our competitors,” Pratley said.

“Mortgage brokers need to get an understanding that the shift is about the advice piece,” he said.

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Choice courts new lender panel members Choice Aggregation Services has added mortgage manager Future Financial to its lender panel, as it seeks to fill an additional Stephen Moore series of niches on its lender panel.

Following the recent addition of credit union products through credit union association CUSCAL, Choice CEO Stephen Moore said the Future Financial addition would add to the offering its members could make available to clients, at a time when competition is suffering due to the dominance of the nation’s four

biggest banking institutions.

Moore said a key reason for the addition was that Future Financial has established its own product range, with its own features and benefits as well as commissions and clawbacks, and has then sought wholesale funding partners to support these product designs.

“We really like its [Future Financial’s] product approach.

Unlike many mortgage managers, it has an almost funder agnostic approach to product,” he said. “It’s a good model that gives it more independence from its funders.

“It results in a more simplified product approach, rather than

seeking to match funders through multiple variations of products.”

Moore revealed that the NABowned aggregator had currently identified three additional niches for new prospective lenders to fill.

He said criteria for these new lenders included close regional and state-based ties, as well as specialties in certain areas of product.

“Perhaps in contrast to the traditional aggregator model – where five brokers ask for a certain lender which then gets added to the panel – we have quite a regimented and disciplined process when we look to appraise individual lenders,” Moore said.

The aggregator also considers the businesses of its existing panel members when adding new players, to ensure it is not creating any unnecessary competition between them.

Future Financial general manager Troy McLachlan said the group was offering a number of loan products immediately to Choice brokers, and had a view to adding to this offering.

“Future Financial has been targeting panel status with key aggregators in recent years,” McLachlan said.

“Choice has always been high on the list of aggregators we’d like to do business with.”

Future of specialised lenders in doubt amid ASIC scrutiny

The future of specialised lenders is in question with the advent of NCCP requirements, it has been claimed.

With ASIC monitoring the NCCP responsible lending requirements, industry sources have questioned the viability of lenders specialising in low-doc and non-conforming lending. In its latest release to brokers, aggregator nMB claimed ASIC had noticeably stepped up its level of monitoring, and would be casting particular scrutiny on the non-conforming space.

“ASIC is now moving into its ongoing supervisory role and nMB, like a number of Australian Credit Licence holders, has been requested to provide a wide range of information relating to our lending, credit representative activity and compliance programs. ASIC seems to have a very strong focus on the level of

no-doc/low-doc lending pre- and post- the introduction of the new responsible lending provisions,” nMB managing director Gerald Foley said.

With this intensified scrutiny of non-conforming loans, Mortgage Choice compliance and corporate standards manager Tim Donahoo has commented that lenders specialising in the non-conforming space may find themselves in the crosshairs as responsible lending practices are enforced.

“The whole non-conforming environment is an interesting one, because they’re more vulnerable to any questioning of policies. By definition, their demographic is people who might be regarded as on the fringe of being creditworthy,” he remarked.

Some specialist lenders, such as Pepper Home Loans, have stated that the non-conforming environment has changed as banks have tightened lending criteria. Pepper CEO Patrick Tuttle told Australian Broker in May, following the company’s acquisition of GE Capital’s $5bn loan book, that the lender would focus on writing business which would have been considered prime prior to the GFC. However, Donahoo questioned if this would provide sufficient volume to see specialised non-conforming lenders succeed.

“Whether they can generate sufficient business to stay afloat is a question. The fact is they simply can’t offer credit now to a certain category of people they used to,” he commented.

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Low-doc shouldn’t carry stigma: Bankwest Bankwest has revived its Low Doc Home Loan, and says low-doc lending should not be stigmatised.

The bank recently announced it would replace its Easy Doc Home Loan with the reinstatement of its Low Doc product. The product will carry a 7.20% rate for loans up to 60% LVR. Bankwest head of specialist banking Ian Rakhit said the bank will also continue its no application fee offer until further notice. Rakhit said the move to revive the bank’s Low Doc product in place of its Easy Doc Home Loan was in response to broker feedback.

“We’ve always been good supporters of the low-doc and easy doc products. At one point we were writing 22% of all low-doc mortgages on the market. It’s a product that has particular

resonance for customers, particularly those who go through brokers for finance,” Rakhit commented.

As many banks tighten lending criteria, Rakhit indicated a hole had been left in the market for lenders to appeal to self-employed borrowers.

“The reason we sharpened our pencil on this product is exactly that. We feel it’s an opportunity to take market share. It’s still good, quality borrowing for us, and will increase our attractiveness for brokers for this type of product,” he remarked.

Rakhit also refused to shy away from the term ‘low-doc’. With many low-doc lenders now moving towards terms such as ‘specialised’, ‘non-conforming’ or ‘self-employed’, Rakhit said there should be no

shame or stigmatisation surrounding low-doc lending.

“If others want to move away from the name of the product, that’s of their own making. Low-doc reflects what it is. It’s for good, quality borrowers who have sizeable deposits or equity, but can’t show their income through traditional PAYG methods. I don’t see that it needs to be a stigmatised market or one that needs to be adversely viewed,” Rakhit said.

The bank has also cut rates on its Premium Select product, which now offers a 6.85% rate for loans below 75% LVR and 6.95% for loans from 75% to 95% LVR. The rate includes a life-of-loan discount, and the bank has said larger discounts are available for clients borrowing more than $750,000.

Bankwest locks in pro rata clawback In the wake of the unilateral ban on exit fees, Bankwest said in a statement it will keep in place its existing clawbacks, calculated on a pro rata basis over 18 months from the date of disbursal. In practice, Bankwest’s clawback structure means that if a loan is discharged in month 14, it would only clawback the proportion that represents the remaining four months from the original upfront payment. The bank’s policy stands in contrast to that of parent company CBA, which has a 100% clawback for the first 12 months, and a 50% clawback from 12–18 months.

Housing due to rebound: BIS Shrapnel BIS Shrapnel has disputed the idea of a property market crash, and has forecast that house price growth will begin to accelerate within the next two years.

In the company’s Property Prospects 2012 to 2014 report, BIS Shrapnel has predicted the housing market will see moderate price growth over the two years to 2013, and has claimed some capital cities will even see double-digit price growth over the three years to June 2014. In particular, the company forecast double-digit growth for Sydney, Brisbane and Perth, with Perth predicted to see 19% growth in the three years to June 2014.

Although the company conceded the market has seen recent declines, BIS Shrapnel senior manager Angie Zigomanis said a variety of factors will come together to arrest any further decreases.

“Economic growth is forecast to regain traction through 2011, and continue to accelerate in 2012 and 2013 as resources investment flows through to the rest of the

economy,” Zigomanis said. Though recent ABS figures have indicated that 2010 saw the slowest population growth since 2006, with net overseas migration down 35% on 2009, Zigomanis predicted that growth will rebound, stimulating housing demand.

“Strengthening employment growth – the unemployment rate is forecast to fall below 4% in 2013 – will also see net overseas migration inflows turn around, and the underlying demand for new dwellings begin to rise,” he commented.

BIS Shrapnel has also predicted a return of first homebuyers to the market. Its report suggested that first-time buyer participation would return to long-term averages.

“Potential first homebuyers will not stay out of the market forever.

At some point many will reach a life stage where they will want their own dwelling. If higher interest rates mean they can’t afford their first choice of dwelling initially, then they will purchase a more affordable type of dwelling

and/or in a more affordable neighbourhood. In any event, this period will allow future first homebuyers to build up their deposit and take advantage of softer house prices,” Zigomanis

said. Last year, BIS Shrapnel’s Residential Property Prospects 2010 to 2013 report predicted median house price declines would not come to pass, saying investors would spur activity in the market.

Cause for optimism?

BIS Shrapnel’s forecasted rise in median prices by June 2014

19%

18% 15%

SYD

MEL

8%

8%

6%

5% BNE

ADE

PER

HOB

CAN

7% DAR

Rewind: What did BIS say last year?

In August last year, BIS Shrapnel’s Frank Gelber told the audience at a Real Estate Institute of Victoria luncheon that an undersupply in housing would force residential prices up by 30% within three years. “At the end of the day, we haven’t got a bubble in our residential market,” he said.

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FBAA won’t move on education before ASIC FBAA president Peter White has weighed into the debate surrounding educational requirements for mortgage brokers, saying industry associations should not require higher educational standards than those dictated by ASIC. White has criticised the MFAA’s requirement that members obtain a Diploma by July 2012, as well as recent statements by the peak association’s president Joe Sirianni that a university degree could well be the future of the industry.

“I don’t think anyone in the industry disagrees with furthering your education, but I’d take someone with 15 or 20 years’

experience over a university degree any day of the week.

There’s nothing that beats experience,” White commented.

FBAA requirements currently mirror those of ASIC, which dictate that brokers must hold a Cert IV. White said there are no current plans to increase these educational requirements.

“We at the FBAA have no intention in changing the benchmark from Cert IV. If ASIC moves the benchmark, then obviously we will have to follow suit,” he said. “ASIC’s the police.

They’re the one setting the benchmark for Treasury. We’re not going to be the ones saying we should set a higher standard than

them, because their standard is already pretty high.”

Following Sirianni’s comments to Australian Broker (‘University degrees are next: MFAA’, Australian Broker edition 8.12), White said the FBAA has received calls from brokers worried about possible changes to educational requirements.

“People have been ringing us asking what’s going on.

Everything’s normal here. We’re not changing the rules,” he stated.

White commented that brokers are still struggling to come to terms with the NCCP compliance regime, and should be allowed to focus on this rather than new educational standards.

“We’re all trying to get used to the changes of compliance, and it’s hard enough without putting further impost on Peter White people while they’re still trying to hold onto the beast with both hands,” White said.

“Personally, I don’t disagree with people getting their Diploma, but we’re not going to force it on people. This isn’t a revenue grab,” he added.  For reactions to this story, see Forum on page 22

Housing stock falls short of desires Australians are ready to opt for housing types outside the traditional “detached home on a large block” stereotype, according to the Grattan Institute, but the housing market is not supplying the dwellings that will meet these evolving needs.

In a recent report – ‘The housing we’d choose’ – the Grattan Institute found once people took into account “real-world” realities such as current housing costs and

their income level, they would choose from a wider range of housing types than the traditional housing block.

