FIRST HOME BUYERS Strategies to get them on the ladder MPAMAGAZINE.COM.AU ISSUE 16.6
HPB SUMMIT Highlights from MPA’s new elite broker event WARREN SHAW Westpac’s new head of broker distribution
CONSUMERS ON BROKERS Our report on what your clients really think returns for 2016
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JUNE 2016
CONNECT WITH US
CONTENTS
Got a story or suggestion, or just want to find out some more information? twitter.com/MPA_Australia facebook.com/Mortgage ProfessionalAU
UPFRONT 04 Update
A look over specialist lending
CONSUMERS ON BROKERS
26
16
FEATURES
HIGHPERFORMANCE BUSINESS SUMMIT
Tips and advice from award-winning brokers at MPA’s first-ever summit
COVER STORY What consumers really think about commission, rate rises and after-settlement service
06 Head to head
The best way to initiate a refinance conversation
08 Statistics
Refinancing is overhauling investors as the driving force in the industry
10 Opinion
Broker recruiter Zak Wilford on why brokers should build their own brands
12 News Analysis
Further rate rises as banks are pushed to be ‘unquestionably strong’
MORTGAGE INSIDERS 56 James Chatfield
Western Australia’s top broker explains why he focuses on building wealth
THE BIG INTERVIEW
WARREN SHAW
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Westpac’s new broker chief on the banks’ appetites for the year ahead
38
FEATURES
FIRST HOME BUYERS
Products and strategies for getting FHBs on the housing ladder
46
62 Lisa Claes
Introducing electronic verification and more during a career of innovation
64 Robert Trewin
How tragedy drove the broking community to fight sudden unexplained death in childhood
BUSINESS STRATEGY 60 Productivity
Three steps to get more done by managing actions, inputs and outcomes
MPAMAGAZINE.COM.AU NOW ONLINE: FEATURES
Highlights from our Non-major Banks Roundtable
Why a wider range of products and policies are improving consumer choice
Top brokers and brokerages in Leading Mortgage Professionals
LOW DOC
Our free Business Education Webinar Series
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FEATURE / BROKER EDUCATION
EDITOR’S LETTER
MAKING IT WORTH YOUR WHILE
U
ltimately, every issue of MPA is about consumers – how you reach them, impress them, and offer them new products. With our Consumers on Brokers report, features on first home buyers and low-doc clients, and coverage of potential rate rises, this MPA goes even deeper into what consumers want from their broker. The answer – to simplify somewhat – is extra service before, during and after the loan. Top brokers in this industry have for several years been steadily increasing the amount of service they provide. Yet as lenders and regulators encourage brokers to put more time than ever into advising and supporting clients, brokers are faced with a difficult question: who will pay for those extra hours? Consider this scenario for instance: you spend several months advising a potential first home buyer as they accumulate a deposit. At the last minute they see a good deal at a bank and go inside, meaning you’ve put in multiple hours with no payback. Now most brokers would assume that the advice you
Brokers are faced with a difficult question: who will pay for those extra hours? put in keeps your client loyal to you, and this may be correct in most cases. Yet putting in that extra service, as brokers are being encouraged to do, remains to some extent a gamble. Currently, many brokers provide increased service by working extra hours, or assigning auxiliary service tasks to junior assistants. Both strategies carry risks for broker and client. That’s why I believe the question of fee-for-service cannot and indeed should not be avoided. In our Consumer on Brokers survey, 47% of respondents would pay for a brokers’ service. Not the majority, admittedly, but it’s a statistic certainly worth brokers’ consideration. There are other options for the remaining 53% of course. Some brokerages ask clients to commit to a package of free advice with a leaving fee. Alternately, sophisticated customer relationship management software can create a pipeline of clients for brokers in areas where the consultation to settlement lag time might be longer, such as first home buyers. Whatever approach you choose, it’s important that you value your time, just as you’d want your clients to see the value you’re adding. Don’t be afraid to put a dollar value on it.
www.mpamagazine.com.au JUNE 2O16 EDITORIAL Editor Sam Richardson Journalist Maya Breen Production Editors Roslyn Meredith Hayley Barnett Contributor Zak Wilford Dermot Crowley
ART & PRODUCTION Design Manager Daniel Williams Designers Loiza Caguiat Marla Morelos Traffic Coordinator Lou Gonzales
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Sam Richardson, editor, MPA
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UPFRONT
SPECIALIST LENDING NEWS BRIEFS Mortgage arrears hit 10-year lows Australian mortgage arrears have fallen to their lowest fourth quarter level in more than a decade, the Dinkum Index from Fitch Ratings has revealed. The Index tracks the performance of a large number of loans that have been bundled up and sold by lenders to other investors. “The level of arrears in the fourth quarter of 2015 reflected strong house price growth, low unemployment, low standard variable rates and low inflation,” the report stated, adding APRA’s tightened grip on lending by banks contributed to the low in mortgage arears.
