OCTOBER 2020 ISSUE 17.20
Favouritism on show A non-bank lender has accused the federal government of showing favouritism to the banks /04
Loan restrictions to be loosened REIA president says the proposed lending reforms will improve demand, giving prices ‘less chance to fall’ /18
AARON MILBURN As alternative lending sees booming growth, Pepper Money’s Aaron Milburn asks brokers: what opportunities are you missing? /14
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Business lending Four lenders explain how diversifi cation could be the key to brokers’ success in 2021 and beyond /20
ALSO IN THIS ISSUE… Big deal This unusual deal included a fire-damaged property and granny flats /17 Keeping pace with tech Victoria Coster from Credit FIX Solutions is seeing new demand for credit repair /19 In the hot seat MyStateBank’s Grace Munro shares her personal passions /30
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NEWS
IN THIS SECTION
Lenders Government openly favouring banks, says lender /04
Associations Final regulations on confl icted remuneration released /06
Market Australia’s mortgage deferral hotspots revealed /10
Aggregators Mortgage Choice looks to bring more women into franchises /12
Technology Businesses starting to prioritise automation /08
www.brokernews.com.au OCTOBER 2O20 EDITORIAL
SALES & MARKETING
Editor Antony Field
Publisher/Sales Manager Simon Kerslake
News Editor Madison Utley
GLOBAL WATCH How is the mortgage and broking world responding to the COVID-19 pandemic overseas? Here’s your snapshot of the news that matters most to the mortgage industry in North America
US NEW HOME SALES HIT 14-YEAR HIGH IN AUGUST of newly built single-family homes in the US surpassed the one million mark in August, according to the National Association of Home Builders (NAHB). Month-over-month sales rose 4.8% to a seasonally adjusted annual rate of 1.01 million units – the highest growth rate since September 2006, based on data from the US Department of Housing and Urban Development and the US Census Bureau. In terms of annual growth, the rate was 43.2% higher in August 2020 than it was a year prior. “Surging sales are consistent with record builder confidence levels stemming from higher buyer traffic, historically low interest rates and a shift in demand for lower-density markets,” said NAHB chairman Chuck Fowke. “However, higher lumber costs and limited building material availability in some markets signify we could see higher prices down the road.” SALES
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SKYROCKETING TIMBER PRICES DRIVE SHORTAGE OF NEW HOMES was a 4.1% drop in listings of newly built homes in the US in August as builders continue to grapple with rising lumber costs. “There’s plenty of demand for new homes, but builders are facing a unique and costly set of hurdles as they attempt to satisfy that demand,” said Redfin’s chief economist, Daryl Fairweather. New listings fell 4.1% year-over-year to a seasonally adjusted rate of 74,000 in August, a reversal from the 3.8% increase in July, according to Redfin. “Listings of new homes aren’t bouncing back as quickly as listings of existing homes because, unlike individual homeowners, construction companies have to deal with lumber and labour shortages during the pandemic,” Fairweather said. “They’re also competing for labour and materials with folks who are renovating their houses during quarantine.” THERE
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HOW AMERICANS ARE EXITING THEIR LOAN DEFERRAL PLANS the share of loans in forbearance (or deferral) in the US continues its slow but AS steady decline week after week, it appears that fears of a post-forbearance flood of defaults may have been little more than a product of the general panic that followed the onset of COVID-19. “It hasn’t quite reached the heights that were initially anticipated,” says Matt Tully, VP of agency affairs at Sagent Lending Technologies. “That number appears to at least have peaked for the moment.” Tully has been tracking how Americans have been exiting their forbearance plans and recently wrote that they were leaving forbearance in three primary ways: by agreeing to settle their unpaid mortgage balances at the end of their loans; by making a lump-sum payment; or by continuing to make their ongoing mortgage payments.
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This magazine is printed on paper produced from 1OO% sustainable forestry, grown and managed specifically for the paper pulp industry Copyright is reserved throughout. No part of this publication can be reproduced in whole or part without the express permission of the editor. Contributions are invited, but copies of work should be kept, as Australian Broker magazine can accept no responsibility for loss. Australian Broker is the most-often read industry publication, according to independent research carried out by the Ehrenberg-Bass Institute for Marketing Science at the University of South Australia in December 2008. The research also found that brokers rate Australian Broker as the best for both news content and feature articles, followed by sister publication MPA. Overall, on all categories, Australian Broker ranks top followed by MPA. The results were based on a sample of 405 respondents who were the subject of telephone interviews.
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NEWS
LENDERS UNFAIR ADVANTAGE FOR BANKS?
BIG BANK TO SNATCH BACK MILLIONS FROM REDRAW
Source: Kim Cannon, managing director, Firstmac
will remove access to millions of dollars in loan redraw facilities after identifying about 200,000 accounts with incorrect balances. The bank is continuing the process of repairing accounts that has already led to the removal of access to $8.7m in redraw facilities – a process that was temporarily halted in response to the bushfires and COVID-19. Sarah Stubbings, ANZ’s responsible banking lead, said the bank would work with its customers who had unknowingly spent the excess, and refund interest paid. ANZ
NON-BANK SEES STRONG UPTAKE OF NEW PRODUCTS has reported strong uptake of its new business lending solutions. Group sales manager John Mohnacheff said these products arose as a natural progression of Liberty’s recent trajectory. In mid-August, it went to market with Liberty Mint, offering secured business loans of up to $3m, and Liberty Access, providing a flexible line of credit up to $1m. Since then, it had received “solid feedback”, he said, and brokers had been able to help a wider range of business customers. LIBERTY
“By giving cut-price money to the banks alone ... we are going to see a repeat of the GFC where the banks emerge completely dominant at the end of the crisis” Kim Cannon Managing director, Firstmac
0.25%
1.35%
Cost of funding to the banks, which can borrow money from the government under the RBA’s Term Funding Facility scheme
Cost of funding to the banks’ competitors, which must continue to borrow on international markets
GOVERNMENT OPENLY FAVOURING BANKS, SAYS LENDER RBA funding facility giving ‘cut-price’ money to the banks threatens to increase their dominance of the market to the detriment of borrowers, says Firstmac exec non-bank lender has not only accused the federal government of showing favouritism to the country’s banks but warned that the repercussions of the preferential treatment could “kill off competition” in the home lending market for a generation to come. According to Firstmac managing director Kim Cannon, the problem was introduced with the launch of the RBA’s $200bn Term Funding Facility (TFF). The “flawed program” was unveiled by the federal government in March as the COVID-19 crisis began to trigger real panic in Australia, in a bid to bolster the banks, which were seeing declining profits due to falling interest rates. Cannon said the TFF was created to A
provide “cheap money” to the banks to subsidise their lending operations – which he believes is a disaster in the making for Australian borrowers. “By giving cut-price money to the banks alone, the government is subsidising them to increase their market share at precisely the time when it should be protecting competition for consumers,” he said. “If this continues, we are going to see a repeat of the GFC where the banks emerge completely dominant at the end of the crisis and are able to charge what they want and do whatever they want, with few challengers strong enough to offer a real alternative.” Under the TFF, large ADIs can borrow money from the government at a rate of 0.25%, while competitors must continue to borrow on international markets at 1.35%
or more. As Cannon sees it, this has enabled the big banks to offer “artificially-low” two- to three-year fixed rates, thus stealing away their smaller competitors’ customers. It is estimated that 70% of recent refinances have moved customers on to these subsidised fixed rate loans. “This program threatens to derail the government’s entire strategy of fostering competition in lending,” Cannon said. “The only way to fix it is to re-establish a level playing field, either through extending it to other lenders or by offering equivalent subsidised funding through another mechanism.” Cannon would like to see the government open the TFF program to non-bank lenders and expand access to smaller ADIs, including fintechs, which are currently limited to a “token sum”. “This will ensure that borrowers still get access to subsidised loans to stimulate the economy, while avoiding the completely unnecessary collapse of long-term competition in the market and all of the problems that come with that,” he concluded.
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©Pepper Group Pty Limited ABN 55 094 317 665; AFSL 286655; Australian Credit Licence 286655 (“Pepper”). All rights reserved. Pepper is the servicer of home loans provided by Pepper Finance Corporation Limited ABN 51 094 317 647. Pepper Asset Finance Pty Limited ACN 165 183 317 Australian Credit Licence 458899 is the credit provider for asset finance loans. Pepper Money Personal Loans is a brand of Pepper. Credit is provided by Now Finance Group Pty Ltd, Australian Credit Licence Number 425142 as agent for NF Finco 2 Pty Limited ACN 164 213. All applications are subject to the credit provider’s credit criteria. Terms, conditions, fees and charges apply.