For example, the report states that 7.4% of all Sydney’s households say that, given current prices and their budget, they would choose a semi-detached house in Sydney’s Zone 3, if this were available to them. However, only 2.8% of Sydney’s total housing stock are semi-detached

dwellings in this area, leaving 4.6% of Sydney’s households (about 70,000) whose preferred ‘trade-offs’ can’t be accommodated by the city’s housing stock.

Cities program director at the Grattan Institute, Jane-Frances Kelly, said we are not building the variety of housing Australians want. She pointed in particular to shortages of semi-detached homes and apartments in the middle and outer areas of both Melbourne and

What drives the mix of what gets built?

Finance • project finance • availability of credit • cash flow and project staging • required return • proportion of passive investment • interest

Land • cost of land • acquisition • process • decontamination and other land preparation • land availability at sufficient scale • supply pipeline • biodiversity and other environmental considerations • land tax

Planning • planning processes • time to approval • community engagement and response • working with local and state govts • other taxes and charges

Infrastructure • infrastructure funding and provisions • infrastructure charges: level, timing and predictability

Construction • separate residential and commercial labour forces • materials • building standards • innovation in construction methods

Sydney. “We should not be afraid to shape our cities: otherwise we risk them shaping us,” JaneFrances said.

“But we should shape them in accordance with what Australians say they want, not just what we think they want.”

The Grattan Institute claims current housing stock does not represent demand, for reasons such as the majority being built over 20 years ago, people staying in the same house for a long time, relatively few houses being available at any one time, and a lack of local choice.

However, the report argues there are barriers to delivering more of the housing people say they want. These include the cost of materials and labour for buildings over four storeys, land assembly and preparation, and the risk and uncertainty of our planning systems.

The Grattan Institute study examined the housing preferences of over 700 Sydney and Melbourne residents.

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Work on IDRs to avoid ‘reputational’ pain: COSL The Credit Ombudsman has encouraged lenders and credit providers to improve their internal dispute resolution (IDR) schemes to avoid the “reputational implications” of having a complaint taken to an external dispute resolution scheme.

Speaking to a conference in Sydney in July, CEO and Ombudsman Raj Venga said COSL members should devote resources to internal dispute resolution schemes, as complaints taken to an EDR can impact on a member’s reputation and incur financial costs. Venga said EDR schemes are required by ASIC to report annually on the number of complaints received about a particular member, and indicated that enhancing IDR resources could preclude this.

“Around 60% of complaints we receive are referred back to IDR

because the member hasn’t had an opportunity to address the complaint. Of those, about half are resolved internally at IDR. IDR is therefore an important complaint resolution tool that FSPs should commit resources to,” Venga said.

Venga reminded COSL members that IDR schemes had 45 days in which to respond to a client complaint, and only 21 days if the complaint involved financial hardship. He said this timeframe would not recommence due to new information being provided by the complainant, and was applicable no matter who the customer addressed the complaint to.

“The timeframes also apply irrespective of whether the complaint was addressed to someone in the member’s organisation who does not deal with complaints. Therefore, your

non-complaints staff should be trained to refer complaints to your designated complaints person. Your designated complaints person should have sufficient authority to deal effectively with and, where appropriate, settle complaints,” he commented.

Venga said the EDR had seen a 72% increase in complaints since 1 July 2010.

Of these, 17.4% were resolved in favour of the complainant.

However, Venga indicated 45% of financial hardship cases were resolved in favour of the complainant.

Raj Venga

How COSL disputes were resolved Outside jurisdiction

21.2% 30.2%

Resolved in favour of complainant

14.5% 17.4% Source: COSL

Discontinued

16.7%

Resolved in favour of member Resolved in favour of both sides

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Brokers lax on Smartline issues responsible lending warning to ‘credit

Uncertainty around NCCP requirements means some brokers may not be fulfilling responsible lending obligations, a compliance expert has stated.

Tim Donahoo, compliance and corporate standards manager for Mortgage Choice, said that some brokers have not yet adopted responsible lending practices.

“I would say some, and perhaps the majority, are, but I would not at this stage be confident in saying there’s been universal adoption,” he commented.

Donahoo said this could be due to continuing confusion surrounding the fulfilment of responsible lending obligations.

Without a test case, he said, lenders and brokers are left to their own devices to determine what constitutes responsible lending.

“The biggest challenge is there’s still so much uncertainty as to what the standards are, given that there’s no precedent. We’re all just making our own best judgment based on risk appetite and commercial priorities,” Donahoo commented. Without a precedent in place, Donahoo

predicted the definition of responsible lending under the NCCP would not be fully fleshed out until cases began to be brought before courts or EDRs. This, said Donahoo, is not a position any lender or broker wishes to find themselves in.

“No one really knows until one of the decision-making bodies or institutions has a chance to make an assessment on a particular lending practice. Nobody wants to be the first test case, because depending on the circumstances it could be financial impost, but more so perhaps is the negative publicity,” he remarked.

The fear of becoming an NCCP test case has disadvantaged certain borrowers, as lenders are now more conservative in their risk appetite, Donahoo commented.

“Lending is still relatively conservative. It’s more difficult now for certain categories or classes of borrowers to obtain finance. All our brokers have to take certain cases across to two, three, four, five lenders before they find one willing to look at it,” he said.

junkies’

Mortgage broker Smartline has urged its potential customers to get their “financial house in order”, or risk being seen by today’s more conservative lenders as “credit junkies”.

Smartline managing director Chris Acret said that today, if a credit file looks ‘busy’, this can cause lender declines as automated credit scoring systems class a borrower as a credit risk.

“Borrowers have the best chance of success if they have a savings record, are up-to-date with all of their bill payments, and have resisted signing up for any additional debt,” Acret said.

“This is increasingly important, as more and more of a borrower’s repayment history is being recorded on personal credit files, which are carefully scrutinised by lenders.”

Acret said that when lenders assess a borrower’s ability to repay, calculations assume credit cards are drawn to their full limit, rather than current actual borrowings.

Veda Advantage recently produced research which indicated that borrowers are increasingly misrepresenting their financial situation to gain access to more credit. The research estimated 1.8 million people – or 10% of Australians – had misrepresented their situation.

Acret also made a case for borrowers to use the third party mortgage channel, rather than going direct to a lender, arguing that they will be able to reduce loan costs over the life of their mortgage if they consult an expert in the area. “There is a pervasive view that lenders all offer the

‘Junkie’ according to Oxford Dictionary • A person with a compulsive habit or obsessive dependency on something same products with the exact same requirements, but there is actually a good deal of difference between the lenders on interest rates, fees and credit policies,” Acret said.

“Borrowers can potentially save thousands of dollars by doing a bit of homework and contacting their lender to, for example, request a reduction in their interest rate.”

Acret said in many recent cases, Smartline mortgage advisors had locked in life-of-loan discounts on interest rates, by simply contacting lenders on behalf of their clients.

Chris Acret

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Mortgage Ezy predicts investor influx with release of SMSF loan Mortgage Ezy has announced the release of a self-managed super fund loan.

The mortgage manager has stated its SMSF loan product will carry a rate below 8%. The product will be available with a maximum LVR of 70%. Mortgage Ezy head of sales and marketing Chris Wisbey explained the structure of the product, telling Australian Broker the SMSF loan enabled property investors to expand their portfolio.

“A SMSF loan enables the borrower to purchase investment property using their superannuation as the basis of a deposit. The borrower chooses the individual property they want to buy which allows greater control of their own portfolio while opening up legitimate investment gearing opportunities, tax benefits and flexible estate planning,” he said.

Wisbey predicted that investors would become increasingly active in the market as product options expanded and property values continued to be soft.

“Our research points to strong indications that SMSF borrowers are optimistic about property investment, particularly here in Australia, as a measure of diversification and to minimise exposure. Current property prices in metro markets are very attractive so it would make sense

to see strong activity in investment purchases through these vehicles in particular,” Wisbey commented.

For brokers, Wisbey said the product offers a way to diversify the client base they can appeal to.

He commented that Mortgage Ezy would continue to respond to brokers’ desires for a diverse range of products.

“The bottom line is our brokers are really good at identifying niches and recommending the best methods and means to meet those markets. Mortgage Ezy is really good at wholesale and creating solutions to fit particular markets.

Consequently on the question of diversification we have become really good at listening then delivering a solution that meets in the middle,” he said.

The mortgage manager also recently announced that, in spite of the DEF ban, it would not introduce clawbacks. Wisbey said this, along with further product offerings, has generated enthusiasm among brokers.

“There is a real surge of energy amongst our business partners, and optimism levels are high because we’re actually delivering on the stuff we said we would, like no clawbacks post-July with great rates combined with fair and reasonable commissions,” Wisbey said.

New CEO wants LoanKit ‘on the menu’ Incoming LoanKit CEO Simon Dehne plans to raise the company’s profile, saying too few brokers know about the aggregator’s business model.

Dehne’s appointment as LoanKit chief executive was announced in June. The current Mortgage Choice head of diversified products will transition into the role of departing CEO and founder Kym Rampal, and Dehne said he wants to ensure more brokers are aware of the company.

“We’ve got a really good story that no one knows about. One of our challenges is to make LoanKit on the menu for people who might be thinking about switching,” Dehne said.

Dehne praised Rampal’s legacy at the company, and commented that LoanKit has seen good growth over the past year. The aggregator last year stated its goal of recruiting 200 brokers by March 2011, a goal which Dehne said has been exceeded.

“At MFAA, I was going around telling people we’d hit 150, and it was quite correctly pointed out to me

by Kym Rampal that it’s actually in excess of 200,” he said.

Dehne remarked that the resources of parent company

Household finances worst in a decade Household financial conditions have fallen to their lowest level in more than a decade, according to the Melbourne Institute.

The research group’s Household Saving and Investment Report has found that financial conditions fell 24.3% in June, reaching their lowest level since March 2001.

The report tracks the proportion of households who are saving relative to the proportion running into debt or drawing on their savings. Following the June decline, the index indicated 25.2% of households were saving. The Melbourne Institute’s Dr Edda Claus said the sharp drop-off was unexpected.

“This record low comes as a surprise as house price rises have been moderating and the unemployment rate is below 5%,” she said.

Claus commented that the proportion of respondents who claimed their main motivation for saving was “saving for a rainy day” rose to 55.4%, its highest level since respondents began nominating their reasons for saving in May 2005. She said this could be due to a lack of confidence in the economy.

“This could indicate a fundamental change in consumer attitude away from accumulating toward paying off debt, but this could also indicate that consumers see weakness ahead in economic activity and hence increase their precautionary savings,” Claus remarked.