New non-conforming product launched Homeloans Ltd has launched a new nearprime loan called Homeloans Envizion. Homeloans’ general manager national sales Ray Hair said Envizion is suited to both PAYG and self-employed borrowers/ business owners where their merits are taken into consideration more than their credit score. “With Envizion, we are offering a niche product that will benefit borrowers who may not meet standard credit-scoring models and those with loan purposes, such as cash out or debt consolidation,” said Hair.
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“Like many of the products we offer, it’s not a ‘one size fits all’ loan. We understand that everyone’s circumstances and needs are different. It’s why we have tailored this product for a common sense credit assessment approach, allowing for a flexible, responsive and simple lending solution.”
New products for aged and non-residents Specialist lender La Trobe Financial has launched two new loan products, one aimed at elderly Australians and the other at non-residents. The lender’s Aged Care Loan will help senior citizens transitioning into aged care facilities cover the Refundable Accommodation Deposit (RAD), which for some institutions can often exceed $500,000. The new product will lend up to 50% LVR against the borrower’s primary residence, lend above the RAD for property improvements and will allow interest accrual for part of the loan life. “This Aged Care Loan is a compelling financial product and one which helps to meet the needs of a rapidly growing ageing population,” La Trobe’s head of aged care products Martin Lynch said. The second product for non-residents is available for both full-doc and lite-doc verification on residential and commercial investments.
WHEN FINTECHS MET SPECIALIST LENDING It isn’t only the big banks investing in fintechs – Australian specialist lenders are also looking to support innovation Innovative pursuits are getting the support they need to thrive, as a number of specialist lenders have made significant investments in start-ups. Leading non-bank lender Pepper has invested US$1.25m in equity funding to US-based 1776, a global innovation network that fosters disruptive start-ups. Founded over three years ago, 1776 focuses on start-ups looking to disrupt areas such as education, energy and sustainability, healthcare, transportation and city planning. The non-bank’s investment will give it access to business opportunities generated by 1776’s start-up companies. “Through our investment in 1776, we are looking to support start-up businesses, and in turn, gain access to new and innovative ideas from a range of industries, not just financial services,” said Pepper’s Co Group
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CEO Mike Culhane. “The idea that the next ‘big thing’ in financial services will come only from another financial services player deserves to be challenged.” Pepper’s Co Group CEO Patrick Tuttle said Pepper was founded on innovation itself. “At Pepper, we embrace innovation and digital technologies. Our business was founded on the idea of satisfying an unmet need through innovation. In 2001, we realised mortgages did not have to come from banks or other traditional lenders. Pepper secured wholesale funding from Australian banks, applied our own proprietary credit assessment skills and offered home loans to a broad range of customers underserved by traditional lenders.” Liberty Network Services (LNS) is the branded distribution arm of mainstream specialty lender Liberty Financial, and recently formed a strategic referral partnership with online small business lender Moula. The partnership will help Liberty advisers fund more small businesses as they can refer any small business customer to Moula direct via an online portal. LNS managing director Brendan O’Donnell said small businesses struggling to secure short-term finance with the major banks would benefit while at the same time providing advisers with another way to diversify their services. “Lots of small businesses need short-term finance to help with things like cash flow, or buying new equipment – the market potential is huge. We’ve ensured that when our advisers talk to these businesses, they can provide them with a viable solution,” said O’Donnell. “At a time when more brokers are looking to diversify the services they sell to grow their businesses, this partnership is only going to strengthen our advisers’ position in the market. As LNS enables its advisers to offer more and more, we really are cementing our position as unique and differentiated by providing the full spectrum of credit.”
Q&A
SPECIALIST LENDING Mario Rehayem Director, sales and distribution PEPPER AUSTRALIA
Fast fact Pepper issued a $700m bond in March, the biggest funding deal within the sector in the past decade.