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NEWS
A S S O C I AT I O N S COBA: REGULATORS’ ACTION A WIN FOR COMPETITION Customer Owned Banking Association has welcomed recent action taken by APRA and the ACCC, interpreting it as their acknowledgement of the importance of competition to a healthy financial system. An updated Memorandum of Understanding between the two regulators was released in September, in a bid to foster closer collaboration between them – which COBA CEO Michael Lawrence said was a good sign that both were committed to building their relationship. “A competitive banking market is key to delivering the best outcomes for customers,” he said. THE
FINAL REGULATIONS ON CONFLICTED REMUNERATION RELEASED The Treasury’s finalised regulations clarifying the rules around conflicted remuneration have been welcomed by the MFAA as a positive for the industry late September, Treasury released the finalised version of the regulations that will govern mortgage broker remuneration as of 1 January 2021. These come in response to Recommendation 1.3 of the royal commission and aim to clarify which benefits received by mortgage brokers are considered conflicted remuneration, as well as provide guidance on when conflicted remuneration must not be accepted or given. The MFAA welcomed the finalised regulations, with CEO Mike Felton celebrating the government’s “commitment to consultation” and ongoing engagement with the industry. While the association has acknowledged that some work remains to be done, such as around non-mortgage credit, IN
Commercial Loans
which sees conflicted remuneration provisions applying to all of a mortgage broker’s credit assistance, irrespective of whether the credit is secured by a mortgage over residential property, Felton’s address to MFAA members was predominantly positive. “This … reflects both the maturity and professionalism of mortgage broking, but also the importance of our industry to our economy,” he said in a letter distributed to MFAA members. “We have assisted to shape legislation and regulations that will result in even greater differentiation, trust and confidence for the mortgage broker channel, and protect consumer outcomes and our remuneration structures as we work towards the impending review of mortgage broker remuneration by
the Council of Financial Regulators and the ACCC in 2022.” Meanwhile, FBAA managing director Peter White said the finalised regulations brought “nothing new” to the conversation around conflicted remuneration as they did not deviate from the details the Treasurer shared in the draft materials last year. While White also voiced appreciation that the government had listened to the concerns of the industry on many issues regarding remuneration, he believes the current state of clawbacks remains unacceptable – though he pointed out that the onus to deliver change moving forward should be on lenders, not the government. “The road with the government on clawbacks was dead late last year, but the fight to bring balance and fairness to the system is very much alive,” he said. “Clawbacks are exactly the same as they were before the royal commission, and now it’s up to lenders to amend their terms. Who will be the first bank to do the right thing by brokers and reduce clawbacks to 12 months or less?”
COMMERCIAL BROKERS GROW MARKET SHARE finance broker market
COMMERCIAL share continues to
grow, as documented in the inaugural Aggregator Benchmark Report released by the Commercial and Asset Finance Brokers Association of Australia. The report, providing the first data set for commercial finance aggregation, showed that, as of February 2020, 72.9% of new commercial asset finance transactions were being settled through commercial brokers – up from 67% in 2017. Nevertheless, CAFBA is becoming increasingly vocal about the need for further professional education to sustain this trajectory of growth.
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NEWS
T E C H N O LO GY / R E G U L AT O R S
AFCA OPENS ACCESS TO COMPLAINTS DATA Australian Financial Complaints Authority has updated its online portal to include information on all financial complaints lodged with the body from 1 July 2019 to 30 June 2020. The publicly accessible tool, the AFCA Datacube, allows anyone to see how banks, financial advisers and other financial firms have handled consumer complaints that were escalated to the Ombudsman. Over the financial year, 108 complaints were made specifically about mortgage brokers. THE
CONCERN THAT LENDING REFORMS WILL FALL FLAT executive director Mark Haron has raised concerns that the roll-out of Treasurer Josh Frydenberg’s lending reforms could have a similar result to the guidance APRA gave banks last year – which was largely ignored. “APRA effectively said, ‘If you’re refinancing a loan, and nothing has changed … then there’s no necessity to apply the responsible lending lens again’,” he said. “However, that wasn’t taken up by the lenders in any major way, shape or form because they felt they’d be in breach of their obligations from an ASIC perspective.” CONNECTIVE
“If AFCA, who seems to be the ultimate decision-maker … does not take the same position as government [on lending reform], this all could change nothing” Mark Haron Executive director, Connective
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BUSINESSES STARTING TO PRIORITISE INVESTMENT IN AUTOMATION Survey shows that the pressures of the pandemic are pushing increasing numbers of businesses towards tech solutions businesses are being driven to invest in technology to cope with the impacts of the COVID-19 pandemic, and many are ready to commit to ramping up automation, according to Experian’s Global Insights Report. This is an even greater priority for the lending sector as banks struggle to adequately manage the volume of payment deferral requests from customers. APRA figures show that the total value of deferred home and business loans had reached $274bn by the end of June. And given that many lenders have adopted a “largely manual response” to the task of handling these deferrals, their onshore teams are being crushed by the workload due to the disruption of offshore call centres services. This has taken a toll on the quality of customer AUSTRALIAN
service provided, as well as caused significant delays. Before the pandemic, the wait for home loan approvals was as short as one week. Now that response time has been multiplied many times over and currently sits at around eight weeks, according to broker reports. Experian’s research also found that, compared to before the pandemic, around double the number of Australian consumers are now struggling to pay their mortgage payments and credit card and utility bills. “Pressures such as bushfires, flooding and now COVID-19 have intensified consumer need for financial support. Meanwhile lenders are facing significant disruption to their usual processes, and are being challenged to remodel risk and creditworthiness in response to our changed
circumstances. Automation will be a key asset for those looking to manage this impact quickly and efficiently,” said Mathew Demetriou, general manager of decision analytics at Experian Australia and New Zealand. “Cloud-based solutions are becoming an increasingly useful tool for improving online experience, accelerating speed to market and contributing to the easing of operational cost pressures; all of which is business critical right now.” Close to a quarter (22%) of Australian businesses surveyed indicated that they were looking to implement cloud-based solutions to help manage customer credit risk and creditworthiness. To date, just 51% of businesses have an automated credit decisioning process from start to finish. Around 86% of businesses showed concern about their lack of historical data impacting the performance of analytics, and more than half (55%) were looking to explore alternative data sources, invest in customer behavioural profiling techniques, and even directly ask customers to contribute more data.
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NEWS
MARKET BRACE FOR PROPERTY PAIN, SAYS BOQ latest forecast from the Bank of Queensland sees house prices plummeting more than 20% and commercial property diving 30% in value by the end of next year. While those figures indicate the bank’s worst-case scenario, its more moderate modelling has tipped a 75% chance that house prices will fall 11% peak-to-trough and commercial property will slump 15% by the close of 2021. Notably, BOQ’s outlook goes against the predictions of other lenders that have revised their property market forecasts upwards in recent weeks. THE
HOMEOWNERS RELUCTANT TO SELL, STUDY SHOWS
AUSTRALIA’S MORTGAGE DEFERRAL HOTSPOTS REVEALED An analysis of the suburbs across the country that experienced the greatest uptake of mortgage deferrals shows a huge cluster in one state nation’s 10 mortgage deferral hotspots during the first wave of COVID-19 lockdowns have been revealed, providing insight into where mortgage holders are having the most difficulty meeting their repayments. Many deferrals are also due for review imminently. The Equifax analysis shows that nine out of the top 10 regions where mortgages were deferred were Queensland tourist destinations, with the Whitsundays, Noosa, Surfers Paradise, Coolangatta, Mudgeeraba-Tallebudgera, Broadbeach-Burleigh, Southport, the Gold Coast Hinterland and North Cairns containing a higher proportion of deferrals compared to the national average. “The impact of the downturn THE
on the tourist trade is acute for Australians living in tourismdependent Queensland regions,” said Kevin James, Equifax general manager advisory and solutions. “Tourism is a major industry for Queensland, and with international and domestic visitors curtailed during the pandemic, tourist hotspots have faced reduced occupancy rates, lower incomes and higher levels of unemployment, leaving mortgage holders feeling the pinch.” However, with the Queensland border set to reopen to parts of NSW and SA, Equifax has predicted the beginnings of a bounce-back as tourism dollars begin to flow into the region again. The group’s analysis was conducted in September 2020
and based on credit history and repayment information available for May 2020. Given this timing, Tullamarine-Broadmeadows, on the outskirts of Melbourne, was the only non-Queensland location to make it on to the top 10 list of mortgage deferral hotspots. That said, the Victorian suburbs of Wyndham, Casey-South, Whittlesea-Wallan, Melton, Bacchus Marsh and Boroondara still recorded a higher number of mortgage deferrals than the national average, given their status as lower socio-economic areas with low-income households and young people just starting out on the property ladder. “COVID-19 is having a particularly negative effect on the employment of young people,” James said. “For those without significant savings, it isn’t easy to service a home loan when cash flow dries up. We know Melbourne’s second lockdown will have further exacerbated the difficulties we’ve seen in our initial analysis on the available May data.”