The report coincided with a weak result from the WestpacMelbourne Institute Leading Index, which measures the likely pace of economic activity in the

next three to nine months. The Leading Index found growth was expected to be 2.7% from April 2011, below the Index’s long-term trend of 3.1%. In spite of the poor results, Westpac senior economist Matthew Hassan said the Index was not yet cause for alarm.

Hassan claimed natural disasters earlier in the year could be to blame for the weak result, and

Mortgage Choice will enable LoanKit to better market itself to brokers and increase its recruitment. However, regardless of the company’s growth, Dehne said he wanted to retain a feeling of personal connection between the aggregator and its brokers.

“Even as we grow, our goal is to maintain that boutique status where we return calls within two hours, where what we promise we deliver, and if we don’t, we say why not,” Dehne commented.

Dehne said the company will also continue to “tweak” its software offerings. Rather than engaging in any major overhauls, Dehne said LoanKit plans to add features based on broker feedback.

“I suppose my commitment to existing and new brokers is to maintain the competitive advantage on software. If it’s going to add value to brokers, we’ll do it,” he said.

Simon Dehne

said economic activity is expected to bounce back.

“These events have created significant distortions that will take time to drop out of the picture. As this happens, we may continue to get conflicting signals. The good news so far is that even with the negative hit, the growth rate in the Leading Index does not appear to be so low as to be of major concern,” Hassan said.

www.brokernews.com.au

13

Bank wars fail to gain refi traction Well-publicised efforts to see borrowers jump ship on their home loans have gained little traction, according to a new survey.

Since the launch of the NAB ‘break up’ advertising campaign, banks have jockeyed for home loan market share and tried to seduce customers from one another, with NAB offering to pay exit fees for CBA and Westpac customers, CBA cutting rates and dropping establishment fees and Westpac also moving to cut establishment fees. However, a Loan Market survey of brokers found only 11% have seen a significant increase in refinancing activity since the onset of banks’ home loan price war. In spite of the offers to pay exit fees, nil establishment fees and discounted rates, 44% of brokers said they have seen no additional refinancing activity at all, with 8% suggesting refinancing activity has actually declined.

Thirty-seven per cent indicated there had been a slight increase in refinancing deals.

Loan Market COO Dean Rushton theorised that bank retention teams are responsible for the slower-than-expected refinancing activity.

“Existing customers who enquire about upgrading or changing their mortgages are being given a lot of attention by these retention teams. The banks and their retention teams are

working hard to improve their customer service offering and are willing to review their pricing in some circumstances. This often results in clients who threaten to jump ship continuing with their lender,” Rushton commented.

Regardless of whether refinancing activity picks up in the wake of the government’s ban on DEFs, Rushton said borrowers

should be fully informed before being encouraged to switch loan facilities, as other costs could potentially apply.

“People need to be aware of the full picture in terms of the costs of exiting their old loan and entering the new loan. If you eat up any interest rate savings in these costs then there is no financial benefit to switch,” he said.

Broker poll: What refinancing activity have you noticed since the onset of the bank price wars?

Source: Loan Market

No change

Slight increase

44%

37%

Significant increase Decrease

11% 8%

14 www.brokernews.com.au

News

For all the latest mortgage industry news, visit www.brokernews.com.au

SPECIAL REPORT: EXIT FEES SUFFER FINAL DEFEAT

‘Fat lady sings’ as exit fee ban upheld

Symond on exit fee ban warpath

The ban on exit fees finally came into force on 1 July, after an eleventh-hour motion to overturn the ban in the Senate failed to pass due to a tied vote in late June.

After weeks of intense industry lobbying, the Senate failed to pass the motion, which sought to overturn government amendments to the NCCP Act which have now outlawed exit fees.

The failure to pass the motion means lenders are no longer able to charge any exit fee upon termination of a loan contract, including deferred establishment fees.

The vote was tied at 35 for, and 35 against the motion, with Senator Steve Fielding and the Greens eventually deciding to vote with the government. The bill had been supported by independent senator Nick Xenophon, as well as the Coalition.

The failure to overturn the NCCP amendment represented a blow to industry associations and key non-banks and mortgage managers, which have engaged in months of intense lobbying in an effort to scuttle the ban. Recently, the MFAA and industry directed a national advertising campaign directly at Senate members, in the hope the ban would be overturned.

Speaking with Australian Broker

Aussie Home Loans founder John Symond has vowed in a conversation with Australian Broker that he will make consumers aware of the full impact of the DEF ban.

Following the government’s unilateral ban on DEFs being upheld in the Senate in June, Symond lamented the possible cost to consumers.

He said it has yet to be seen whether non-banks will have to raise interest rates or increase upfront fees to recoup the costs associated with the ban, but commented that “there’s no free lunch”, and predicted consumers would ultimately be disadvantaged.

Should this come to pass, Symond said he would make a point of publicly telling consumers that government policy was to blame for decreased competition in the mortgage market.

“If they think consumers won’t know the reason why competition has decreased and banks are increasing their muscle, I’m happy to remind consumers that Mr Swan and the politicians who supported him were the cause of that,” Symond said.

Symond expressed disbelief that Senators sided with the government’s exit fee ban in the

following the defeat, MFAA CEO Phil Naylor admitted that “the fat lady has apparently sung” on the issue of the exit fee ban.

Naylor said feedback from the Greens indicated the party was sympathetic to the industry’s concerns about lack of competition in the mortgage market, but thought perpetuating exit fees was the wrong policy.

However, Naylor said the Greens had been interested in arguments regarding funding, and had told the MFAA they would seek further reforms to improve non-bank access to finance.

Naylor has vowed not to give up on the funding issue. “The concerns about lack of competition are still strong, and we will continue to push the funding issue – for example, the Canadian Mortgage Bond system – hopefully with the support of groups like the Greens.”

Naylor added that his discussions with non-bank lenders showed that they will continue to “find innovative ways to ensure they remain a competitive force in the industry”.

Most non-bank lenders had already adjusted their DEF, rate and broker commission payment structures to cater for the ban prior to the vote in the Senate.

How it happened: An exit fee ban tale

December

ASIC consults on exit fees ASIC launches consultation on unconscionable exit fees and unfair contract terms with a view to developing a regulatory position

Swan vows to scrap exit fees The government and Federal Treasurer Wayne Swan flags plans to abolish exit fees, as part of a banking reform package targeting competition

ASIC releases exit fee guidance ASIC releases RG 220 giving lenders guidance on unfair and unconscionable exit fees, which Gadens’ partner Jon Denovan termed “a well thought out statement of law”

June | July | October | November | December

Senate inquiry into competition Senate refers the topic of competition in the banking sector to the Senate Economics Committee for an inquiry, which starts in November

Banking package slammed MFAA and industry argue against Swan’s banking package which includes the banning of exit fees, alongside other measures designed to stimulate competition

Hockey speaks out Shadow Treasurer Joe Hockey tells Australian Broker that the exit fee ban may be inevitable, while industry representatives attend Senate banking inquiry

Source: Australian BrokerNews online.

To subscribe free, visit www.brokernews.com.au

RBA and banks raise rates A shock ‘Melbourne Cup’ cash rate rise to 4.75% is seconded by major banks, which lifts their standard variables over and above the RBA’s 0.25% rise, causing a public backlash

Clawbacks a ‘sad necessity’ Non-bank lender Homeloans admits clawbacks will be a necessity for non-banks, as they and mortgage managers prepare to change commission structures

2011

NCCP Act in force The NCCP Act commences on 1 July, along with Unfair Contract Terms (UCT) in the ASIC Act 2001, which outlaws unconscionable fees and unfair contract terms for mortgages

2010

2009

NCCP Act passed The NCCP Act includes a measure outlawing unconscionable fees, while unfair contract terms also face scrutiny

Senate’s 35–35 vote, after the government was warned of the impact the ban could have on the competitive John Symond environment.

“They were warned, not just by myself or the industry. The Senate banking inquiry warned them.

Wayne Swan’s Treasury people are also to blame,” he said.

Symond stated that he did not yet know how the sector would adjust to the ban, but said nonbank lenders would have to find a way to recoup at least $1,000 of actual costs per loan. He remarked that this could well lead to higher interest rates, increased upfronts or a reduction of the viability of the non-bank sector.

“If it does impact consumers and make non-banks less viable, and see big banks taking advantage of that, I think that’s where industry bodies and myself will remind consumers that the reason for this is bad policy on the part of the government,” Symond remarked.

“It’s unfortunate that populist policy has taken precedence over what’s best for consumers, because it’s a hard story to explain to consumers,” he added.

Final ad fight launched The MFAA, along with a who’s who of its non-bank membership, launch a last-ditch advertising campaign in the nation’s daily newspapers directed at Senators.

Exit fee ban upheld The ‘fat lady sings’ as a final vote in the Senate sees the exit fee ban upheld at the eleventh hour, with 35 votes for and 35 against.

February | March | May | June

Symond vows war over ban Aussie Home Loans founder John Symond pledges to publicly fight the exit fee legislation if it is successful, after labelling the issue “political rhetoric”

NCCP amendments enacted The government enacts amendments banning all exit fees, labelled a “victory” by Swan and “legislation by stealth” by Jon Denovan at Gadens

Senate inquiry vindicates industry push The Senate inquiry delivers its report, recommending an exit fee law in line with ASIC guidance, and changes that would ensure increased smaller lender access to funding

www.brokernews.com.au

15

SPECIAL REPORT: EXIT FEES SUFFER FINAL DEFEAT

DEF ban pain to be worse than expected: Driscoll The Senate’s upholding of the DEF ban will hurt brokers more than they anticipate, Mortgage Ezy has suggested.

Following the failure of a motion in the Senate to overturn the ban, Mortgage Ezy CEO Garry Driscoll commented that the decision highlighted the government’s “lack of understanding” of the industry.

“They state that they are doing this to improve competition and assist borrowers when in the long run it will have the opposite effect and increase interest rates,” Driscoll said.

Driscoll commented that the DEF ban would have a “profound effect” on mortgage brokers, and

that many brokers do not realise the extent to which the DEF ban will impact their businesses.

“Whilst I have heard a number of brokers saying how good these changes are, they do not realise the effect it will have on their business and cash flows as the banks ramp up their clawbacks and internally churn brokers’ clients when they visit a bank branch,” he said.

However, Driscoll said mortgage managers will continue to advocate for brokers. Mortgage Ezy recently announced that it will not put clawbacks in place in spite of the ban, and Driscoll said the company will continue to innovate.