How is Pepper staying ahead of the competition as a specialist lender? Pepper is constantly challenging the status quo. We focus on three stakeholder segments with a true appreciation for a balanced approach instead of focusing on one customer segment to the detriment of the other. Our three stakeholder segments are: 1. Internal – We don’t have a siloed environment, we work together as one team 2. Distributor – Aggregators, brokers and white label partners, we have a brand agnostic approach 3. Borrower – We are customer-centric and respect the channel the customer chooses to deal with. Pepper also has a unique credit assessment model where one application has access to three different credit policies. This gives the broker/borrower confidence, as the probability that the deal will not progress is reduced dramatically. Pepper is also the only lender that offers a true prime product that has no affiliation to a mortgage insurer. We constantly evolve and respect the importance of our products, processes and our people. We keep our products real, simple and transparent. Pepper has the best turnaround times in the market during BAU and promotional periods, and Pepper prides itself on the calibre and culture of our people. This is an edge that continues to position Pepper ahead of the rest. Has the environment gotten tougher for specialist lenders? The environment for specialist lenders continues to improve due to an increase in broker awareness on what specialist lenders have to offer. The demand for specialist lender products is at an all-time high and is the most underserved market today. This segment will continue to grow as more brokers understand and embrace the opportunities available beyond the banks. Has international expansion helped Pepper learn lessons that can be applied to the third party channel in Australia? Pepper’s international expansion has presented reciprocal learnings across the group. Our Irish and UK businesses have leveraged from our Australian business experience predominantly around entering a market post-GFC with non-conforming loans, product development, and managing broker and industry perceptions on what is deemed compliant. The entire business has taken crucial learnings from Ireland. The key learnings are around stress-testing our businesses. If we were to endure a catastrophic economic event, we have the confidence that our businesses can cater to any headwinds that may arise in the future. Has the typical client of a specialist lender changed over the past 12 months? The overall client profile for Pepper over the past 12 months hasn’t really changed. The only noticeable change is that we are seeing more clients with clean credit seeking an alternative solution because the banks are knocking them back.
www.mpamagazine.com.au
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UPFRONT
HEAD TO HEAD
How do you initiate a refinance conversation?
Nerissa Moore
Gareth Robinson
Adam Forte
During my initial conversations with a new client, I review their long-term goals and position the concept of refinancing from day one. For some clients, this is simply to pay off their home loan faster by taking advantage of great deals on the market over time. For other clients, the goal is to build equity in their home with a view to embarking on a property investment journey. Generally, I initiate a refinance conversation as part of my annual client loan review. Where a refinance benefit is identified and equity is a consideration, I target a suitable lender and order a valuation first to determine if a refinance is viable. For other clients where equity is not a concern, I complete a product comparison showing them their projected savings over the loan term, as well as the reduced time it will take to pay off their loan if they were to refinance and continue repaying at the same level.
Cold call: Introduce yourself/company then the reason for your call. “You may have seen that there have been some incredible new discounts offered in the market. It’s a great time to make sure you aren’t overpaying for your mortgage so I’m calling to see if I/we could help you save money and time. I actually just saved a client in a similar position $X/ yr, so with that in mind, do you think it would be worth a few minutes of your time to see if I can achieve the same result for you?” In person: Focus on the client and ask a lot of questions about their goals. From there, it’s a simple matter of saving them as much as you can, then drawing the correlation between that saving and something they wanted in their life. People care less about numbers and more about wants – paint the picture for them showing what they could do with the savings, not just the savings themselves.
Communication is the key. Clients will engage brokers/banks to check their current repayments and ensure they are still on a competitive interest rate. If they aren’t, and their lender won’t come to the party, it’s at this stage I emphasise the benefits of my service and how I have the ability to speak to a panel of lenders to see if there’s a better deal out there. I always sit down with my client to discuss their goals and look at their current circumstances as a whole. Ideally, I would have already gathered some basic customer information before an appointment so I can do some research. Clients respond well to dollar figures and interest rates, hence knowing how much you could potentially be saving them by switching lenders is a great way to go! Ultimately, it’s important to crunch all the numbers to ensure that the client will be better off over the long term or that a new loan would better suit their specific requirements.
Director Fortune Finance
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Co-director Expert Finance Group
Franchisee Aussie Norwood
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STATISTICS
REFINANCING
PASSING THE BATON
REFINANCING IS ON THE WAY UP
Intend to transact in the next 12 months 80% Nov-14
Refinancing is overtaking investors as the driving force behind the market and putting brokers in the driving seat, according to the latest JP Morgan and DFA Mortgage Industry Report
70%
BANKS WILL need to turn their focus from investors to owner-occupied refinancers, claims a new report by JP Morgan and Digital Finance Analytics (DFA), released in March. Credit growth will continue to be “relatively strong” for the next 12-18 months, the report notes, as house price appreciation drives refinancing. “The major banks will need to capture the refinancing tailwind by targeting the right customers through the right channels,” explained JP Morgan banking analyst Scott Manning. The right channel being brokers, as approximately 75% of refinancers expect to use brokers. Brokers also have a role in initiating the
40%
refinancing process, the report found, and those banks that are prioritising brokers instead of branches will gain from the refinancing shift. “That’s acting as a potential business case for other banks,” noted Manning. “I think you’ll see a continuation of branch-reducing.” Whilst two-thirds of refinanced loans went to other lenders, these have generally been major banks. Responding to a question from MPA, DFA principal Martin North explained that the non-majors weren’t benefitting disproportionately. “I would have expected there’d be a greater flow, but it’s a relatively small amount,” said North. “There’s a lot of churn between majors and some to non-banks.”