research from Gateway Bank has revealed a disconnect in the property market: while eager Aussies are on the hunt for spring bargains, property owners are reluctant to sell until things feel more settled. The study shows that 64% of those intending to buy in the next 12 months plan to do so in the upcoming spring selling season; that rises to 72% among millennials. Of those prospective homebuyers, 63% believe COVID-19’s impact will help them find a bargain. Meanwhile, just 43% of those planning to sell are targeting the spring selling season. NEW
“Tourist hotspots have faced reduced occupancy rates, lower incomes and higher levels of unemployment, leaving mortgage holders feeling the pinch” Kevin James General manager advisory and solutions, Equifax
AREAS WITH HIGHEST PROPORTION OF MORTGAGES DEFERRED (BY ACCOUNTS) Source: Equifax
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Whitsundays, Qld Noosa, Qld Surfers Paradise, Qld Coolangatta, Qld Mudgeeraba-Tallebudgera, Qld
Broadbeach-Burleigh, Qld Southport, Qld Gold Coast Hinterland, Qld Tullamarine-Broadmeadows, Vic Cairns – North, Qld
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NEWS
A G G R E G AT O R S
WILL RESPONSIBLE LENDING REFORMS AFFECT BID? executive director Mark Haron has questioned how the government’s proposed lending reforms would interplay with the best interests duty if they were both fully embraced by all parties. As he sees it, responsible lending was “one of the pillars” of BID, so if the former changes, the latter should too. “If responsible lending obligations are being removed … we’ve got to think it will fundamentally change how brokers will implement their BID requirements too.” CONNECTIVE
PLAN AUSTRALIA LAUNCHES ‘GROWTH PLAYBOOK’ aggregator group has launched a tool for brokers looking for a structured approach to growing their business. PLAN Australia’s ‘Growth Playbook’ runs through inputted data to identify where brokers’ businesses can be further developed and provide tangible suggestions for improving them. “[The tool] takes an inventory of each business and identifies which areas brokers need to focus on with their partnership manager,” said PLAN CEO Anja Pannek. AN
“This year has been immensely disruptive, and we have been challenged to rethink the way we work … The challenges that face men and women are different” Susan Mitchell
CEO, Mortgage Choice
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MORTGAGE CHOICE LOOKS TO BRING MORE WOMEN INTO FRANCHISES The aggregator group is putting a new focus on building the female talent pipeline and support network across its franchises identifying that it had fewer female franchise owners than male, despite women making up 55% of its network, Mortgage Choice decided to push for balance in the second series of its female talent nurturing program, Aspire. “We see this as an opportunity to further develop the strength of this female community and invest in the growth of women across various roles within our network,” said Mortgage Choice CEO Susan Mitchell. “To shift female representation in the industry, we must first start with ourselves, and Aspire sets out to do that for Mortgage Choice.” Aspire was launched in March 2020 with the objective of building the female talent pipeline within AFTER
the organisation; now its focus has been set on the group’s franchises. “It’s never been more important to help our franchisees become more resilient business owners. This year has been immensely disruptive, and we have been challenged to rethink the way we work,” said Mitchell. “The challenges that face men and women are different. This year, female small business owners across the country were thrown into working from home, which has made the juggling act more real than ever. This can be isolating for small business owners, which is why bringing our network together online to share their experiences, tips and tricks with their peers is essential.” The first instalment in this new
series of the Aspire program featured high performance coach Kate McKenna on the theme of ‘Energy and Performance Management’ and was followed by a panel led by McKenna and Emma Dupont-Brown, Mortgage Choice GM of product and corporate communications. According to Mortgage Choice franchise owner Caroline Jean-Baptiste, the program is a great opportunity for female brokers to come together for support and to build stronger networks. The second and third masterclasses to be held in October will explore ‘Mental Fitness and Building Resilience’ and ‘Goals, Values and Purpose’. “Mortgage Choice has a long history of inspiring female franchise owners who have built strong businesses. Our aim is to continue to nurture the next generation of talent within our mortgage broking and advice networks by giving our network the tools they need to grow and develop,” Mitchell said.
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FE AT URES
SPECIAL REPORT
OPPORTUNITIES ABOUND IN ALTERNATIVE LENDING Alternative or specialist lending has enjoyed booming growth in recent years, and its market share is set to grow in the wake of the pandemic. Pepper Money’s Aaron Milburn asks brokers who haven’t yet moved into this space: what opportunities are you missing?
THE BBQ RULE
If you line up 20 friends and family at a BBQ, most of them will need a loan for a home at some point
A good proportion of those borrowers are not going to meet the criteria required to be a major bank customer
Why miss your opportunity as a broker to help them own their dream home because they’re ‘alternative’?
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events of 2020 have fundamentally changed many aspects of the way we do business in the mortgage and finance world, from how we interact physically and virtually to the systems and processes we’ve embraced in order to continue operating through the periods of lockdown. Another meaningful shift has also materialised in the course of the year, says Aaron Milburn, Pepper Money’s general manager for mortgages and commercial lending across Australia and New Zealand. Alternative lending, also known as near prime and specialist lending, has become an increasingly important part of the lending mix – and that’s because this type of borrower has never been more prevalent. “Quite frankly, you don’t have one type of person or one type of family that fits the alternative mould,” Milburn explains. “Alternative lending was initially born out of the fact that people were changing the way they live and work, and their income models were changing but the banks’ credit policies were not. In the Australian market, Pepper really was the architect of the near prime product, which is now the fastest-growing sector of the non-conforming lending product cohort.” Now, other non-banks are selling that particular niche product, and THE
it continues to grow because, even now, the major banks are “unwilling to move their credit policies in line with how people live their lives today”, Milburn says. “Its growth is representative of the archaic policies that still persist with some of the major lenders in Australia. “We see it as our job to continually educate mortgage brokers not on what non-conforming lending
What COVID-19 has really shown us, Milburn argues, is that the lenders that are able to identify a customer’s need and then act quickly to assist them will prevail. “When we went through COVID, at the beginning, we reached out to every single one of our customers to see if they were in need of some help,” he explains. “The non-bank community really led the way in helping
“For a broker, the ideal situation is to offer prime, non-prime and specialist loans. It’s this versus giving a client one potentially unsuccessful opportunity with a major lender” is but on how important it is to position it as an option for your client, and to explain to them why they’re not likely to be financed by a major bank. And that doesn’t mean you’re not a good citizen or not as good as someone else – it just means your application comes with a different structure.” Of course, the growth and trajectory of this particular product was gaining momentum long before the pandemic arrived on our shores to well and truly shake things up.
those customers, and really quickly. I was really proud that at Pepper we repatriated 90% of our sales team to move into customer service roles, to ensure that everyone was coping OK. We made a commitment that we would not look to originate a new loan until every single family we had lent to in the past was already looked after.” This customer-oriented, servicefirst approach was a philosophy that Pepper CEO Mario Rehayem was so passionate about that he
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In partnership with
Aaron Milburn, general manager mortgages and commercial lending, Pepper Money
and his entire executive team stepped into the trenches to personally speak to customers and see what solutions they could offer, and what needs they could assist them with. “Mario was doing hardship assistance calls; I was doing them – he expected his entire executive team to do it, and it was a magical representation of understanding that the customer comes first, and putting their needs first is at the heart of what we do,” Milburn says.
“Without brokers, we wouldn’t have the amazing business that we have today, so we take very seriously every single family that is introduced to us” “At the same time, we were also the first lender to protect trail commission for brokers. We knew they were helping their customers
but they had families at home too, and were running their own businesses. We forced the more traditional views of the banks
to follow suit so brokers could get on with the job of helping customers without worrying about their own income.” This approach demonstrates how seriously Pepper takes the position of trust it is in when referred a client by a broker. Milburn estimates that over 90% of Pepper’s business inflow comes from brokers, which is why the non-bank is not just committed to the broker channel: “We are the broker channel!” he says. www.brokernews.com.au
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“Our job is to make sure that when brokers trust us with their customers, we’re not just there at the front end when they first get the loan; we’re there for them throughout their full journey with Pepper,” he explains. “That’s not just a throwaway statement; it’s a very serious commitment. Without brokers, we wouldn’t have the amazing business that we have today, so we take very seriously every single family that is introduced to us.” On that note, when a broker does consider introducing a new customer to Pepper, how can they work out whether this client fits the profile of a typical alternative borrower today? It’s simple: they can’t, Milburn says. And that’s because alternative borrowers are “just normal people”. “They’re actually no different
worked in the private sector for a decade with the same company, and then you leave to become a contractor. They’re often contracting back to the same company that they worked for and have a secure income stream, but that new contracting arrangement often won’t fit with a major bank.” He adds that another huge misconception about alternative lending is that non-conforming loans are about poor credit. “The majority of our loan book is completely clean credit – it’s just a changing landscape. Another example here might be someone who works part-time and does the odd job here and there to supplement their income. The gig economy is an area we’re very big in, and I think that’s only going to continue to grow,” he says. “The world has completely
“With the introduction of the best interests duty, alternative lending is only going to become more important ... The very essence of BID is doing the right thing by a client” post-COVID or pre-COVID. You can be a prime customer at a major bank today, and they could change their policy slightly and tomorrow you no longer fit the mould,” he says. “We have a saying at Pepper: ‘Prime is a moment in time’. That’s it. It’s only governed by the appetite of the major banks of Australia at that particular moment, and that appetite can change swiftly.” Among the growing list of borrowers that Pepper works with are people who are self-employed, and some of these customers don’t have the income verification documents that a major bank would like to see, in the format it would expect, Milburn says. “We have different ways of verifying income that are not so restrictive, and we’re really passionate about assisting selfemployed borrowers to access credit,” Milburn says. “For instance, it could be the case that you’ve worked in the IT space for many years, you’ve 16
changed, but some of the lending practices in Australia are pretty archaic, and they haven’t moved with the times. And they’re going to have to, or there will be large swathes of people who are not going to realise the dream of homeownership, unless they use non-banks like Pepper. Our research shows that if people are knocked back for a loan, it can take them three to five years to work up the confidence to apply again.” It can be something as simple as a life event, such as an illness or divorce, that has knocked them off their feet, and now no mainstream lender is willing or able to help them. “My ask of brokers is to look at every single customer as if they’re a friend or family member. Then I want them to consider the benefits to their job as a broker of having in their arsenal a lender like Pepper, so that those customers who are not fitting the traditional mould have still got an option to get finance,” Milburn says. After all, if a borrower is not
getting the loan from you, they’ll get it elsewhere. “My team are the highest-rated BDM team in the market, and they continue to be year after year because they’re really passionate about helping brokers help families. If brokers want specific education, we’ll tailor whatever we can to do that. We also have free social media and marketing resources, so all you need to do is reach out and our team will be there to support you,” he says. “With the introduction of the best interests duty, alternative lending is only going to become more important. As a broker, you can’t afford to just offer prime lending. The very essence of BID is doing the right thing by a client, and if you only deal with the major banks and you don’t deal with companies like Pepper, you can’t do that. You need
all available solutions in your arsenal. That’s a fact.” While the days of brokers harbouring an overall negative view of alternative lending or non-bank lenders are largely behind us, Milburn does believe that there is huge value in borrowers being reminded of all of the options available to them. “For a broker, the ideal situation is to offer prime, non-prime and specialist loans. It’s this versus giving a client one potentially unsuccessful opportunity with a major lender, which has a changing credit policy that increasingly suits fewer borrowers,” Milburn says. “That’s why we’re seeing more and more brokers come to us, because why would you want just one opportunity to help a family get into a home when we can offer three opportunities?” AB
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PEOPLE
Have an interesting deal? Had a particularly difficult or interesting deal? Why not share it with us? Email:
antony.field@keymedia.com
BIG DEAL When broker Vishal Gupta was approached by a long-term client who wanted to expand their investment portfolio, he was confident he could help. Then the finer details of the deal – which included a fire-damaged property and granny flats – came to light THE FACTS
Client Self-employed individual
Loan size $1.3m
Goal To complete the purchase of an investment property in a complicated auction deal
Lender ANZ
Aggregator FAST
such as whether the current granny flat approval was still relevant, and whether acquiring an Occupation Certificate for a fire-damaged property would be possible.