“With mortgage managers, we have always been very innovative and quick to react to situations, and this will be no different. With change comes opportunity and whilst it will make it a bit tougher to compete with the majors, we will still be in there fighting for the rights of brokers,” Driscoll remarked.

Despite the failure of the Senate motion, Driscoll praised the lobbying efforts of the MFAA, and its attempt to see the ban overturned.

“At least by getting the motion to disallow tabled, it did create a lot of interest from all the parties and hopefully they now have a better idea of the issues,” he said.

Garry Driscoll

Exit fee fight ‘out of step’ with consumers: Ryan Intouch Home Loans has claimed the industry push to overturn the government’s exit fee ban was “out of step” with consumer opinion.

Intouch CEO Paul Ryan has

Paul Ryan

called the MFAA-led ad campaign to overturn the ban a “beat up” and said while the ban is illadvised, consumers are still unwilling to pay the fees.

“The bottom line is, it’s poor government policy. The problem is the government’s got so much traction from it. The problem I saw with the ad campaign and the reason I didn’t want to be involved in it is the government had too much traction with consumers. The fact is it’s now in place, and we have to embrace it,” he commented.

Ryan said that rather than destroying the non-bank sector, the ban will help the sector better

compete with banks. “Non-bank lenders are now on a level playing field to the big banks.

“Our sector provides both competition and an alternative to the banks which gives the consumer more choice and better deals. My attitude is to embrace the change and make it work,” he said.

Service proposition, Ryan said, will continue to set non-banks apart. Ryan believes coupling this with the removal of exit fees will give non-banks an advantage.

“There’s so much noise in and around non-banks being at a disadvantage. We’re more nimble, we have less operating costs and

we have a far better ability to adapt to customer needs. The opportunity is there without a doubt,” Ryan said.

However, Ryan conceded that reduced margins as a result of the ban will mean non-banks have to change their business models. For inTouch, Ryan said this would mean broker clawbacks. But Ryan argued that this once again would place the non-bank sector on a level playing field with banks.

“Most of the people operating as brokers have had clawbacks for the last 10 years. Clawbacks are not the non-bank sector’s fault.

They’re something that’s been imposed on them,” he stated.

16 www.brokernews.com.au

News Bank home loan fees too high: RateCity Australians are shelling out too much in fees for banking services and their home loans, according to comparison website RateCity.

The comparison website conducted research based on Reserve Bank of Australia data which shows that banks garnered over $4bn in bank fees on household accounts alone in 2010, though this was down on 2009, when banks recorded over $5bn from households.

RateCity CEO Damian Smith said that despite this total drop in household bank fees, banks managed to increase their revenue for home loan fees by $26m last calendar year.

“This is quite surprising because the number of home loans taken out in 2010 – including refinancing – was 21% less than in 2009,” Smith said.

Residential home loan ongoing fees

(Average ongoing fee per year) 2009

$165

2011

$240

Source: RateCity

He added that while home loan application fees have generally remained unchanged over the past couple of years, RateCity had noted a “big lift” in the cost of ongoing fees.

“For example in 2009, RateCity recorded an average ongoing fee out of all residential home loans that charge this fee at $165 – this has almost doubled to an average of $240 per year,” Smith said.

According to RateCity, Australians are still paying too much in bank fees overall.

“It’s great to see that bank fee revenue is falling and Australians are paying less than they were in 2009,” Smith said. “But households still paid $4.25bn in bank fees in 2010 – that’s $506 per household, not including interest charges.”

RateCity said the drop in total bank fees by $834m from households in 2010 compared to 2009 was largely due to the abolishment of exception fees by many institutions. Exception fees include charges for over-the-limit and late payments on credit cards, and dishonour, default and overdrawn transactions on everyday transaction accounts.

NAB nabs ad award as satisfaction momentum slows NAB’s ‘Break Up’ ad campaign has been named Best PR Campaign at the Cannes Lions Festival.

The bank’s ad campaign distancing itself from the other majors was lauded for its use of social media and publicity stunts to tie in with mainstream advertising. The win marks the first time a bank has won the award since 1973. NAB Group executive of corporate affairs and marketing, Andrew Hagger, said the PR campaign tied into the bank’s efforts to build stronger customer relationships.

“Break Up is unashamedly part of our broader strategy. Over the last two years we have worked hard to improve our relationship with our customers by abolishing a range of fees, maintaining the lowest SVR of the major banks and when we continued to lend to business when the industry contracted lending by $55bn. We did this because we know what is good for customers, is good for business,” Hagger commented.

Hagger claimed the bank has seen 225,000 new customers

since the campaign launched on 14 February.

However, customer satisfaction momentum from the campaign appears to have slowed. NAB saw gains in customer satisfaction move the bank from last place in the Roy Morgan Customer Satisfaction ratings to third place, sitting above Commonwealth Bank. However, Roy Morgan’s May report shows NAB’s strides in satisfaction slowed, with the bank inching up 0.5%, while CBA reversed its downward trend to post a 0.8% rise. Roy Morgan communications director Norman Morris said NAB is still being plagued by its IT platform difficulties.

“One area where there appears to be a problem over the last 12 months, which is likely to have impacted on customer satisfaction, has been the decline in customers considering the bank to have ‘efficient, error-free service’,” Morris said.

While CBA has narrowed the gap on NAB, the two remain well below ANZ and Westpac in customer satisfaction levels.

WORLD

Global housing markets falter Global house price growth slowed in the first quarter of 2011, pointing to potential ongoing underlying problems in global markets.

The Knight Frank Global House Price Index found that global house prices rose by 1.8% in the year to March, compared with 3.3% in the final quarter of 2010.

It marked the lowest annual rate of growth since the fourth quarter of 2009.

Asia remained the topperforming region, recording 8.4% growth over the last 12 months.

However, this represented a slowdown from 17.8% a year earlier.

The weakest region was North America, which saw a fall of 0.4% in values over a 12-month period.

Head of residential research at Knight Frank, Liam Bailey, said a cursory glance at the results would suggest “business as normal”, with Asian countries ahead and Europe and North America “languishing behind”.

However, Bailey said that while price growth had not stalled, it was faltering, which pointed to

Global house prices: Top three best performers Rank

Country

Region

Annual % change

SixQuarterly monthly % change % change

1

Hong Kong

AsiaPacific

24.2%

14.1%

9.3%

2

India

AsiaPacific

21.9%

14.1%

6.8%

3

Taiwan

AsiaPacific

14.3%

6.9%

0.8%

Latest data if not Q1 2011

Q4 2010

problems underlying the world’s housing markets.

“Globally, the slowdown in annual price growth to 1.8% is largely attributable to the poor performance in the first three months of this year,” Bailey said.

“In the first quarter of 2011, 50% of countries saw flat or negative growth; a year earlier this applied to only 38% of countries included within the index.”

Knight Frank argues that Asia poses “something of a threat” to the stability of global housing markets,

due to potential that some markets – such as China, Taiwan and Hong Kong – could become overheated, if government intervention designed to temper these markets fails.

“In summary, we expect to see the current slowdown in global housing markets continue, hitting a low point in the fourth quarter of 2011 – assuming the Asian markets continue to cool and the government intervention is successful – but with a slow recovery in global house prices taking place in 2012,” Bailey said.

Global house prices: The worst of the bunch Rank

Country

Region

Annual % change

SixQuarterly monthly % change % change

Latest data if not Q1 2011 Q4 2010

50

Cyprus

Europe

n.a

-4.4%

-2.4%

49

Russia

Europe

-13.9%

-13.6%

-13.7%

48

Ireland

Europe

-11.9%

-6.9%

-4.5%

Source: Knight Frank Global House Price Index

18 www.brokernews.com.au

News

For all the latest mortgage industry news, visit www.brokernews.com.au

Payday lenders deny Macquarie launches broker consulting service ‘sticking their head out’ Macquarie has expanded its previously financial planningfocused Macquarie Practice Consulting into the mortgage broking market.

To provide small business consulting in areas such as marketing, business strategy, human resources and productivity, Macquarie said that the service will aim to assist brokers improve profitability, drive revenue, grow, diversify or get ready for sale.

Macquarie’s practice consulting business has operated since 2008, providing services to boutique and mid-tier financial planning firms, including those offering mortgage broking services.

The bank said the move into the mortgage broking market comes as a result of increased diversification among financial services providers and an increasingly complex regulatory environment.

“The response to our services from financial planners has been great, and with increasingly blurred lines between these two industries, we saw an opportunity to capitalise on the knowledge and expertise within Macquarie to support brokers to grow their businesses,” senior Macquarie Practice Consulting consultant Fiona Mackenzie said.

Macquarie will initially target broking firms with four or more

staff, who already have a successful business and want to build it further and diversify, the bank said.

Macquarie head of sales Doug Lee said the business will combine mortgage industry knowledge with a “track record of proven business strategies, tools and tips” that will help broking businesses.

He added that while mortgage Doug Lee broking has always “been about relationships” and these are still key to success, “it’s not necessarily enough in today’s increasingly complex business environment”.

Macquarie said that the consulting services will be delivered in a variety of forms, including group workshops, specific consulting programs to develop business strategy and development approaches, as well as ongoing support with implementation of these strategies.

The business will also offer a specific strategy program – which Macquarie says has been particularly helpful for financial planners adding in mortgage broking services – which involves a half-day workshop with an individual firm developing goals and strategies.

The body representing payday lenders has slammed a “falsely damning” report claiming they undermine the NCCP’s responsible lending laws and charge exorbitant interest.

A recent report by the Consumer Action Law Centre (CALC) Victoria suggested payday lenders charge as much as 400% interest, and do not abide by NCCP guidelines for responsible lending.

The organisation wants payday lenders’ interest rates capped by government regulation. CALC also issued a media release titled ‘400 Per Cent Interest rates undermine Responsible Lending Laws’.

However, the National Financial Services Federation (NFSF) has taken aim at the report and release, claiming the 12 test cases they describe are misleading.

“In summary, 12 cases do not damn a whole industry which serves approximately 500,000 Australian consumers annually to the estimated amount of $800m in loans. In other words, these cases are not representative of the payday market despite CALC’s hype and their misrepresentative media release title,” NFSF CEO Phil Johns said.

Johns claimed the industry saw COSL complaints at or below averages for non-bank lenders, and said many cases “sensationalised” in the media or in “falsely

damning reports” involved consumers who had lied to obtain credit. He defended the interest rates charged by payday lenders, saying that calculating a rate per annum on a short-term loan misled consumers. Johns also claimed payday lenders were abiding by NCCP obligations.