Mar-15 Jul-15 Sep-15
60%
Nov-15 Feb-16
50%
30% 20% 10% 0% First timers
WHO IS REFINANCING?
THE REASONS PEOPLE REFINANCE
Comparing refinancing rates among borrower groups (ie exclusive professionals/wealthy seniors) in 2013 and 2015, DFA made some interesting observations. Young growing families are now the most likely group to refinance. More than 60% of this group intend to do so within the next 12 months. They are followed by the suburban mainstream (just under 50%). The battling urban group are also increasingly looking to refinance, with nearly 30% intending to in the next 12 months. The least likely group to refinance are rural families, with less than five per cent intending to and this figure continues to fall. The report also noted that seniors would be the most sensitive to interest rate rises, followed by young affluent borrowers and exclusive professionals.
DFA investigated why borrowers with different sized loans were choosing to refinance, and found that “the main driver of refinancing activity appears to be to reset mortgage terms”. However, for $750k+ loans, mortgage terms – and brokers – appear to be less important. 100%
Other
90%
To reset term payments
80% 70%
To release equity
60%
To reduce payments
50% 40%
Broker initiated
30% 20% 10% 0%
less than 100k
100k-250k
250k-500k
500k-700k
750k+
Source: JP Morgan & Digital Finance Analytics, Australian Mortgage Industry Report, March 2016
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UP
Refinancers
Up-traders
Down-traders
Solo investors
Portfolio investors
Source: JP Morgan & Digital Finance Analytics, Australian Mortgage Industry Report, March 2016
WHY BANKS SHOULD EMBRACE BROKERS JP Morgan banking analyst Scott Manning argues that the report shows “banks need to stay engaged with their broker channels”, as approximately 75% of refinancers use a broker. The report explains that “ANZ’s overweight presence in broker places it in a strong position to capture refinancing activity”. 50%
FY10 FY11
40%
FY12 FY13
30%
FY14 20%
FY15
10% 0%
ANZ
CBA
NAB
WBC
WHAT’S STOPPING INVESTORS? DFA looked into the reasons for investors deciding not to transact. The usual barriers are still important, such as investors who have recently bought a property, or those who feel prices are too high, but regulation and the fact it is increasingly difficult to get funding are also important. DFA principal Martin North claims that “9-10% of investors cannot get the financing they want”. The top five barriers to investors transacting in February 2016 were:
1 2 3 4 5
Already bought Changes to regulation Prices now too high Potential budget changes Cannot get funding
Source: Company data and JP Morgan and Digital Finance Analytics estimates, JP Morgan Australian Mortgage Industry Report, March 2016
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UPFRONT
OPINION
DON’T BUY INTO A SINKING SHIP Broker recruitment expert Zak Wilford argues brokers should avoid tired old franchise models and develop their own online-facing brands instead
DEVELOPING
A personal brand is essential for success in the social era – one that reflects your personality and reputation, and one that is recognised as a trusted business entity. It leads to increased sales, more referrals, better customer retention and an overall better market position. I have a strong interest in marketing and branding. I’ve invested a lot of time in developing my own, and building Zak Wilford as the name in the market to think about when you’re looking to recruit. Currently, all opportunities I’m working on are with groups that are happy to invest in the right person and those that, once they bring someone on board, will support both financially and from a business perspective. One thing I’m often asked by brokers looking for a new opportunity, or by people looking to get into the market, is about the aggregators whose offering includes buying into a franchise – groups like Mortgage Choice, in which becoming part of their group includes a large upfront fee. I have turned down opportunities to work with these kinds of groups because I strongly believe their offering cannot compete with one that doesn’t include buying into a brand and shop front.