THE SCENARIO
Initially we were approached by an existing long-term client who wanted to expand their investment portfolio. We had helped them finance their investment property purchases in the past, so we were confident we could assist them with their next step up the property ladder. In this case the client had bought a property at auction. We were told on the day of the auction that they were bidding on a property that was quite unusual. Firstly, it came with three income sources – the main house and two granny flats, which each generated a rental return. However, the main dwelling had extensive fire damage, which required substantial repair and meant the rental income would be reduced. Furthermore, the two granny flats were rented out, but they were in poor condition. The extensive damage to the main house presented a unique challenge in that the home was uninsurable. We were advised that after the renovation work on the whole property, including the two granny flats, the combined property would be able to return a yield of more than 15%, which, based on the $1.3m purchase price, would amount to $3,750 per week in rental income. However, the damaged condition of the property meant that the client could not obtain adequate insurance. Without insurance, lending would be impossible as no lender would be able to take the property as security. As the client only discovered the property and became interested in it on the actual auction day, they were unable to confirm other details with the local council,
Location Western Sydney
THE SOLUTION
This was quite a complicated deal with many different aspects to consider, so we consulted with the client’s lawyer and came
passed in, our client and the vendor agreed to proceed with the sale with a number of conditions, including delayed settlement for three months, the right of our client to access the property prior to settlement to complete the renovation work, and permission to liaise with the authorities (such as fire engineers, council certifiers and builders) on behalf of the vendor. By structuring the deal in this way, getting building insurance was achievable as the delayed settlement made it possible for the property to be fully renovated and receive occupational certification prior to our client officially taking ownership. The risk with this type of arrangement was that the client could have invested money in repairs and renovations and then been unable to secure finance. This made this arrangement low-risk for the vendor but higher-risk for our client. However, as our client was confident they could see the real value of the property, they were happy to proceed. The big advantage was that after the renovation the valuation came in $300,000 higher than the original purchase price, which made securing finance far easier. With the above strategy we were able to get the property renovated and updated to
The damaged condition of the property meant that the client could not obtain adequate insurance. Without insurance, lending would be impossible up with a few workable options to ensure funding could be achieved. The options we presented were to: • delay settlement for three months • obtain a permit from the vendor to allow workers to finish the renovation and ensure that the property was compliant and could be issued with an Occupation Certificate prior to settlement of the purchase
Vishal Gupta Principal broker, Unique Finance Services
The vendor ultimately agreed with these conditions and the sale was able to proceed. The property was purchased under auction conditions in section 66W, without the cooling-off period, after the auction had been passed in. Although our client had made the highest bid, the vendor chose not to sell at the auction. On the same day that the auction was
code requirements well before settlement, which allowed us to secure finance for our client with a traditional bank. THE TAKEAWAYS
Thinking outside the box is crucial when looking for lending solutions. As a broker, we are the client’s trusted ally, so we cannot be afraid of speaking to other associates and service providers of the client to gain an in-depth understanding of their situation, and their rights and responsibilities, when the scenario is challenging. We should also never hold back on negotiating in the client’s best interest when things seem impossible. It’s always worth being honest and speaking to your BDMs about any tricky scenario you may have, as solutions may present themselves in ways you haven’t considered. AB www.brokernews.com.au
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NE WS ANALYSIS
LENDING REFORMS A STEP IN THE RIGHT DIRECTION
Brokers who think they’ve been busy in 2020 dealing with the aftermath of the COVID-19-induced economic crisis are in for an even busier run next year. At least that’s the prediction, after the federal government announced its plan to increase the flow of credit to households and businesses
loosening of the ever-tighter loan restrictions introduced following the royal commission is expected to take place in the first quarter of 2021. Describing it as a move that will stimulate the industry and the economy at large, FBAA managing director Peter White believes it will be welcome news for the many borrowers who can afford mortgages but have been locked out of the housing market due to overly restrictive criteria. “Anything that puts the accountability back onto the borrower is just common sense,” he said of the planned lending reforms, which are set to make borrowers more accountable for their own funding decisions. The current situation, which makes banks accountable for information provided by a borrower, has resulted in overzealous investigations as banks try to mitigate the borrower’s wrongdoing. “It’s become an exercise by lenders to pass judgment on a borrower’s discretionary spending, which isn’t the role of a lender,” White said. “All a lender should care about is the capacity of the borrower to service the loan, and they already have many criteria on which to base that. This won’t change. The government has also announced changes to better protect vulnerable consumers, and the industry supports this.” The reforms should have a positive impact on the housing market and drive consumer confidence up, said Adrian Kelly, president of the Real Estate Institute of Australia, as the cost and time for consumers and businesses to access credit will be reduced as lending moves away from the ‘one size fits all’ system. They will THE
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also provide some reassurance for those who have held off on listing their properties due the current recession. Kelly said the government’s move would “allow sellers to list their properties knowing the buyers will be out there”, which would put a floor under demand. “By improving demand, the government is giving prices less chance to fall, meaning the doomsday forecasts can be archived,” he said. “This is a good signal, even for people in Melbourne. They will know that the current restrictions are not permanent, and this policy change flags better circumstances for sellers and buyers.” Denita Wawn, CEO of Master Builders Australia, is hopeful that winding back regulation “to a more reasonable position that allows the market more flexibility to approve housing finance” will see the banks reconsider their LVRs to help borrowers overcome the deposit gap. “We expect that loan applications for borrowers should also become less cumbersome … and it should help streamline the processing of HomeBuilder applications on top of pre-approval processes, which have been adopted in some states,” she said. “Access to finance, land titling and planning approvals can substantially delay building of new homes, and measures are needed to remove these impediments and speed up processing of HomeBuilder applications. While the announcement should open up access to mortgage finance, we now need state and territory governments to activate their option under the agreement with the federal government to extend the HomeBuilder construction deadline
Adrian Kelly, president, Real Estate Industry Association
“By improving demand, the government is giving prices less chance to fall, meaning the doomsday forecasts can be archived” Adrian Kelly, president, Real Estate Industry Association from three to six months, as has already occurred in Victoria.” Meanwhile, Customer Owned Banking Association CEO Michael Lawrence said he was looking forward to seeing the detail of the government’s proposal, and he agreed that simplifying complex regulation would be a step in the right direction. “The government is right to take decisive action to promote lending at a time of great uncertainty and the biggest peacetime economic
contraction since the 1930s,” he said. “This environment requires policymakers and all stakeholders to bring a new lens to all regulatory settings. There are multiple layers of regulation applying to lending, so simplifying these regulations while maintaining strong consumer protection, particularly for vulnerable consumers, is very welcome. Overall, this is good news for borrowers and lenders, as applying for a loan will be a simpler process.” AB
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OPINION
CONSUMERS PUTTING NEW FOCUS ON CREDIT REPAIR Victoria Coster, founder and CEO of national credit repair company Credit FIX Solutions and author of From Zero to CEO, says consumers are increasingly seeking advice on credit repair when shopping for better interest rates or looking to increase their financial security
the desire to repair credit was put aside by consumers in January as Australians battled bushfires, it has returned. Now more than ever, consumers are focusing their attention on how to secure a record interest rate – and having strong credit is one of the most effective ways to do this. It is now harder to get first-tier lender approvals if you have even the tiniest blemish on a credit report, which means we are now seeing new types of enquiries. Previously, Credit FIX Solutions’ core credit repair enquiries were for complex credit reports that needed a lot of work and primarily came from brokers, due to the B2B model we created six years ago. But times have changed, and consumers are coming directly to us with small telco defaults in an attempt to clear their credit records and get the best rates they can from the majors. We have seen a dramatic increase in the number of consumer-facing queries in the third quarter of 2020. In particular, we have seen a rise in activity in Victoria and Queensland. In 2019, Credit FIX Solutions assigned business development managers to markets outside of NSW, and our BDMs now operate in Victoria, Queensland and WA, which may have contributed to the increase in consumer-facing enquiries. However, COVID-19 has also been a key contributor to the number of consumers seeking finance. In particular, the federal government’s HomeBuilder scheme, announced on 4 June (offering grants of $25,000 to build a new home, substantially renovate an existing home or a purchase a new/off-the-plan home), has led to a rise in finance applications and interest in credit repair. The latest ABS figures for Lending to Households confirm the level of interest in borrowing, with the largest monthly increase in lending commitments in the history of the series. The seasonally
adjusted value of new loan commitments for owner-occupier housing rose by 10.7% in July and 18.5% year-on-year. While there is strong desire among homeowners and first home buyers to take advantage of the government incentives around construction and renovations, COVID-19 has also seen consumers keen to repair their credit primarily due to panic and fear. Many are planning to refinance due to uncertainty about their employment future. “Am I going to keep my job? What will my situation be next year?” are questions that consumers are asking.