He has also accused CALC of refusing to indicate how many of the cases detailed in the report had been referred as formal complaints to either COSL or ASIC. “Only when CALC reveals this information will there be an indication if the cases are, in fact, newsworthy, ie, whether there is any substance behind the claim,” Johns commented.

Johns defended the industry, and questioned whether lenders would be willing to contravene responsible lending obligations to secure relatively small loans.

“The bottom line for all credit providers now is that the NCCP contains jail time and massive financial penalties for failure to comply with the new credit laws.

“None of our members are sticking their head out for a $500-payday loan to go to jail, notwithstanding it has never made commercial sense to lend funds to a consumer that does not have the capacity to repay,” Johns said.

Mortgage House launches ‘no-bells-and-whistles loan’ while Westpac slashes fixed rates Mortgage House has released a no application or ongoing fee home loan with a rate of 6.78%.

The lender’s Vantage Simple Home Loan will carry no ongoing fees for the life of the loan, no application fee and no valuation fee. Mortgage House said the loan did away with “costly features” such as an offset account, and would provide borrowers with 24/7 online account access and unlimited, no-fee internet transactions, including redraw transactions.

Mortgage House managing director Sarah Roberts said the loan was meeting client demand for simplified options.

“We introduced the Vantage Simple Home Loan to meet the current demand for a low cost, no bells-and-whistles home loan that borrowers have been asking for,” she said.

Roberts said the structure of the product would also help borrowers looking to reduce the term of their mortgage through extra repayments.

“We are often approached by our customers wanting to learn ways to pay their loan off sooner.

At Mortgage House, we place a high importance on providing our customers with mortgage minimisation strategies,” she said. “People can use the Vantage Simple Home Loan in two ways to minimise their mortgage. Firstly, through refinancing to the lower interest rate and reducing the monthly repayment figure, freeing up funds to assist with the increasing cost of living.

“Secondly, they can reduce the number of months or years left on the term of their loan by continuing to make their previous mortgage repayments on Vantage’s

lower interest rate.” It will be available for all home loan applications submitted between 28 June and 30 September.

With home loan demand easing in May, other lenders have also stepped into the fray to attract new business.

Westpac recently announced a cut to its fixed rates, with twoand three-year fixed rate products receiving a 20 basis point decrease, and four through 12-year products cut by 10 basis points. A Westpac spokesperson said the move to slash fixed rates was due to an easing of the bank’s cost of funds for fixed rate products.

Ken Sayer

www.brokernews.com.au

19

INDUSTRY NEWS IN BRIEF Westpac goes low with fixed rates Westpac has cut interest rates on its fixed rate home loans by up to 20 basis points. In a release to brokers, the bank said it was reducing rates for its Home and Investment Property Loan for two to 12-year fixed rates. The two and three-year fixed rate products will see a 20 basis point decrease, while the four through 12-year products have been cut by 10 basis points. Westpac stated that the reduction gives them the leading rate among the majors for two and three year fixed loans. A Westpac spokesperson said the move to slash fixed rates was due to an easing of the bank’s cost of funds for fixed rate products, and that uncertainty surrounding future RBA decisions could lead some consumers to consider locking in rates.

White blasts MFAA lobbying power FBAA president Peter White has claimed the rally to see the exit fee ban overturned was fated to fail. White commented that the MFAA campaign to overturn the government’s DEF ban was unlikely to succeed from the beginning, and said while the result of the Senate vote upholding the ban was “disappointing”, it was not unexpected. “My conversations direct with the key persons from the Senate enquiry into banking reforms advised this was unlikely to get traction unless there was a change in government,” White remarked. In light of the result, White questioned the ability of the campaign to effectively lobby government decision-makers. “If others are that close to government as they say they are, then they should have known this and not wasted taxpayers’ money on such an undertaking,” he said.

The Rock sees lending growth The Rock Building Society forecast strong earnings and above-system lending growth ahead, prior to the end of the financial year. In an ASX release, The Rock stated that improved funding structures had enabled it to offer more competitively priced home loan and deposit products. The company said this led to a turnaround in mortgage lending and retail deposits for the second half of the financial year, and has predicted 5.5% growth for its loan portfolio for the second half. The company also saw a reduction in arrears during the period, and said growth for both lending and retail deposits is expected to be above system. It has forecast a statutory net profit after tax of $4.9m.

Century 21 to double broker business Century 21 Home Loans plans to double its office-based branded broker numbers from 40 to 80 by next year. The business – which aggregates under Australian Finance Group – is getting ready to more actively market the business to third party brokers via a business development manager program, to encourage more

to join under its national real estate brand. Century 21 NSW-based regional owner Charles Tarbey said the upcoming growth push comes on the back of the continuing development of a “mature CRM” system, which would enable brokers to source clients from a wider pool of leads. With 30 branches currently ‘switched on’ to the system, the Century 21 Home Loans group is averaging 200–300 leads per week.

Debtor finance lauded as CBA withdraws Bibby Financial Services and inTouch Home Loans have indicated market opportunities remain strong in the debtor finance sector, despite a decision by the Commonwealth Bank to withdraw its debtor finance service. Bibby said small to medium enterprises should not misinterpret the bank’s decision to exit as a question mark over the demand and growth of the product and industry, while inTouch founder Paul Ryan said that the group will offer a new debtor finance product, and that it was time “Australian business owners were given better financial options which will help them realise their business objectives and vision”. CBA withdrew after a strategic review of the product and its risk appetite.

QED launches online compliance QED Risk Services has repackaged its existing broker compliance offering as an online service that will see brokers generate their own compliance reports by answering questions via the web. The consultancy group – which also offers faceto-face consultancy services, and produced a comprehensive compliance toolkit for brokers – has now put a full version of its service online. Managing director Greg Ashe said instead of an ACL holder sitting in front of one of its consultants, brokers could now “sit in front of a computer with a decision-making model”. ACL holders will be able to log on to a website and answer about 20 questions. Their responses then generate a ‘custom-built’ report on their current state of compliance.

MPA overhauls iPad app A new and improved iPad app for Mortgage Professional Australia (MPA) magazine is now available for free download from the iTunes store.

Breaking new ground in digital media, this app brings your favourite mortgage publication right to your iPad. The free app allows readers to access digital copies of MPA directly from their iPad, with live web links and multimedia content.

Users can scroll through each page or skip directly to the page of their choice and zoom in and out, quickly and easily.

Each issue of the magazine can be stored in a digital bookcase, for easy-access to be read again, free of charge. For more information and to download the free MPA iPad app visit the iTunes store today.

20

www.brokernews.com.au

Analysis

To boost or not to boost? attempt to address issues facing FHBs by providing grants rather than addressing the root cause: the cost of entry level housing,” Percy says.

Percy believes the government must address supplyside obstacles keeping land and development costs high, rather than increasing grants to first homebuyers.

“Having various levels of government hand over cash on one hand whilst they and other levels simultaneously add to the cost of housing through restrictive planning practices and an addiction to property taxes has always seemed to me to be an illogical approach. Until the supply side of the equation is addressed in a cohesive way, the usual responses appear as likely to add to the problem as to remediate it,” he comments.

There is ample evidence, as well, that the 2008 FHOG boost quickly rendered itself obsolete as median prices rose above the amount in the grant. Between the boost’s introduction in September 2008 and its wind-back in December 2009, median values rose 11.9%, with many suburbs seeing median values in lower range, entry-level housing rise above the amount of the Boost within a few months of its introduction. While population growth and RBA rate cuts undoubtedly played a role in these price rises, Grattan Institute program director of productivity growth Saul Eslake believes any FHOG boost would merely be a driver for skyrocketing prices.

The First Home Owners Grant remains at levels set in 2000, while house prices have nearly doubled.

But will raising the grant cause affordability to further suffer?

I’ve always considered it a mistake to attempt to address issues facing FHBs by providing grants – Damian Percy, Adelaide Bank

W

ith affordability worsening and first home buyers increasingly staying on the sidelines, industry bodies have called for a range of measures to address the high cost of entry into the housing market.

Among those measures is a boost to the government’s First Home Owners Grant.

However, not everyone believes such a move would aid affordability in the long run.

Loan Market COO Dean Rushton has been vocal in his calls for a boost to the FHOG, saying the $7,000 on offer no longer meets consumer need. He comments that the current FHOG level was set in 2000 as a measure to address the impact of the GST on housing affordability, but rising housing costs mean that $7,000 is no longer enough to help first-time buyers into the market.

“In the last decade we’ve seen property prices almost double in most capital cities, which has effectively halved the value of the grant to prospective first homebuyers. If the government is to deliver an effective FHOG then it needs to be more than $7,000,” Rushton comments.

The REIA has also joined in calls for a new boost to the FHOG. In its pre-budget submission, the group called for the grant to be increased to spur first homebuyer activity.

“An increase of the FHOG is crucial to improving affordability in the housing market and encouraging the return of first homebuyers to the market,” REIA president David Airey says.

Unintended consequences

Damian Percy

But a boost to the FHOG could have unintended consequences. Adelaide Bank general manager of third party banking Damian Percy says such a move would be inadequate while supply-side obstacles remain in place.

“I’ve always considered it a mistake to

Another solution

Eslake commented that the First Home Owners Grant has not had any significant impact in moving young buyers into the property market, and, in fact, merely makes home ownership more difficult by pushing house prices up by the amount of the grant. Instead, Eslake believes increasing supply is the best option to make housing affordable for first-time buyers.

Eslake says the solution to housing affordability is a simple one: “Abolish all forms of home ownership assistance based on putting additional cash in the hands of would-be buyers, including negative gearing for investors, and redirect the funds thereby saved towards new or existing programs which directly or indirectly increase the supply of housing available to young people (or anyone else) to buy,” he suggested.

Like Percy, Eslake sees the removal of supply-side obstacles as the only real way to spur first-time buyers into the market. However, Eslake says he doubts this will happen anytime soon.

“What is more likely, any of the above or seeing pigs flying overhead? The answer is the latter,” he says.

FHOG benefits in NSW’s top suburbs (1 June 2010 – 31 May 2011) Suburb

Number

Value

Liverpool

649

$5,493,500

Westmead

626

$5,367,000

Blacktown

474

$3,638,500

Dee Why

347

$3,469,000

Paramatta

306

$2,669,000

Top 20 Total

6,395

$55,025,500

NSW Total

32,696

$270,790,000

Source: NSW Office of State Revenue

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21

What a difference a year makes … or not. Australian Broker reflects on the punditry, breaking news and trends that made headlines in the magazine 12 months ago.