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As a result of the internet and social media, the playing field has been levelled. Big budgets are no longer necessary in a marketing strategy where social media can be used to organically grow an audience or a following. And, with new platforms emerging such as Snapchat and Periscope, it’s important that a business’s marketing
competing with each other. I imagine them sitting in meetings thinking about what their competitors are going to do next. The Hilton Hotel probably had similar meetings in which they would discuss what other hotel groups were going to do next – no one thought to put forward the idea of a website in which people would advertise their own place. Cue the launch of Airbnb, and the quick acquisition of market share from these large groups. Furthermore, I can’t help but relate these groups to the likes of Blockbuster and other franchise groups that have lost and disappeared as a result of digital disruption in their industry. To put marketing and other business decisions in the hands of a larger group sounds dangerous when today markets can be so easily disrupted. Blockbuster even had the opportunity to buy Netflix and turned it down on the basis that “people like the experience of going into the store”. Yet what’s become clear is that we as consumers want everything now – we’ve come to expect it. With so many barriers to entry already present for new brokers, I would advise going down the road of a lean start up. Even if marketing isn’t your forte, there are alternatives to investing in a shopfront with
“The idea of buying into a franchise of generic marketing material through tired, stale channels… almost seems ridiculous in the year 2016” strategy has an aspect of fluidity and can adapt to these changes in order to leverage the attention these channels get. The idea of buying into a franchise of generic marketing material through tired, stale channels and investing money into a physical street presence almost seems ridiculous in the year 2016 – certainly unnecessary. The idea of selling something completely intangible from an expensive high-street location makes no sense when everything is moving online. I see these big mortgage groups
tired old branding. Social media marketing offers a much better and more measurable return than a street presence and there are numerous, affordable solutions to help you get there.
Zak Wilford is a recruiter specialising in helping brokerages find the right staff. He previously worked at Loankit, Finsure and 1300HomeLoan. Find him on LinkedIn and zakwilford.com
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NEWS ANALYSIS
BANKING REGULATION
WHAT PRICE UNQUESTIONABLY STRONG? Brokers need to prepare themselves for further pricing and serviceability changes as regulators redouble their efforts to make Australia’s banks ‘unquestionably strong’, writes MPA editor Sam Richardson
REGULATORS AREN’T renowned for straight talking. So when regulators do sound the alarm bells, the industry tends to respond. Speaking at the Australian Financial Review’s recent Banking and Wealth Summit, the Basel Committee’s secretary general Bill Coen made a chilling prediction. “I’m an optimist by nature but maybe a pessimist by fact and experience. We know with statistical certainty there will be another financial crisis.” Coen is not an Australian regulator, nor the head of an Australian bank. The Basel Committee is perhaps the closest we have to a global regulator. Based in Switzerland, they set the standards by which banks should abide, the most well known of which being how much capital a bank must hold. When APRA increased capital requirements in 2015 – causing interest rate rises for many customers – they attributed it in part to the “direction of work being undertaken by the Basel Committee”. Therefore, when Basel talks APRA listens, as APRA chairman Wayne Byres made clear later that day at the summit. “When adversity arrives – it is not ‘if ’, it will – to the extent possible we want the banking system to help alleviate rather than exacerbate
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problems.” With adversity a certainty, regulators needed to prepare for trouble now, he argued. “It is better we continue to invest in building resilience now when it can be done in an orderly manner from a position of relative strength than try to do so in more difficult times.” More than seven years on from the GFC, it can be surprising, if not alarming, to hear regulators talk in such terms, especially given Australia’s banks fared relatively well. Evidently regulators are serious, which means
upheaval, with APRA raising capital requirements for the major banks, as well as attempting to limit finance to property investors. In October, the government
“On our consideration of what constitutes ‘unquestionably strong’… the direction is pretty clear – no one should be planning for capital requirements to decline” Wayne Byres, APRA lenders and brokers need to see further changes as a serious possibility, not just now, but for several years to come.
Unquestionably strong Many interpreted 2015 as the year of
agreed to the proposals of the Financial System Inquiry (otherwise known as the Murray Inquiry), which proposed “setting Australian bank capital ratios such that they are unquestionably strong by being in the top quartile of internationally active banks.”
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STRUGGLING TO ADAPT Fast-changing regulation is a relatively new phenomenon for banks and brokers, and it seems brokers aren’t satisfied with how banks have responded. In our 2016 Brokers on Banks survey, we asked brokers the following:
Do you think banks dealt with APRA’s raising of capital requirements in a fair way for new and existing customers?
NO
65%
YES 35%
Source: MPA Brokers on Banks, March 2016
What was made clear at the AFR’s summit is that capital requirements continue to be an issue, and aren’t going away any time soon. APRA chairman Byres told delegates that “our consideration of what constitutes ‘unquestionably strong’ in an Australian context will need to wait until around the end of the year. The direction is pretty clear – no one should be planning for capital requirements to decline”. In a similar vein, Coen explained that the Basel committee was looking to encourage banks to calculate the amount of capital they need in a different way, as well as encouraging use of the standardised model. “The committee is promoting greater restrictions on the use of IRB models,” he said. Internal risk-based models (IRB) is the system used by Australia’s major banks and Macquarie. If the banks were to move towards the standardised model, used
by the non-majors, they would need to find significantly more capital, which could require further rate rises.