ALTHOUGH
a big focus for Credit FIX Solutions, especially since the onset of COVID-19. We are seeing a lot more enquiries from younger consumers, many of whom want to get personal loans to improve their financial security because they are in an industry affected by COVID-19. In all cases, we are encouraging them to use an accredited finance broker before applying. Younger consumers are seeking personal loans because they are on JobKeeper or JobSeeker, and we play a role in educating them on how to improve their credit rating because we cannot remove their behaviour.
Most people don’t realise that they are destroying their credit reports by using services like ZipPay and AfterPay, which make them look desperate and high-risk
Victoria Coster Founder and CEO, Credit FIX Solutions
Many of our enquiries are now from people seeking personal loans to ensure they keep afloat, and ABS figures for July saw personal fixed-term loan commitments increase for the third straight month. Previously, we saw little or no urgency in regard to personal loan repair enquiries, as people were largely making impulse purchases and often decided against the cost of outsourcing the credit repair, choosing to do it themselves or not at all. We have seen a number of changes to the behaviour of consumers since the big four banks and other lenders started fully implementing comprehensive credit reporting (CCR) 12 months ago. Consumers are asking us to reduce the number of enquiries in their credit reports to a more acceptable level in response to the first-tier lenders tightening restrictions on the number of finance enquiries. Again, a year ago this wasn’t happening. Education of consumers has also become
We are finding more and more that many consumers have poor credit because they are using ZipPay and AfterPay. Most people don’t realise that they are destroying their credit reports by using these types of services, which make consumers look desperate and high-risk to the banks. In fact, we have had so many enquiries that we produced an e-book on CCR for consumers to download. We anticipate that these types of enquiries will continue to increase due to the changes taking place in regard to JobKeeper and JobSeeker, and as economic uncertainty due to COVID-19 continues. We now call on the government to not only to overhaul lending as recently announced but make amendments to CCR and remove repayment history information data. This will be a win for consumers, lenders and brokers who are currently drowning in unnecessarily strict regulation. AB www.brokernews.com.au
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BUSINESS VIE W
THE KEY TO FUTURE SUCCESS FOR BROKERS Business lending is not the same as mortgage lending; it can be more nuanced, with flexibility, speed and loan terms often more important than interest rates. But for brokers who identify the many opportunities there are to service clients in this market, the potential for business growth abounds
the topic of diversification comes up for brokers, there are a number of ways they can choose to go, with options like alternative lending, specialist loans and non-conforming borrowing immediately springing to mind. But Peter Vala, general manager, partnerships and distribution at Thinktank, says these approaches are just scratching the surface. He suggests there are a number of other key areas in which brokers can create significant diversification opportunities – and that now is the ideal time to look at offering these services. “The first opportunity is within the commercial property market, where the challenges of COVID-19 have highlighted the need for business owners and investors to be able to more easily and effectively refinance, purchase and release equity,” Vala says. “The second is in cash flow funding solutions, which is again a major priority, particularly during difficult and uncertain economic times. These can range from fintech or major bank unsecured facilities through to debtor finance solutions. “Finally, asset finance is a clear go-to area, with most people in business having vehicles and/or equipment under finance and regularly replacing or upgrading them.” WHEN
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Diversifying into these different sectors or markets not only helps brokers assist their clients with a broader base of solutions but also enables them to “future-proof ” their own businesses to ensure they remain sustainable and thriving, regardless of market forces or economic conditions. “The best-case scenario for a business owner is to generate an income from a number of clients
sources and serves to deepen the client relationship.” Cory Bannister, chief lending officer at La Trobe Financial, agrees that with the unexpected events of 2020 there’s no time like the present for brokers to be seriously evaluating what drives their businesses, with a view to adding more opportunities to assist clients as they rebuild in 2021 and beyond.
“Diversification is a great way to future-proof your business as it also broadens referral sources and serves to deepen the client relationship” Peter Vala, general manager, partnerships and distribution, Thinktank or debtors, rather than be reliant on one major client and risk losing that client or suffering issues with non-payment. It’s no different for a broker,” Vala says. “Do you want to be exposed to one source of income or channel, for example the residential property sector? Or would you like to supplement this income from a number of other sources, such as equipment finance or commercial property lending? Diversification is a great way to future-proof your business as it also broadens referral
“Like any sound investment strategy, for a business to succeed over the long term it’s important to diversify and offer a range of products and services that meet different market opportunities and respond to different economic conditions and trends. The recent transformation taking place across the financial services sector is likely to continue, particularly in finance broking, and by adopting a more holistic proposition, many ‘mortgage’ brokers have now become ‘finance’ brokers.
“We believe this shift will result in a ‘diversify or die’ outcome for many, similar to the impact of supermarkets on high-street butchers and grocers as consumers look for the convenience of a onestop shop,” Bannister explains. “The most obvious benefits of diversification exist around attracting and retaining clients, with the end result being increased revenue and improved business value, but the understated and potentially most important benefit is revenue protection.” Of course, it makes sense that when you offer a range of different finance options you have the potential to drive more lending business in a number of different ways, Bannister says. Some brokers have been resistant to the idea of diversifying as they prefer to specialise in one area – namely residential – and build expertise in that specific space. But while this may have its benefits, he warns that with the challenges of the pandemic-induced economic downturn, all brokers should be looking for opportunities to ensure their businesses remain viable. “We believe there are a couple of services that will be in high demand; however, they will be met with limited supply by the major lenders, resulting in more borrowers looking for the experience and guidance of a trusted adviser such as a
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Peter Vala, general manager, partnerships and distribution, Thinktank
finance broker,” Bannister says. “These are near-prime ‘specialist’ loans. With the next six months presenting financial challenges for many people, we anticipate a further increase in demand for specialist lenders. It is unlikely that major banks will reverse their long-term ‘simplification’ trend that has seen them focus on ‘vanilla’ home loan borrowers and lay off thousands of staff. Clients that have been directly or indirectly impacted by the COVID-19 pandemic will need to seek the support of a specialist lender who will take the time to fully understand their unique position and provide an appropriate tailored solution to meet their objectives and requirements.” The other major opportunity is bridging loans, which assist borrowers in meeting immediate finance needs with short-term funding. “There are three trends at a
macro level to support borrower demand for this product: an ageing population driving downsizers; upgraders looking to capitalise on buying opportunities but being met with limited supply; and borrowers
Cory Bannister, chief lending officer, La Trobe Financial
lending to SMEs has seen strong growth in recent years, meaning brokers could be missing out on huge opportunities to drive business in this space if they choose not to diversify their offerings.