Issue: Australian Broker issue 7.13 Headline: We’re back, say mortgage managers and non-banks (page 2) What we reported: What’s happened since: Last year, Mortgage House managing director Ken Sayer, Acuity Funding managing director Ranjit Thambyrajah and Australian First Mortgage director David White all told Australian Broker that mortgage managers and non-banks were set to increase their share of the mortgage market. Sayer, Thambyrajah and White said they believed bank market share had peaked, and that improved funding conditions would see non-banks and mortgage managers begin to recover from the lows experienced during the GFC.

The outlook has been fairly grim for mortgage managers and nonbanks, with MFAA CEO Phil Naylor claiming the sector is “on its knees”. Rather than falling below 90%, the banks’ share of the mortgage market recently hit 92%. Meanwhile, non-banks have fallen to 1%, their lowest market share since their entry into the Australian mortgage market in the 1990s. The ban on mortgage exit fees has also hit the sector hard, with 55% of mortgage managers and non-banks surveyed by the MFAA saying they will have to lift rates or introduce up-front fees in order to absorb the ban.

Headline: Could high exit fees be illegal? (page 4) What we reported:

What’s happened since:

Headline: Rates headed for a fall (page 14) What we reported:

What’s happened since:

Headline: Pepper purchase to lead to product push (page 6) What we reported:

What’s happened since:

A report published last year by the Melbourne Law School’s Centre for Corporate Law and Securities Regulation suggested that high exit fees charged by some non-ADIs could be illegal.

The report found that the average exit fee charged by a non-bank for a $250,000 variable rate loan terminated within three years totalled $1,900, in contrast to average major bank exit fees of $680. The group called on ASIC to issue guidance about how exit fees should be calculated, and said some high exit fees exceeded “a reasonable estimate of the credit providers’ loss”.

Loan Market executive chairman Sam White last year predicted that interest rates had peaked after six increases since October 2009. White said the cash rate of 4.5% was appropriate, and that he expected the RBA to leave rates on hold for some time. He even commented that there was a possibility of the Reserve Bank’s next rate move being a decrease.

“The fact that the RBA moved so early in the cycle means that interest rates are going to be on hold now for some time,” he said.

The buyout of Pepper Home Loans last year saw investors form a special purpose holding company, Pepper Singapore, in order to acquire the specialist lender. The company stated that the deal would enable it to further diversify its product range. Pepper founder Michael Cullhane said investors were drawn to Pepper due to its demonstrated resilience during the GFC.

Not only have high exit fees been made illegal, all exit fees have effectively been outlawed following the government’s 1 July ban on DEFs. In November, ASIC issued guidance around charging exit fees, saying DEFs had to reflect a lender’s true loss as a result of early discharge. However, the government’s banking reform package banned early discharge fees entirely, in spite of industry outcry that the ban would disadvantage smaller lenders and lead to a loss of competition. A last-ditch effort to overturn the ban in the Senate failed.

White’s prediction may have been slightly premature, as the Reserve Bank again lifted rates at its November meeting. Since November, the RBA has remained in a holding pattern with each monthly Board meeting bringing nervous anticipation on the part of the housing industry. Most analysts are predicting two more rate hikes by the end of the year, bringing the cash rate to 5.25%. The RBA has also hinted that further tightening will be required, with inflation expected to rise in spite of weaker-than-expected employment figures and GDP growth.

Pepper further upped the ante this year with the $5bn acquisition of GE Capital’s mortgage portfolio. The lender nabbed one of the largest whole loan transactions in Australian history with the deal, and said it would enable the company to move into prime lending. CEO Patrick Tuttle said Pepper would not look to challenge the major banks, but would instead pick up business the banks had once considered prime.

22

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Comment VIEWPOINT

Is your client what they seem? Veda Advantage claims credit applicants are increasingly misrepresenting their financials on applications. Here’s what our pundits think.

Ian Rakhit

Stephen Moore

Graham Mendelowitz

Bankwest

Choice Aggregation Services

MKM Capital

Is lying for credit on the rise? We haven’t really seen any difference in recent months compared with previous years in terms of nondisclosure. We have those customers who genuinely forget a small credit, equally we have some customers who try and hide or ignore certain debts that they have. We always check the Veda credit file to ensure there is consistency between what the customer actually owes, and what they disclose on the application form.

Is positive credit reporting really positive? What positive credit reporting will allow is that those customers with perfect credit ratings and perfect payment records will be able to get a shorter application form, will be able to get quicker approvals, we as a bank will see higher approval levels, and those customers may even be able to command a better price from their bank by being able to bid for the highest quality offer on the market.

Is positive credit reporting a good thing? More insight on accounts, rather than the current negative reporting regime, can result in better decisions. So it’s a better outcome for borrowers with good credit history, and potentially better rewards for brokers – those brokers who focus on quality business can benefit from the positive experience that flows through from the credit side as well.

Does it present opportunities for mortgage brokers? The message to consumers is pretty clear though – you have to get your finances in order. If you look at the typical Australian, we are not usually good at managing our expenses. I think there is still a bit of a gap on the marketplace, and we certainly see a role for brokers in helping Australians understand what they spend and save, and helping their budgeting ongoing.

Is lying for credit on the rise? Our processes are designed to ensure we get to the bottom of what they [clients] are telling us, from a pretty comprehensive due diligence process.

There has been and always will be a percentage who do get ‘found out’ during that process – but we haven’t necessarily seen an increase in that percentage.

What will be the impact of the positive credit reporting regime? I think it’s going to make it harder in some cases for brokers, because they are in a situation where they are not presenting the customer’s immediate need associated perhaps with their mortgage and issues around that; there is now going to be a much more comprehensive picture painted, which on the one hand could be positive because of of the customer’s overall intent and history, but on the other hand it could place pressures in areas such as serviceability.

You can view our coverage of this issue online, at www.brokernews.com.au/tv

FORUM Our web readers cheered Aussie John’s vow to educate consumers on the likely impacts of the exit fee ban (Symond on exit fee ban warpath, 24/06/2011) To cater for the abolishing of DEFs, we have been forced to build in an additional margin to every loan written from 1 July.

This will be anywhere between 7–10 basis points, and will result in a higher cost to our borrowers and possibly a diminution in our competitive position within the industry. More power to the majors. Swan and his treasury are fools.

Melb Mortgage Manager on 24 Jun 2011 11:39 AM Well said John Symonds!

SKEPTICAL on 24 Jun 2011 12:24 PM Within the industry we have a good understanding of how this change will likely play out. However, Joe Public will see this as providing choice alone. It is critical that some of our high profile industry representatives take an early lead on explaining the other side of the story, in plain English. Now is the time.

Advocate on 24 Jun 2011 12:49 PM @Advocate – fully agree with your sentiments but now is not the time, now is too late!

Birdman on 24 Jun 2011 01:19 PM

Brokers appreciated the FBAA’s Peter White in his stance against raising educational bars higher than necessary (FBAA criticises educational ‘impost’,22/06/2011)

About time someone made some sense.

Julie on 22 Jun 2011 12:00 PM There’s nothing that beats experience except experience plus a degree.

John Black on 22 Jun 2011 12:37 PM The Diploma that the MFAA requires for membership purposes as of 1/7/2012 consists of two parts: one, commercial loan knowledge and application; and secondly, how to write business plans. I have 14 years’ experience in broking, and I have never wanted to – nor will I ever – do commercial lending, so there is no point in me doing the Diploma. I’ve been writing business plans for years. I don’t need another study program to show me how to!

Peter on 22 Jun 2011 01:17 PM Two things have impressed me here about Peter White. Firstly his comments show common sense and secondly he actually monitors what is obviously a useful and oftenused forum by and for brokers. Well done Peter.

Keep up the good work.

Impressed with Peter White on 22 Jun 2011 02:54 PM I think it’s great that the FBAA aren’t imposing requirements other than those required by ASIC. I think it is now up to the lenders to do the same. It is not a requirement of ASIC to belong to an association.

Sandra on 22 Jun 2011 04:23 PM

Poll: Are we in the midst of a housing bubble?

The debate around the current state of the housing market never ceases to divide. We asked our online readers if there was a housing bubble.

Here’s what they answered:

Yes 53%

No 25% 20% Undecided

Source: Australian BrokerNews Poll date: 21/06/11 – 01/07/11

To vote in our latest online poll, visit our online home page at www.brokernews.com.au

www.brokernews.com.au

23

OPINION

Service will ensure no ‘dwindling’ of broker channel Acceptance Finance national sales manager Colin McIlfatrick argues that claims brokers will be made obsolete by online channels are ‘rubbish’ Firstmac managing director Kim Cannon was recently quoted as saying he believes that online sales will see broker channel ‘dwindle’ (Australian Broker, edition 8.11).

While I respect Mr Cannon’s views, opinion and experience in the industry, I completely disagree with his comments.

For years people have been telling us that the internet will take over as tech savvy clients move more and more to this area to research and source product. Indeed they will, and the sale of goods by internet is booming, to the detriment of many retail outlets that simply do not know how to compete.

Borders bookshop would be a great recent example.

The one differentiation here is that this is the ‘sale of goods’.

People research and purchase goods off the internet at will these days. Even someone of my own generation (the wrong side of 50) happily buy goods from the internet and will do so at ever increasing levels.

However, brokers do not sell ‘goods’ – at least not the good ones. What we sell is a service, and the secret to keeping your customers and attracting new ones is to make that service the best it can be. If this is done not only will brokers reach those previously mentioned 40% market share levels, but they will exceed them.

This can all be summed up in the last couple of paragraphs in Kim’s article where he is quoted as stating: “What does a broker give you? A comparison of products. What do comparison sites do?

The same thing.”

To be perfectly blunt I have never read such rubbish.

If this is all brokers do, then I would agree 100% with Mr Cannon; they may as well shut their doors and give it all away, just the same as any service provider who just provides “a comparison” on any product.

However, I like to think we provide our customers with guidance, assistance,

Colin McIlfatrick

service, comfort and educate them on making the right decisions when it comes to not only their mortgage, but their whole financial future.

While “rate shoppers” may inevitably turn to online sales and continue to source loans that are often unsuitable or incompatible with their future plans, just because the rate might be a little better, I believe the majority of consumers making some of the biggest financial decisions in their life will, in the majority, continue to source guidance and assistance from those who can provide it personally.