Regulating beyond capital Capital was, however, just one of four areas of focus for APRA in the current year, noted Byres. The others were: Improving the stability of liquidity and funding profiles; enhancing both the public and private sectors’ readiness for adversity; and strengthening the risk culture within the financial system. Of these, it is risk culture that has had the most interest, because it is being applied to the broker channel itself. Culture is usually identified more closely with another regulator – ASIC, but has become a mantra for the entire financial industry. “No regulatory speech these days is complete without a few words on the issue of
culture,” Byres joked. “We need the financial sector to take up the challenge to put in place better incentives for prudent behaviour, so as to prevent problems emerging in the first place. That is likely to be far more productive than spending our time removing so-called ‘bad apples’ after the fact.” Whilst ASIC’s ongoing broker remuneration review was ordered by the government, it has certainly been framed by the language of culture; whether commission is encouraging brokers to do the wrong thing by the customer. More widely, both regulators want company directors to encourage a good culture in their organisations. As ASIC chairman Greg Medcraft told delegates later in the AFR’s summit: “At the end of the day, companies need to have a culture that customers can believe in. And recent events put that into question.”
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NEWS ANALYSIS
BANKING REGULATION HOW BASEL III HELPED MAJOR BANKS Not only do major banks have far lower average risk weights under the current system, but non-majors cannot fully exploit the potential of low-LVR loans, unlike the sliding scale for major banks. 80% Major banks
70%
Non-major banks
60% 50% 40% 30% 20% 10% 0% 0% – 40%
40% – 60%
60% – 80%
80% – 90%
>90%
Portfolio average
Source: BIS, APRA, Company data & JP Morgan estimates
“At the end of the day, companies need to have a culture that customers can believe in. And recent events put that into question” Greg Medcraft, ASIC Lenders’ reactions Making speeches is very different to making policy, of course, and what makes the difference is the degree of opposition to regulators’ proposals. However, the dissenting voices at AFR’s summit were few and far between, even from the banks. NAB chairman Ken Henry, delivering his keynote on ‘the future of banking’, said that the regulator’s interest in culture was “understandable” and that “culture drives conduct”. Henry suggested the banks that would succeed over the next decade would be those with a strong customer-focused culture, which included working with the regulators. Indeed, Henry added that just paying more
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attention to compliance was not the same as a good culture, “just as slowing down whilst passing stationary speed cameras is not the same thing as safe driving.” In our recent Banks on Brokers report, the third party heads of Westpac, CBA, ANZ, Suncorp and Macquarie positively reacted to recent regulatory changes. Tony MacRae, general manager third party distribution at Westpac and St George Group, said the bank was “happy to see the attention that the regulators are putting on the home loan origination process”, because it helped the bank become more sustainable and robust. Similarly, Macquarie commented: “We support APRA’s approach to ensuring there is sustainable and prudent lending.” The only note of reluctance – and a limited one at that – came from CBA’s general manager of broker sales Sam Boer, who argued that the bank was already maintaining an “unquestionably strong capital position”. Further regulation needed to be carefully thought through, he added. “Any changes required to make the Australian banking system more secure needs to be balanced with the interests of our customers, as well as the nearly 800,000 households who are direct shareholders of Commonwealth Bank and the millions more who are invested through their superannuation funds.”
What can lenders and brokers do? Evidently, 2015 was not an exceptional year. More regulation is on the horizon and brokers and lenders will need to get used to an environment of uncertainty. Yet the experience of 2015 suggests the third party channel struggles to deal with APRA’s changes in an organised way. In our recent Brokers on Banks survey, we asked brokers whether the banks had dealt with changing capital requirements in a fair way for new and existing customers – and 65% of respondents said they hadn’t. Whilst many respondents understood that APRA’s changes to capital requirements were behind the rate rises, they took issue with the way banks initiated and communicated rate rises. We asked MacRae from Westpac – the
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first bank to raise rates – whether they’d communicate future changes in a different way. “Last year was a year with a particularly high volume of changes,” explained MacRae. “We were all moving quickly and reacting, and in those environments we can all learn. In terms of communicating the ‘why’ and positioning in a more robust way is an opportunity for all of us.”