“The most obvious benefits of diversification exist around attracting and retaining clients, with the end result being increased revenue and improved business value” Cory Bannister, chief lending officer, La Trobe Financial looking to build,” Bannister says. This is just one of the more creative ways that brokers can seek to meet the needs of the business community. Tas Tzimos, head of sales at Moula, says business
“In just three and a half years to September 2019, the value of commercial loans settled by mortgage brokers through aggregators in Australia almost doubled, reaching a record high of
$43.1bn. The increase in brokers writing commercial lending suggests that in a challenging home loan market more brokers are diversifying into this sector, expanding their portfolio beyond just residential home loans into a faster-growing sector,” Tzimos says. “Furthermore, there are over two million SMEs in Australia that will need business finance at some point in the future. For brokers specialising in mortgage lending, a significant percentage of their clients will have a need for business finance. At the same time, more people are looking for a single source to meet all their finance needs, which creates an opportunity for brokers to broaden their services. “By diversifying and becoming multifaceted lending experts, brokers can build stronger relationships and make a more meaningful contribution throughout the customer’s journey. www.brokernews.com.au
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HOW TO TAKE THE NEXT STEP TO DIVERSIFY YOUR BROKER BUSINESS
“Brokers should look to partner with lenders that offer not only easy access to a variety of products designed for new entrants but can also provide hands-on assistance, both in terms of upfront training and ongoing support. La Trobe Financial has seven decades of deep experience with a loan underwriting team of 150 people – the largest of any non-bank in the country – standing ready to assist brokers with their diversification strategy. “For brokers who are not comfortable with exploring particular areas but recognise the need to provide these solutions for their clients, another option could be to partner with other financial service providers in your area. If you can find someone that you trust to cover the gaps in your offering, you can effectively establish a quasi-financial services network into which you can cross-refer.” Cory Bannister, chief lending officer, La Trobe Financial
“If you’ve been thinking about diversifying but aren’t sure where to start, I encourage you to contact your Liberty BDM. They can answer any questions you might have and provide advice tailored to your individual business goals. Remember, we’re here to support you through the process – you don’t have to figure it out on your own. “At Liberty, we know how important it is to have the right support, especially when you’re trialling something new. We work closely with business partners to help them take those first steps towards diversification, and it’s our goal to make the process and seamless as possible.” John Mohnacheff, group sales manager, Liberty
“Brokers don’t have to look for new clients to diversify into business lending, as many of their existing clients will need business finance. It’s a matter of knowing customers and asking questions to determine if they have business lending needs. “If you’re a residential broker wanting to test the waters and start moving into commercial lending, we have a team of BDMs who are dedicated to helping you on your journey. Our online platform gives you all the tools you need to get started, and we also offer our broking partners the opportunity to submit light referrals as well as full applications.” Tas Tzimos, head of sales, Moula
“Make sure you partner with institutions that are willing to support and workshop transactions with you. This is critical in order for you to respond and adjust quickly to the needs of your customers. For this to happen you really need two to three dedicated RMs/BDMs that have the time to work with you openly and honestly about your transaction. Trust is an essential factor. “Finally, don’t put your eggs all in the one basket. It’s far better to have a spread of manageable business on the go at any one time rather than hanging your hat on that one big commercial deal that in the end didn’t come off, or that loan that took so long to settle that the return didn’t match the effort. Again, diversification can be a great way to both expand and protect your business.” Peter Vala, general manager, partnerships and distribution, Thinktank
Brokers who don’t offer business lending to clients who need it could see them go elsewhere and eventually switch their mortgage lending as well.” Tzimos adds that there aren’t any major risks to diversification, as clients won’t always qualify for lending but brokers can save time by knowing what the options are and what is the most suitable lending solution. “Any risks can be minimised 22
with effective support from the lender. Moula BDMs, for example, work closely with brokers to help them understand the business lending process and what it takes to maximise successful outcomes,” he says. John Mohnacheff, group sales manager at Liberty, suggests that as Australia adapts to a new way of working and the industry evolves at a rapid pace, then perhaps one of the greatest risks brokers face is
“Even brokers with the most loyal databases could lose customers to competitors who can do it all, so it’s important to explore the options that are available to you” John Mohnacheff, group sales manager, Liberty
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John Mohnacheff, group sales manager, Liberty
falling behind the competition. “For many borrowers, convenience is key, and being able to have all their lending needs met by one trusted adviser can be a powerful drawcard. Even brokers with the most loyal databases could lose customers to competitors who can do it all – so it’s important to explore the options that are available to you,” Mohnacheff says. “It’s certainly an interesting time to be a broker, and we’re currently seeing many brokers taking their businesses in exciting new directions. In recent months, there has been a significant shift in the needs of the Australian business community, and SMEs need our support now more than ever. At Liberty, we know how important it is for brokers to have the right support, especially when you’re trialling something new. We work closely with business partners to help them take those first steps
Tas Tzimos, head of sales, Moula
“By diversifying and becoming multifaceted lending experts, brokers can build stronger relationships and make a more meaningful contribution throughout the customer’s journey” Tas Tzimos, head of sales, Moula towards diversification, and it’s our goal to make the process as seamless as possible.” While it’s difficult to pinpoint exactly what the future of the industry will look like, Mohnacheff says one thing we do know is that it’s important for brokers to start taking steps to safeguard their businesses. “There is simply no better way
to do so than by establishing a strong and diverse customer offering. Liberty has long touted the benefits of diversification, and we’ve always supported our business partners to look beyond home loans and explore new ways to do more. Whether it’s moving into commercial, motor, SMSF, personal loans, business finance or all the above, diversification
can open your business up to a whole host of new opportunities,” he says. “Something we can be sure of is that the lending landscape will not return to the way it once was. If these past few months are a fair indication of what’s to come, we can expect to see an increased demand for flexibility and the need for a far more personalised approach. “More broadly, we are seeing an uptick in the number of customers needing the help of a more tailored lending solution, whether that’s for business or personal needs, so this is the perfect time for brokers to explore the benefits that specialist lending could bring. Customers are looking for more than just a mortgage broker, and ensuring you can provide a comprehensive suite of services will help you remain competitive in the years to come.” AB www.brokernews.com.au
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PEOPLE
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FROM THE FORUM
Top comments from trending stories on brokernews.com.au
CONNECTIVE EXEC: ABOLISHING RESPONSIBLE LENDING ‘COULD CHANGE NOTHING’ At the end of September, the government revealed its intention to simplify the current “overly prescriptive, complex and unnecessarily onerous” process of securing credit, to help stimulate the economic recovery of the country. While the industry has broadly welcomed the news, Connective executive director Mark Haron has drawn attention to some of primary – and potentially debilitating – issues he sees with the proposed reforms. “It’s all well and good for government and, to a certain extent, regulators to be bringing on these changes, but if AFCA, who seems to be the ultimate decision-maker on whether or not someone has done right or wrong by a consumer, does not take the same position as government, this all could change nothing,” Haron said. “If brokers and lenders know they’re going to be beholden to AFCA requirements which are different to the regulatory requirements, then lenders will continue to lend to that higher standard and brokers will make sure to adopt practices that keep them out of trouble with AFCA as well.” Many brokers seem to agree. Here’s what they had to say on our forum. “Hey Mark. Thank you for bringing some real logic and experience to the ‘responsible lending’ question. I don’t think experienced brokers will be acting any differently in looking after their clients. The banks, on the other hand, aided by the government, will try to push more onto consumers, making brokers more necessary than ever.” Tony H
“Well said, Mark. So many different pieces to this puzzle, and we are a long way away from unwinding the Uber Eats, Netflix and invasive expense examination. If only the branches acted in the same way!” Greg H
“The activities of mortgage brokers and lenders are not only regulated by the NCCP but are responsive to the ethical 24
guidelines implemented by credit licensees, aggregators and the providers of their professional indemnity insurance. The codes of practice of peak industry bodies such as the Australian Banking Association and the MFAA also provide a further layer of professional standards that are unlikely to be loosened given the obligation to always act in the best interests of borrowers. Both the legal and ethical behaviour of brokers and lenders is closely scrutinised by the Australian Financial Complaints Authority when investigating complaints, and that further layer of consumer protection is unlikely to be relaxed.” Ray W
“It makes you wonder what is the point of the backflip? Wasn’t this a by-product of the royal commission? If the changes have already been made as to how to assess applications, it’s just an announcement for the sake of making an announcement, to appear to be doing something.” Ian Z
“Many mortgage brokers interact with lenders through aggregators. Aggregators provide services to brokers, such as access to administrative support and information technology systems. They also operate as a single point of contact between large numbers of brokers and particular lenders. In this way, they also provide a service to lenders. Aggregators are currently remunerated by commissions paid by lenders, part of which is typically passed on to brokers. Under the proposed model, this form of remuneration should not continue. If brokers value the service provided to them by an aggregator, they should pay the aggregator a fee for that service. If lenders value the service provided to them by an aggregator, they, too, should pay the aggregator a fee for that service. The market should determine those fees. The Treasury-led working group should monitor the activities of aggregators under the new model.” Banker
www.brokernews.com.au
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PEOPLE
Do you have a question for our broker mentors? Email your question to:
antony.field@keymedia.com
BROKER ON BROKER
Federal Treasurer Josh Frydenberg has said the principles that underpin responsible lending obligations are ‘no longer fit for purpose’, which risks ‘slowing our economic recovery’. Classic Finance director Nancy Youssef weighs in on what the loosening of loan regulations will mean for brokers
At the end of September, the Treasurer announced some changes to lending regulations that are set to take effect next March, with the aim of simplifying Australia’s credit framework and ensuring consumers and small businesses can get timely access to credit. What are your thoughts on these changes? Well, the rules and regulations A that were introduced after the royal commission have not only created a bottleneck in the finance industry but are also taking the enjoyment out of lending for brokers because of the amount of increased scrutiny, increased processing times and increased red tape. A lot of the time they’ve taken a fair bit of logic out of lending because we have to tick a number of arbitrary boxes that don’t always suit, as every customer is different.
Q
Do you think winding back some of the regulations is the right way to go, or should we stay the course we’re on now? I agree with responsible A lending regulations – we do need to be diligent and we need to stay compliant. No one wants complete deregulation. But there has to be a balance where we can apply logic and common sense. These laws were introduced to protect consumers and rightly so, because there have been some unscrupulous operators in the past. But whilst we do have a duty of care and an obligation to educate our
Q
customers, give the right advice and be impartial, I’d like to see some responsibility in the hands of borrower as well. What I’d also like to see is the same laws that apply to brokers applied to branch staff so there’s less channel conflict – that would create a level playing ground. How do you think the harsh lending restrictions imposed after the royal commission have caused the biggest or most negative impacts? The thing about having to go A through extreme scrutiny to get a loan approved is that it can actually force a decision to be made without looking at the borrower’s broader situation. This means we could be missing out on opportunities to help them grow their business, or to just keep a business in business. Without access to credit, some businesses can be completely paralysed. The fintechs and non-bank lenders have been able to fill the gaps somewhat because they’re more able to do nontraditional lending, but overall these increased processing and turnaround times make it quite challenging for brokers to be able to support businesses and borrowers.