How many times does a good broker source a lender for a client that allows them to secure the mortgage for their needs after a lender or ‘online’ application has failed, even if only because the applicant did not understand how to present the application properly?

Banks made the mistake some years ago of allowing technology to get in the way of personal service. What happened, and what are they all turning back to now?

Personal service.

Stop worrying about consumers buying online and start worrying about your service offering to your customers. That is how brokers will stay not only stay in business but increase that business.

24

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Insight

Staying ‘sales fit’ Prospecting for new clients can at times be daunting, but you should commit to a daily dose in order to stay ‘sales fit’, argues sales trainer Sue Barratt

P

rospecting is considered one of the most daunting jobs in selling. Many people in sales or other roles charged with developing new business, especially with new prospects, find the task of prospecting anxiety-provoking and tend to put off the prospecting task in favour of more desirable or less frightening tasks. Yet in their desire to escape prospecting, they inadvertently set themselves up for greater issues in the future.

Prospecting is the oxygen that fuels the fire of sales.

Prospecting involves a series of sequential activities designed to: • identify your prospect • qualify your prospect • prioritise your prospect Prospecting is therefore a step-by-step process for identifying individuals who have a potential need for your products and service, making contact with them to see if you can be of service and then generating a client and supplier relationship.

Having a plan or system is therefore critical to prospecting success. Without a prospecting plan you cannot sell because you will not have anyone to sell to.

Prospecting is not the most important aspect of selling, but it’s the first thing that has to happen for the sales process to begin. Prospecting is not just isolated to cold calling either. It’s essential for reigniting dormant accounts and clients or developing new business with existing clients.

Putting off the task of prospecting will leave your sales pipeline anaemic and weak and put your business in jeopardy. In essence, if you don’t prospect you will become ‘sales unfit’. If we’re serious about our physical health and wellbeing and want to be physically fit we know we need to exercise every day or several times a week in time blocks of 30 minutes, one or even two hours. We don’t do little bits then stop. We do not leave our health to chance and instead set aside time in our day to pay attention to our physical wellbeing. So why leave our sales results and careers to chance?

Yet too many people charged with growing sales and healthy client relationships leave their sales fitness to chance by not prospecting on a consistent and regular basis.

One reason people find it hard to prospect is because they have never been taught how to prospect effectively.

Prospecting is a skill like everything else and it can be taught.

Another important reason why a sales pipeline suffers is because people do not make the time to prospect. This can be because they’re either ineffective at prioritising or they’re afraid of prospecting and so avoid it all together.

If you have a fear about prospecting even if you have been shown how to prospect, you need to address those fears and then make time to prospect on a regular and consistent basis. Practise at prospecting will also help overcome your fears a bit at a time. If you have difficulty prioritising what is important, then you need to make sure that prospecting is made one of your most important priorities.

Here are some tips for scheduling your prospecting: • Schedule specific time in your week for prospecting • Chunk your prospecting calls in batches – maximum of 120 minutes, ideally two to three batches per week • Consider doing your prospecting calls first thing in the morning. This way, you get it out of the way first thing in the day; and it is often the best time to call people.

Ideally make prospecting calls at the same time of the day, each day of the week • Consider when you are at your best. It’s best to be clear headed, listening accurately, awake and alert (this varies for everyone). You are therefore less likely to have negative or self-defeating thoughts and least likely to take rejection personally • Consider distractions – what time of day are you least likely to be interrupted?

Remember, follow-up with persistent daily effort!

Sue Barratt is the founder and managing director of sales training organisation Barratt

MY WAY Peter Fitzpatrick has thrived by building an independent business in the most unlikely of locations – the middle of a desert. Australian Broker asks him the keys to his success

Peter Fitzpatrick

What is your greatest business achievement?

To start Outback Financial Services from scratch, and choose to operate independently of any franchise group or real estate agency. Our positioning in our local market seven years down the track could have been different had I chosen a different option.

What’s the key to getting business through the door?

Referrals and repeat business. Making referrers and clients advocates of the business.

What goals have got you to where you are?

The motivation to succeed, to work hard, to not fail and provide for my family.

Who has helped you the most, and how?

Funnily enough my former employer ANZ – inadvertently.

They gave me the background and knowledge and also the conviction that there were better ways of looking after people’s finances than being their bank manager.

What character trait do you most value in yourself?

My drive and focus on the client.

How do you stand out from the crowd/competition?

Reputation and referral network.

What do you tell yourself when the going gets tough?

Keep the focus. Don’t sweat stuff out of your control.

What is one thing you want to improve in your business?

Increase of cross-sell.

What piece of advice would you give an ambitious broker?

Know your products and compliance requirements inside out. Find your niche in the market.

What’s your next greatest ambition?

Ultimately to be living on a beach with a good wave, travelling, working through my bucket list and watching my kids grow and have happy and successful lives.

www.brokernews.com.au

25

Toolkit

Trail book vendors beware…

Planning on selling your trail book income stream and heading off for some well-earned R&R? Well, just make sure you’ve taken your GST liabilities into account

T

he transition to the National Consumer Credit Protection regime has caused a spike in trail book sales, as more brokers look to realise the value of many years of hard work.

However, according to Gadens Lawyers partner Vicki Grey, sellers need to be aware of just what they are selling – and what ongoing tax liabilities they may still have.

“We’ve seen significantly more interest over the past two years in particular,” Grey says. “And that’s one-manbands as much as larger broking businesses. But the issue is that people need to be 100% sure just what it is they are buying or selling.”

Book or business?

It is Goods and Services Tax (GST) that has the potential to catch brokers out, particularly vendors who may be unaware of ongoing liabilities following their trail book sale.

Grey says that when brokers look to sell an entire broking business, GST will be payable by the purchaser of the business to the ATO on trail commission as it is received.

She says this requirement is usually “top of mind” for all the transacting parties.

However, when the sale is of an income stream – or ongoing trail payments – and not a business, the picture is more complicated. Grey says this is exposing vendors to tax risk.

Progressive liability

According to Gadens, GST is usually payable progressively on trail commission for the supply of broking services, as the GST consideration at the time of initial sale is not known.

The law firm explained in a recent client update that trail commissions paid by lenders or aggregators to brokers over the life of a loan may be viewed as consideration for either: • a single supply of brokerage services by way of introduction of customers • a progressive or periodic supply of services over the life of the loan

The law firm says that a determination made by the ATO defers the GST liability on a supply, and entitlement to an input tax credit, for any amount that cannot be ascertained. The GST is therefore payable in relation to each interim component of the total consideration.

“As trail commission is usually not known until the end of each month, GST is therefore usually payable progressively on the receipt of trail commission,” the update states.

This – critically – applies to vendors following the sale of an income stream. In GSTR 2004/4, the ATO states that: “Since the assignment of a payment stream [through the sale of that stream] does not change the underlying supply, the assignor [or vendor] retains the obligation to make the underlying supply and remit any GST liability.”

Vendor beware

Gadens Lawyers says that vendors are often unaware of this tax liability.

“If it is correct that the vendor is liable to pay GST, the sale agreement would need to take into account this liability,” Gadens Lawyers senior partner Jon Denovan says. “Usually in practice there is no such provision. In any event, it is difficult to make arrangements for GST to be paid by the vendor. There is, however, a risk for vendors who do not pay GST.” Grey says vendors do not often set aside assets to cover this future liability, and often quickly spend the money accessed through a trail book sale. She says that this puts brokers at risk of being unable to fund the 10% liability when the ATO “knocks on the door”.

Grey says that vendors need to adjust the Net Present Value (or NPV) of an income stream by 10%, to account for the GST liability and then set this aside. Otherwise, “proceeds from the sale will be 10% less than the vendor thought they were,” she says.

The right advice

Grey says she expects increased ATO attention on the issue in future, and that both buyers and sellers of trail books should gain adequate advice during their transaction. She said a broker’s regular accountant is often unaware of the GST concern.

Book buyers should clarify client access Brokers who buy the rights to trail book annuity streams should be clear on their right – or not – to market to those clients, according to a leading mortgage industry buyer of trails.

Trailerhomes’ Nick Young says there is some confusion among brokers who buy annuity streams that they will get access to those clients in order to develop their business.

Young said that purchasing such streams – as opposed to purchasing a mortgage broking business – gives a broker “no right whatsoever” to approach these clients, and instead only gives the right to the diminishing income stream from these loans. “I am aware of people who have bought books on the presumption they would have the right to those clients, and are left bitterly disappointed – it’s something brokers need to check out,” he says.

Young also warns brokers that the sale of a mortgage broking business can have legal implications as a result of the transfer of client files and information, which could fall afoul of the Privacy Act. He says that a broker simply putting their business up for sale and selling associated client data “to the highest bidder” can potentially be construed as a major breach of Privacy legislation.

Young says that to prevent such risk exposure, business sales need to be handled carefully. He suggests a “warm handover”, where the outgoing broker notifies and keeps his client database informed of the change, and who will be handling their ongoing affairs.

“That’s more of a proactive handover, rather than just handing over filing cabinets full of stuff,” he says.

The sale of an income stream If a vendor is selling an income stream, as opposed to a business: a) No GST is payable by the purchaser to the vendor on the sale (that is, it is an input taxed supply) b) The sale price will be revenue receipt (that is ordinary income) by the vendor c) The vendor, and not the purchaser, will be liable to pay GST to the ATO on future trail income as it is paid (even though received by the purchaser) Source: Gadens Lawyers

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Market talk

Unite and conquer For many, entering the property market as an investor seems unachievable.

However, brokers may be able to provide borrowers with a unique path to investment

Brokers can look forward to potentially write more loans, more often from a larger set of loyal clients

T

here’s little question that entry into the property market has become more difficult.

Though median prices have tapered off slightly, housing remains expensive and raising the money for a deposit can be an uphill battle.

However, for investors looking to enter the market, a property syndicate may provide a unique way to get a foot in the door. Moreover, brokers who learn the nuances of how these syndicates operate could potentially see greater loan volumes.

Tim Riley is the principal of Property Collectives, a group that advises would-be property syndicates on the ins and outs of investing in property as a group. He said he started the company after forming a property syndicate himself, and realising there was little help available for investors looking to utilise this option.

“It took around 12 months to develop a structure that would let us maximise our finance options and tax benefits and this was when I realised that there were no groups out there making it easy for people to collectively own property. I was lucky enough to have a great mortgage broker, accountant and lawyer who gave me the right advice; however, not everyone is so lucky,” Riley said.