articles explaining APRA’s changes for brokers to provide to their customers. Brokers will need to get used to communicating changes in a timely way and not letting banks or the national media get to customers first – a major challenge. Brokers will need to add ongoing financial education to a long list of responsibilities. Yet, in an environment of uncertainty, taking
“We were all moving quickly and reacting, and in those environments we can all learn in terms of communicating the ‘why’ and positioning in a more robust way” Tony MacRae, Westpac and St George Banking Group One interesting example of ‘communicating the why’ was given by Doug Lee, head of mortgage sales at Macquarie Bank. The bank started by organising meetings with key brokers’ partners “to provide a regulatory background update and took them through the changes and what the potential impact of those changes may be”. They followed this up with a national road show “dedicated to explain and educate brokers on the regulatory landscape and the changes and potential impacts, including policy and pricing”. Macquarie are proud of being on the ‘front foot’ in responding to APRA’s changes. This hasn’t always been popular with brokers however. When NAB Broker sent letters to customers informing them of the changes, many brokers saw this as going behind their back, as they told our Brokers on Banks survey in their comments. With brokers looking to establish long-term customer relationships based on expertise, having anxious customers wondering why their broker didn’t tell them about the rate rise is a situation they’d rather avoid. If brokers want to continue to be the main focus of expertise and information for their customer, they’ll need to put themselves on the front foot ahead of the banks. Last year, several aggregators and franchises produced
on this extra role can be seen as a major opportunity, as ANZ’s head of third party Keiran Evans explains. “Change is always difficult, however we believe it provides opportunities for brokers to demonstrate their knowledge and expertise and help guide customers to the best outcome.”
HOW BASEL IV WILL CHANGE THE PLAYING FIELD Major banks will see a near-doubling of porfolio risk weights, particularly at the 60-80% range. Although the risk weights for non-majors will remain largely unchanged, they’ll be better rewarded for lower LVR loans. 80% Major banks
70%
Non-major banks
60% 50% 40% 30% 20% 10% 0%
0% – 40%
40% – 60%
60% – 80%
80% – 90%
>90%
Portfolio average
Source: BIS, APRA, Company data & JP Morgan estimates
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MPA HIGH PERFORMANCE BUSINESS SUMMIT | SYDNEY
MPA’S HIGH PERFORMANCE BUSINESS SUMMIT Mortgage broking’s elite gathered together to share their experience at MPA’s first-ever HPB Summit in Sydney
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High-Performance Business Summit 2016
THROUGH OUR Top 100 Brokers report, Top 10 Brokerages rankings and Australian Mortgage Awards, MPA talks to dozens of the most talented and innovative brokers every year. Getting them in the same room, sharing the same stage, has never happened before. We created MPA’s High-Performance Business (HPB) Summit to finally bring together that expertise and share lessons in a day devoted to business strategy – leads, clients, management, diversification, processing and much more. MPA’s first HPB Summit took place in Sydney’s Doltone House in late April. It centred around three broker panels, populated entirely by award winners and Top 100 Brokers, on the subjects of becoming a top broker, running a top brokerage, and
O’Brien of PFS Financial Services said hiring new staff can be a tricky balancing act in terms of timing so as not to bring someone on but having to let them go down the track because the business wasn’t at the right stage for that amount of support staff. Shore Financial started out as a team of three and now are more than 50 strong. Chambers said they wanted to make sure the broker wasn’t focused on the admin and other things that may reduce their time for clients. “The key that we want is that a customer can speak to anyone in our business but still get the exact same service proposition because it’s cross-standardised,” he said. “All we want our brokers to do is basically speak to the clients and meet the clients.”
“It’s always good to benchmark against your peers and obviously the high performance loan writers” Ian Perreau, Robert V Read & Associates
HPB MELBOURNE MPA’s High Performance Summit in Melbourne will take place on 26 July, 2016 at The Langham. The new event will focus on equipping brokers with the knowledge and expertise to take their business to the next level. Award-winning brokers will share their tips and strategies on how to grow leads and volumes, and improve digital marketing and efficiencies. It will feature brokers who have been recognised in the annual MPA Top 100, Top 10 Independent Brokerages and Australian Mortgage Awards, including: Josh Bartlett, managing director of Loan Market Bayside; Andrew Mirams, managing director of Intuitive Finance; Mark Davis, principal of The Australian Lending Investment Centre; and Daniel Zadnik, director of Hawthorn Finance.
diversifying your brokerage beyond residential home loans. Read on for the key points from our panellists, as well as other highlights of the day and a preview of our upcoming Melbourne summit. Suncorp Bank was the event partner and gold sponsors included Commonwealth Bank and La Trobe Financial.
Becoming a top broker On our first panel sat leading brokers Justin Doobov of Intelligent Finance, Leeanne Scott of Mortgage Choice North Sydney, Shore Financial’s Theo Chambers and Daniel O’Brien of PFS Financial Services. Sam Boer from Commonwealth Bank Australia was also a panellist. Many interesting points were raised but one that definitely rocked the room was Doobov’s mention of his 80-point checklist for quality control. Scott of Mortgage Choice shared some top hiring tips, pointing out the value of university students as part-time staff. “I’ve had huge success with university students,” said Scott. “University students have regular hours, they can juggle their university timetables, you don’t have to pay them a lot and they are hugely reliable – they have been in my experience.”
Sam Boer mentioned that managing people is a skill set and that research has shown having a diverse work group tends to deliver the strongest outcomes. On one thing they’ve changed in their business, Doobov said he has now passed a lot of admin work on to his staff to free up time to talk with his clients and he is also prioritising listening to his staff and finding out what drives them to succeed.