Q
What about the financial cost for brokers when these bottlenecks push commissions back by weeks or even months? When you look at time versus A money, the amount of time taken to write a loan for $50,000 can be the same for a $300,000 loan or a $1m loan. Yet the commission on a
Q
Nancy Youssef, director, Classic Finance
“What I’d also like to see is the same laws that apply to brokers applied to branch staff so there’s less channel conflict [and] a level playing ground” smaller loan becomes unprofitable when you factor in how much time you spend on the file. As a result, how many small businesses that could be great businesses are being impacted because a broker is saying, “That loan is too small for us” as it’s not profitable to write the loan? This
only pushes them to make less educated financial decisions. And it prompts brokers to throw up their hands, saying, “This is all too hard, I can’t make a profit any more.” We want to keep brokers in business and keep this industry growing, not the other way around! AB
PITSTOP MENTORING Are you new to the industry, or simply keen to learn from experienced brokers who have words of wisdom to share? This is your opportunity for pitstop mentoring! If you have a question you’d like a senior broker to answer, contact us and look out for an expert answer in a future issue.
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DATA
QUEENSLAND
SA SPOTLIGHT
Mixed reactions to state’s decision not to extend the moratorium on evicting tenants The state government’s decision to stick with the original deadline of the eviction moratorium for residential tenants has drawn mixed reactions from different groups. In support of lifting the moratorium, Housing Minister Mick de Brenni said Queensland’s economy was faring better than that of other states. “Because of our strong health response ... we’ve already started delivering Queensland’s plan for economic recovery,” he said. However, Penny Carr, CEO of Tenants Queensland, said the decision went against what other states were doing to protect residential renters. “We are aware of a range of household types [who] have been waiting anxiously for an announcement of an extension on the moratorium. Now they’ll be contemplating an anxious and grim lead-up to Christmas as they await eviction action,” she said. While the local tenants’ group in Queensland expressed concerns about the decision, the Real Estate Institute of WA commended the move. Area
Median
Quarterly
12-month
Weekly
Gross
price
growth
growth
median
rental
Metro (H)
$535,000
0.0%
rent
yield
0.9%
$410
3.9%
Metro (U)
$375,000
0.0%
1.3%
$380
5.1%
Country (H)
$435,000
-0.4%
0.9%
$395
4.6%
Country (U)
$370,000
0.3%
1.6%
$350
4.8%
TASMANIA
Selling and buying activity has begun to strengthen in Hobart’s housing market Mark Davies, residential valuations manager at Herron Todd White, said that while there was some hesitation from sellers in the early days of the pandemic due to economic uncertainty, investor activity in Hobart quickly rebounded. “Conversations with local selling agents have indicated levels of enquiry from prospective sellers is on the increase, with multiple buyers chomping at the bit trying to get into the investment market, primarily due to the low interest rate environment,” he said. Davies said dwellings in the sub-$600,000 price bracket within 15km of the CBD remained ideal investments, given their high average returns of around 5%. On the other hand, demand was still low for homes with a $1.5m price tag. “Border restrictions are allowing locals some long-awaited breathing space when making offers on properties. Multiple offers on well-priced properties are still being experienced,” he said. “All in all, the Hobart market remains stable, with no real evidence of the market falling below pre-COVID-19 times.” Area
Median
Quarterly
12-month
Weekly
Gross
price
growth
growth
median
rental
rent
yield
Metro (H)
$506,850
1.0%
7.9%
$450
4.6%
Metro (U)
$370,000
0.0%
6.4%
$395
5.1%
Country (H)
$340,000
1.5%
9.8%
$320
5.0%
Country (U)
$275,000
1.9%
2.6%
$270
5.1%
26
TOP SPOT FOR DETACHED HOMES? In spite of the pandemic, buyer search activity for houses in Adelaide is almost 40% higher than it was last year other highly in-demand areas are within close proximity to the city centre, including NorwoodPayneham St Peters, Prospect-Walkerville and Unley,” she said.
there is one place in Australia where home hunters are more likely to buy houses than units, it’s Adelaide, according to a study by Domain. The study found that demand for houses increased by 31.2% over the four weeks to 6 September. On a weekly basis, demand for houses rose by 5.5%, the steepest weekly gain recorded among all capitals. “While this will reflect the property landscape, it also reveals the owner-occupier nature of the South Australian housing market and the preference for houses,” said Nicola Powell, senior research analyst at Domain. Despite the dampening activity due to the impacts of the COVID-19 outbreak, Powell said demand had actually remained elevated compared to last year. In fact, search activity for houses is 38.1% higher than last year. “Adelaide was one of only two capitals to have the city centre as its most in-demand area. The IF
Strong value gains According to CoreLogic, Adelaide reported the second-highest monthly gain in prices in September, with growth of 0.8% in its median dwelling price. Katherine Skinner from the Real Estate Buyers Agents Association, said the increase in house prices could result in a surge in listings. “In Adelaide we’ve not seen any true downturn in the market, and in many pockets there has been a spike in prices due to extremely low stock levels and demand over the past few months,” she said. “We’re warning buyers to be diligent and to educate themselves fully on the market they’re looking to buy in as the market is expected to move quickly.”
ADELAIDE’S HOUSING MARKET INDICATORS – SEPTEMBER 2020 Source: CoreLogic
Detached homes
$486,943
7.5%
4.2%
Median value
Total return
Gross yield
Units
$332,287
9.3%
5.3%
Median value
Total return
Gross yield
SUBURB TO WATCH: GLENELG Median price (houses) $916,000
Median price (units) $427,500
12-month growth
5-year growth
Gross rental yield
Weekly advertised rent
-6%
13%
3%
$540
12-month growth
Average annual growth
Gross rental yield
Weekly advertised rent
-8%
6%
5%
$370
www.brokernews.com.au
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AUSTRALIAN CAPITAL TERRITORY
Demand for houses in Canberra remains stable despite the COVID-19 crisis According to a report from Domain, Canberra has been “particularly resilient” compared to other Australian capital cities in terms of housing demand. In fact, buyer demand in the city remained on an uptrend at the onset of the spring selling season. Over the first week of September, demand for detached houses increased by 4.9%. However, demand for units moderated by 1%. Nicola Powell, senior research analyst at Domain, said demand in Canberra had surpassed levels reached prior to the onset of the pandemic. “Activity from those likely to buy is now 22.4% and 21.6% higher than the same time last year, and has been accelerating annually by double digits since early May,” she said. Some of city locations that continue to have high demand for houses include the suburbs of Western Creek, Gungahlin, Inner South and Inner North. Area
Median
Quarterly
12-month
Weekly
Gross
price
growth
growth
median
rental
rent
yield
Metro (H)
$700,250
0.4%
3.3%
$570
4.3%
Metro (U)
$445,000
0.5%
2.3%
$470
5.6%
WESTERN AUSTRALIA
Perth surprises with a boost in listings as sellers start to test the housing market
HIGHEST-YIELD SUBURBS IN SOUTH AUSTRALIA Suburb
Property type
Median price
Gross rental yield
Quarterly growth
12-month growth
Average annual growth
PETERBOROUGH
H
$64,000
14%
-6%
-12%
-3.8%
PORT PIRIE WEST
H
$108,500
10%
6%
8%
-2.7%
BORDERTOWN
H
$145,000
9%
-13%
-12%
-1.3%
ELIZABETH NORTH
H
$160,000
8%
2%
-10%
-0.9%
PORT AUGUSTA WEST
H
$175,000
8%
-20%
-40%
-1.5%
SMITHFIELD PLAINS
H
$177,000
8%
-1%
-9%
-1.2%
JAMESTOWN
H
$151,500
8%
-12%
-24%
-1.5%
ELIZABETH SOUTH
H
$167,500
8%
-2%
-2%
-0.5%
BERRI
H
$175,000
8%
-5%
-15%
1.1%
KEITH
H
$135,000
8%
13%
21%
3.7%
Perth was the unexpected standout performer in the third week of September, second only to Sydney with its increase in new listings. “Perth and regional Western Australia were the only dwelling markets where new listings volumes exceeded the numbers in the equivalent four-week period of the previous years,” said Eliza Owen, head of residential research at CoreLogic. Sales activity in Perth is also showing signs of life. Perth is the only capital city that has recorded a six-month average sales volume that is above the pre-COVID-19 average. Not only does the increasing activity show confidence in the Perth market, Owen said, but it is also supporting “mild” value gains across the city. In fact, Perth’s home value index increased by 0.6% in the 28 days to 23 September. While these developments might be surprising during a recession, Owen said there were factors that could explain them, one being the increase in mining investment that has supported the state. The stability of its job market and its relative housing affordability were other factors. Area
Median
Quarterly
12-month
Weekly
Gross
price
growth
growth
median
rental
rent
yield 3.9%
Metro (H)
$465,000
0.0%
-2.1%
$360
Metro (U)
$340,000
-1.1%
-2.9%
$330
4.7%
Country (H)
$330,000
1.0%
0.0%
$350
5.5%
Country (U)
$170,000
-2.5%
-11.4%
$300
8.0%
www.brokernews.com.au
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DATA
NORTHERN TERRITORY
Darwin’s housing market has managed to improve during the pandemic A report from Domain shows that Darwin’s housing market clocked its fifth consecutive week of rising demand during the first week of September. Over the month to September, demand increased by 43.7% for houses and 29.1% for units – the highest level of demand since October 2017. Some of the most popular locations for houses and units are Litchfield, Palmerston and Darwin City suburbs. The strong demand for homes in Darwin could be supporting the growth in prices. In fact, the city reported the highest monthly growth of all capital cities, with prices increasing 1.6% in September, according to CoreLogic. Jeremy Callan, a property valuer at Herron Todd White, said Darwin’s housing market had been showing steady growth this year. “While we are not yet seeing dramatic rises across the market at this stage, typically speaking the first signs of a recovery are the rise in transaction numbers. COVID-19 appears to have had little effect on the Darwin market, and the days on market are dropping dramatically,” Callan said. Median
Quarterly
12-month
Weekly
Gross
price
growth
growth
median
rental
rent
yield
Metro (H)
$473,250
-0.3%
-5.1%
$450
5.0%
Metro (U)
$269,000
-5.0%
-9.5%
$350
6.4%
Country (H)
$387,500
-0.2%
-1.4%
$480
6.1%
Country (U)
$328,500
3.0%
0.3%
$364
6.1%
Total auctions
37
Cleared
18
Uncleared
11 62.1%
Clearance rate
PERTH Total auctions
19
Cleared
10
Uncleared
6 62.5%
Clearance rate
Median
Quarterly
12-month
Weekly
Gross
price
growth
growth
median
rental
rent
yield
Houses
Units
Sydney Melbourne Brisbane
Adelaide
Perth
Darwin
$485,500
$730,550
$499,500
$418,000
$548,000
Hobart
$277,000
$0
$375,750
$100,000
$459,500
$200,000
$348,750
$300,000
$446,600
$500,000 $400,000
$385,000
$700,000 $600,000
$520,000
$800,000
$520,000
$900,000
$650,000
The Victoria housing market will now be able to benefit from the HomeBuilder scheme after several weeks of lull due to the COVID-19 restrictions, experts say. The state government has finally allowed private inspections for purchase or leasing of properties, reopening the market to sellers and buyers. These inspections, however, will still follow an updated set of regulations. Under the new rules, only one agent and one client can be in a private property or display home inspection. The client, who can either be a buyer or tenant, can only be accompanied by one person from the same household. One of the biggest impacts of the lockdown was the limited take-up of the HomeBuilder scheme, said Fiona Nield, executive director for Victoria at the Housing Industry Association. The expected boost from the scheme failed to materialise in the state in August, as the overall sales activity for newly constructed dwellings declined by 14.4%. Nield said the reopening of the housing market was crucial to prevent any further risks to the housing market.