Brokers are well-placed to help potential investors navigate the details of forming a syndicate, according to Riley. He said the structure is well-suited to a variety of clients who may feel property investment is out of their reach. Some potential clients have equity, but lack the income to access it. Others have cash, but insufficient income to service a mortgage. Still others would have no problems servicing a mortgage, but do not have equity or cash to rely on.

For any of these people, Riley believes property syndicates could be the answer. And for brokers, Riley said, the structure means clients who may have previously walked away empty-handed can now be given a step onto the property ladder, meaning better volumes for a broker willing to help them.

“Brokers can look forward to potentially write more loans, more often from a larger set of loyal clients. By helping people share their money, time, knowledge and skills you can provide them with a more economically sustainable way to get into the property market,” he commented.

Brokers who are willing to help clients form property collectives with friends and families can potentially help clients purchase property much sooner than they would

have been able to had they waited to do so on their own.

Clients could also potentially purchase a greater number of properties in a syndicate than would be feasible individually. Rather than merely waiting for alreadyformed property syndicates to approach them, brokers can actually promote the benefits of the structure to clients for whom it might be a good fit.

“The time to proactively suggest to a client that they should consider starting a property collective is typically when they are looking to invest but for whatever reason are having trouble accessing finance,” Riley said.

There are a number of finance structures brokers can help secure for burgeoning property syndicates, according to Riley. Properties can be co-owned as joint tenants or tenants in common, or clients can form a legal partnership, a private company or a discretionary trust.

Riley said each structure has benefits and drawbacks, and brokers looking to help clients form a syndicate should be familiar with these.

“At this point it is extremely important for you and your clients to do their due diligence. The structure they choose will ultimately affect their ability to leverage into more properties and the amount of tax benefits they will receive personally via the syndicate,” he commented.

Overall, Riley believes a property syndicate can help level the playing field for property investment. It can allow people into the market who might otherwise have been shut out. And, for the broker willing to do his homework, it could open up an entirely new client base.

Three situations your clients should avoid 1 Don’t get into business with people you don’t know well Make sure they really understand the underlying motivations of all the people who are interested in joining their group.

2 Don’t start your property collective without a legal agreement The success of your client’s collective depends on how well they make their promises and ultimately how good they are at keeping them. The process of establishing a legal agreement is a crucial part of the process and a critical step in setting up your clients collective for success. This is because a legal agreement is not only a document the syndicate members can all fall back on, but perhaps more importantly, it forces them to discuss all the different possibilities and eventualities that may eventuate. Reaching a consensus on how they will all deal with all those eventualities makes sure everyone starts the syndicate on the same page.

3 Don’t leave any questions unanswered Advise your clients to not be afraid to ask questions. The different members of the collective will all have different levels of property experience and expertise. Chances are if one of the members is not comfortable with something, or unclear about how something works, other members in the group are too. Better to ask and be totally satisfied with why something is being done a particular way, than to not say anything and carry underlying doubts or suspicions.

Source: Tim Riley, The Property Collective

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27

Market talk NUMBER CRUNCHING On the decline: Median home values dropping

Bank fee breakdown: Where fee revenue comes from 3% 1%

7%

Housing loans Credit cards Transaction accounts Personal loans Other Other accounts

31%

28%

March quarter 2011 (seasonally adjusted) -1.10% -1.30% 1.40% -1.50% -1.60%

-2.10%

-2.50% -3.40%

30%

-4.60% Source: Australian Bankers’ Association

Rentals on the rise: Total rental listings

35000 30000

May-10

May-11

At a glance…

25000

$835.30 per week

20000

*

15000 10000 5000 0

Source: RP Data

* The poverty line for two adults with two dependent children Source: Melbourne Institute

INDUSTRY NEWS IN BRIEF Housing credit growth worst on record Recent RBA figures show demand for credit rose by 0.3% in May following a flat April. Over the year to May, total demand for credit increased 3.1%, with personal credit other than home loans remaining flat and business credit inching up 0.1%.

Home loan demand was the main driver for growth, increasing by 0.5% over May following an increase of 0.4% in April. In the year to May, demand for housing credit rose 6.2%. The result represents the lowest annual growth since the RBA began recording credit data in 1976.

Home values continue to decline According to the RP Data-Rismark Home Value Index, home values continued to decline during the

month of May, falling 0.3%.

However, this contributed to a full 2.7% seasonally adjusted decline since the beginning of 2011, or 2.3% over 12 months.

The report said that in capital cities, “performance has been varied and counterintuitive to the purported resourses boom.

“Sydney is the only market to have recorded a modest capital gain over the last year, up 1%, while homes in Canberra have also held ground. All other capitals have slipped into the red, with some down by significant margins,” the report said.

Rentals remain tight Recent data from SQM Research shows rental vacancies nationally fell from 1.8% in April to 1.7% in May. However, the result still sees vacancy rates above the 1.4% recorded in May 2010. In spite of

the slight easing in the last year, SQM Research commented that the market for rentals remains competitive.

“A national vacancy rate of 1.7% still signifies a considerably tight market, and with no capital cities recording vacancies above 2.4% it is safe to say that the ‘rental crisis’ is yet to be alleviated,” the company said.

SQM predicted that the rental market will remain tight as buyer interest in the property market remains weak.

Commercial property sales jump 432% Commercial property transactions have jumped 432% in the second quarter according to CB Richard Ellis.

New data from the company indicates that following the worst quarterly turnover in two

decades during quarter one, the second quarter of 2011 has seen a massive increase. The $2.7bn in commercial property transactions is 14% above the long-term average for quarterly turnover.

Inflation will lead to more rate hikes: RBA In the minutes from the Reserve Bank’s June meeting, the RBA Board indicated that while inflation is currently in the bottom half of the Bank’s target range, it is expected to rise in the months ahead. The central bank pointed to slowdowns in employment, weak retail spending and falling GDP as reasons for leaving the cash rate untouched at its latest meeting.

However, the RBA suggested that GDP growth is expected to bounce back and sit above trend over the next few years, leading to rising inflation.

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Caught on camera Westpac recently hosted a women in broker business cocktail function in Brisbane, attended by over 20 top female brokers. They heard from keynote speaker Kathy Hirschfeld, a non-executive director of Snowy Hydro Ltd 1

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Di Robinson (AFG), Elizabeth Tang (Westpac), Fiona Hills (Simple Mortgage Solutions)

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Tanya Du Preez (Astute), Sharon Corbett and Brendon Prior (Westpac)

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Craig Kadel and Sharon Forward (Westpac), Debby Wilson (Australian Loan Company), Sharon Corbett (Westpac)

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Darya Kochanov (Westpac), Kathy Hirshfield (guest speaker – Snowy Hydro Ltd), Mel Pope and Paula Snape (Westpac)

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Catherine McKenna (RM25CM), Michael Karpathikis (Westpac), Rachel Scott (Home Loan Connexion)

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Kate Gajewska (Preston Rowe Paterson), Julie Hamanashi and Shu Yamanashu (Aussie)

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Melos Sulicich (Westpac), Kathy Hirschfield (guest speaker – Snowy Hydro Ltd)

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Insider

Got any juicy gossip, or a funny story that you’d like to share with Insider?

Drop us a line at insider@ausbroker.com

Who’s your favourite banker?

Can someone hand me some scissors…?

B

anks (and bankers) cop a lot of flack in the media and among the general bankfee-paying populace. Perhaps it’s the $4bn-plus in fees households shelled out for banking services last year (though this was down from $5bn plus the year before).

Indeed, there have occasionally been moments of weakness, when Insider has found himself daydreaming of stringing the closest banker up from a nearby telegraph pole. But, Insider feels if this was to happen, bankers can now only blame themselves – yes, that’s right, they are now the ones suggesting this may be a potential course of action! Though Insider wasn’t there, he can only imagine

the first shocked and befuddled looks of early rising Melburnians late in June when they came across a suited-up man strapped high up a telegraph pole with packing tape.

Likewise, he can only speculate how this immediately broke into cheers, handshakes and group hugs when it was realised this man was in fact a ‘banker’. Yes, NAB’s break-up campaign has gone that one whacky step further, in suggesting other banks may hate them so much they’d be willing to strap them up a pole.

Let’s hope the general populace doesn’t take the hint and start turning on real bankers, armed with rolls of tape and step ladders.

Mo’ Money, Mo’ Problems

One common theme of the entire banking competition debate has been Australian banks assuring us all that they are not rolling around in big piles of money, laughing hysterically, tears rolling out from under their monocles as they light Cuban cigars the size of chair legs and eat caviar off solid gold plates.

All of that is basically a roundabout way of saying the banks claim their profitability is not exorbitant.

Well, this claim was undercut a bit by the Bank for International Settlements. The BIS is essentially the central bank to all the world’s central banks. In spite of the Australian majors claiming their profitability came in somewhere around the middle of the pack globally, a recent BIS report indicates they actually have the highest return on assets of any banking system in the world.

Yet, for all their bling, Basel III has snubbed the Big Four by not including them in the list of Global Systemically Important Financial Institutions, or G-SIFIs (which sounds like a futuristic hip hop artist). While this does mean the Aussie majors won’t be subject to the tougher capital requirements of the G-SIFIs, it’s gotta sting a bit from an ego standpoint.

Breaking up is hard to do

Amid all the confusion and hub-bub of the exit fee debacle, there’s another plank of the banking reform package that has flown a bit under the radar. If implemented, the government’s suggestion of account number portability, along with the everso-popular exit fee ban, could lead to a veritable orgy of consumers dashing from bank to bank, leaving a trail of broken-hearted financiers in their wake.

At least that’s what the banks would have us believe. However, Dutch bank RaboDirect has claimed the European system of account portability is the way of the future, leading down a shining path towards a utopian world of consumer choice. Anyway, RaboDirect’s general manager Greg McAweeney recently said switching banks in Australia was almost more difficult than divorce.

The metaphor is particularly appropriate, given NAB’s admonition to “break up” with your bank.

However, should you break up with your bank, seduced by some younger, thinner financial institution, prepare yourself to be beset with alimony payments, split custody arrangements and barely-hidden passive aggression any time you see them in public.

Til death – or a lower mortgage rate – do we part

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Services

Receive breaking news updates direct to your inbox. Sign-up for the FREE e-newsletter at www.brokernews.com.au AGGREGATOR / WHOLESALE BROKER Loankit 1800 466 085 www.loankit.com.au Page 15 PLAN Australia 1300 78 78 14 www.planaustralia.com.au Page 7

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