Canberra
CAPITAL CITY HOME VALUE CHANGES Capital city
Weekly change
Monthly change
Year-to-date change
12-month change
Sydney
0.0%
-0.2%
1.4%
7.5%
Melbourne
-0.1%
-0.8%
-2.9%
2.9%
Brisbane
0.0%
0.5%
1.5%
3.8%
Adelaide
0.1%
0.7%
2.2%
3.7%
0.0%
0.3%
-0.9%
-0.9%
0.0%
-0.2%
0.0%
4.7%
Metro (H)
$720,000
0.7%
4.3%
$420
3.0%
Metro (U)
$576,000
0.9%
8.4%
$415
3.7%
Perth
Country (H)
$385,000
1.3%
6.4%
$345
4.7%
Combined 5 capitals
Country (U)
$308,000
1.4%
9.1%
$280
4.9%
28
ADELAIDE
MEDIAN HOUSE AND UNIT PRICES
The reopening of the housing market will allow for new take-up of HomeBuilder
Area
The combined capital city preliminary auction clearance rate came in below 70% in the week of 5 October, as volumes fell due to the long weekend. There were 657 homes taken to auction, down from 1,082 auctions held the week before. Of the 530 results collected so far, 69.3% were successful, only slightly lower than the previous week’s preliminary figure of 70.5%, which at final collection revised down to 64.2%. Over the same week last year, a final clearance rate of 67.6% was reported across a higher 1,324 auctions. Activity remains close to record lows in Melbourne, with 57 scheduled auctions – an increase on the 40 auctions held last week and just 11 auctions held the week before. This week’s preliminary clearance rate was 63.3%. One year ago, 775 Melbourne homes were auctioned, with 70.5% sold. As restrictions ease across the city, auction numbers are expected to rise substantially. Sydney accounted for 66% of all auction activity this week, with 435 auctions held. This time last year, Sydney’s final auction clearance rate was 74.75% across a lower base of 317 auctions.
$657,000
VICTORIA
WEEK ENDING 5 OCTOBER 2020
$815,000
Area
CAPITAL CITY AUCTION CLEARANCE RATES
*The monthly change is the change over the past 28 days
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BRISBANE CANBERRA Total auctions
41
Cleared
31
Uncleared
10
Total auctions
60
Cleared
20
Uncleared
21 48.8%
Clearance rate
75.6%
Clearance rate
SYDNEY Total auctions
435
Cleared
259
Uncleared
95 73.2%
Clearance rate
TASMANIA
MELBOURNE Total auctions
57
Total auctions
0
Cleared
31
Cleared
0
Uncleared
18
Uncleared
0
Clearance rate
Clearance rate
63.3%
NEW SOUTH WALES
Area
n.a.
Median
Quarterly
12-month
Weekly
Gross
price
growth
growth
median
rental
rent
yield
The Central Coast region is projected to record a rental market boom Andre Kubecka, principal at Brand Property, said a surge in demand for rentals in the Central Coast region was expected, while vacancies in Sydney’s CBD remain the highest in the country. “People from Sydney who have been working from home during the coronavirus now see living on the Central Coast as viable and much more affordable,” he said. Figures from SQM Research show that Sydney reported a 3.5% increase in vacancies in August, with the CBD reporting the highest vacancy rate at 12.9%. Louis Christopher, managing director at SQM Research, said this was the opposite of what was happening in most regional locations, where vacancy rates continue to shrink. “The shift towards regional living continues at pace, largely at the expense of higher inner-city rental vacancy rates. I suspect there will have to be a high point in this move soon. However, I also suspect there will be a degree of permanency with the massive population shift,” Christopher said.
Metro (H)
$930,000
1.1%
3.9%
$520
2.9%
Metro (U)
$720,000
0.7%
2.1%
$500
3.6%
Country (H)
$485,000
0.6%
4.3%
$400
4.3%
Country (U)
$420,000
0.5%
2.9%
$350
4.3%
Source: Except where otherwise stated, all data sourced from CoreLogic, September 2020
NICK YOUNG: TRAIL BOOK SALE EXPERT Sell your trail book in part, or in full. Release working capital. Keep your clients. 03 8508 6666 | 0417 392 132 | nyoung@trailhomes.com.au | trailhomes.com.au www.brokernews.com.au
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PEOPLE
IN THE HOT SEAT
A lover of food, Grace Munro began her working life with a seven-year stint at the Coles deli counter. She moved into finance two decades ago after a career in hospitality, and all paths have since led to her current role as a broker relationship manager at MyState Bank What was your very first job? Did you enter the finance industry right away? A Prior to my first role in the finance industry, I completed an Advanced Certificate in Hospitality at the Northern Metropolitan College of Tafe in Melbourne, which is where I developed a love for food and cooking. I worked in the hospitality industry for many years, including some time spent running the breakfast shift in a hotel restaurant, as well as working in the banqueting department at Crown Melbourne. Perhaps one thing many people don’t know about me is that I also worked at the Coles deli counter for more than seven years!
Q
How did you end up in your role today as broker relationship manager at MyState Bank? A My first role in finance was actually as a retail loan writer at a local branch of the Advantage Credit Union, approximately 21 years ago. Over the years, I have worn many different hats in the finance industry, including as credit assessor, senior lender and mobile lender manager, which has helped strengthen my qualifications, relationships and experience. I have always loved relationship building and business development – a crucial component of my current role at MyState Bank, which I have been in for the past three years.
Q
Grace Munro, broker relationship manager, MyState Bank
What has surprised you most during your career in finance? With a background in the retail space for so many years, it was a A pleasant surprise to work with brokers for the very first time. Like the brokers I work with day in and day out, I wear my heart on my sleeve and am always striving to do right by the end customer. At the end of the day, we all have our clients’ best interests at heart when it comes to achieving their financial goals, both big and small.
Q
is one thing you wish everyday borrowers knew about Q What brokers? The big thing I wish borrowers knew about brokers is how quickly we A can adapt to ever-changing policies and procedures, and even new environments. No one could have predicted what we have all experienced in 2020, but we have firmly demonstrated, as an industry, that we can still be available for our clients and do what we do best, albeit remotely. 30
If you could change anything about the broking industry, what would it be? What I would change is the perception some clients may have of A brokers. From time to time, I have heard from my clients that brokers must justify the way they are remunerated for the ongoing service they provide their clients. Together, BDMs and brokers work hard to get the best outcome possible for customers. We recognise that no two customers are the same, and oftentimes lateral thinking is needed to get a deal across the line, particularly if a client doesn’t fit perfectly within current lender appetites or policies.
Q
If you weren’t in your current role, what would your ideal career be? I’d probably be a chef – not only do I enjoy eating, but preparing a great A meal is my happy place. My favourite meals to cook are the traditional dishes my mum has taught me over the years. My love of food and enjoying quality time around the table whilst eating a hearty meal stems from the love and passion my mum has shown, and the smell and taste of particular dishes definitely evokes so many childhood memories. AB
Q
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12/10/2020 1:41:25 PM
CONGRATULATIONS TO THE 2020 WINNERS AND EXCELLENCE AWARDEES Despite an unprecedented year for the industry, mortgage professionals have continued to raise the bar in terms of service, innovation, professionalism and leadership. And nowhere is this more evident than in the 2020 Australian Mortgage Awards winners and excellence awardees. Australian Broker, MPA and publisher Key Media extend warm congratulations to them all. The winners and excellence awardees will be profiled in MPA Issue 20.12, out in November, which will take an in-depth look at their achievements.
For the full list of finalists or more information, visit australianmortgageawards.com.au
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