Managing a top brokerage Our second panel discussion of the day featured Steven Degetto of Suncorp Bank and brokers Donald Tang from Alliance Mortgage Solutions, Oxygen Home Loans’ Alan Hemmings, Katrina Rowlands of Mortgage Success and 1st Street Home Loans’ Jeremy Fisher. Referrals came up soon into the discussion and there were differing opinions on whether brokers should ask their clients for one or not. Oxygen’s Hemmings said referrals are about relationships. “You can’t get a referral if you don’t have a relationship with someone.” He said the broker has the right to ask for a referral if they have done a good job
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MPA HIGH PERFORMANCE BUSINESS SUMMIT | SYDNEY by that client. “I think sometimes we forget that question.” 1st Street’s Fisher took the opposite stance saying, “I don’t ask clients to refer me on to other clients.” He says the transaction with the client itself can drive more clients to you through involvement with other professionals, such as accountants and
interesting – although [our] process and procedure manual has been reviewed every couple of years – to see the differences already and then to hear it from a fresh point of view.”
Going beyond residential mortgages Our final and third group of panellists delved into diversification and included La Trobe
“It’s good to see how other operators run their business, how they grow and the strategies behind it” George Eljouni, iFinancial Mortgages planners, without ever having to ask the client themselves for a referral. Oxygen has many brokers working within real estate offices and, when it comes to branding, Hemmings says they are about the brand sitting behind the broker, and that Oxygen is there to provide support to the broker but in the end it’s the individual broker’s name and number that the client has. Tang says they have a strong emphasis on each broker being a representative of the brand at Alliance Mortgage Solutions and also hold various marketing events throughout the year. Mortgage Success’ Rowling pointed out the broker’s duty of being accountable and responsible for their actions. “We have a very strong culture in our team that you count – you’re responsible for what you say you’re going to do.” “I’m a strong believer in supporting the broker,” said Fisher. “Yes, they might be working under 1st Street in this instance, but it’s them the customer is coming for, and they are the ones providing the service.” When it comes to managing BDMs, Suncorp’s Degetto says they have awards programs and it is important to give BDMs recognition for their successes. “I think most people, and it’s certainly been my experience, want to be part of something greater than themselves.” On strategies for the year ahead, Rowling said she is reviewing basic procedures and taking on board suggestions from new staff to get a fresh perspective. “I’ve found it really
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Financial’s Cory Bannister, Michael Jin of N1 Loans, Moshe Moses from Astute Sydney City Central, Mhairi Macleod of Astute Ability Finance Group, and Peita Davies from Choice Home Loans (Blue Mountains). “I think the last piece of the puzzle is really accounting,” said Moses. “You can deal with the client and you can be the best lender, you can be the best financial planner but at the end of the day, the client will always seek one person and that’s obviously the accountant. Surprisingly, the accountant now can’t give advice, so the accountant (unless they get the right qualification) needs us or needs planners to benefit them and their position in terms of what they’re offering. Accounting is something we’re looking at. That would complete our diversification model, by actually bringing an accountant on.” Choice Home Loans’ Davies said, “We built a client map – it’s ensuring that those conversations are had at the very onset of the first meeting with the client around what opportunities there are for us to help them. I don’t think that we can be all things to all people so it’s quite important to make a decision on what it is that you actually want to focus on in the business and then have the right people around you to do the rest.” La Trobe’s Bannister pointed out it was a natural progression for them to move into commercial lending. “We’ve found that (commercial) was another underserved area… Many brokers tell us they feel as though they are not locked out of commercial lending, but certainly that there are some barriers.”
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High-Performance Business Summit 2016
Reducing errors was also one of the topics discussed and N1 Finance’s Jin said they have a thorough auditing process in place to minimise errors. “I audit every single broker in the firm on a monthly basis,” he said, finding out the cause of the error rather than just correcting it. Macleod of Astute Ability Finance created a successful niche in the equine industry. “We’re now three years into it and I have a very successful arm to my business talking about diversification in the equine services.” But she says it’s not just about horses – it’s about tow vehicles and anything else associated with the equine services.
“I liked the reciprocity deficit idea; I’d like to try that” Michelle Hudson, The Loan Lady On whether any of them are considering implementing fee-for-service into their business, Davies said it’s a no at this point, although she thought about it for SMSF because of the added work involved. “The model that I’m taking my business to...may even be a case that if you want to deal with myself, I’ll charge a fee – but I’ll have brokers there that will be on a nofee service.” “There will come a time when I believe it will come in, but at this stage it’s a no from me,” said Macleod. N1 Finance charges a fee for their accounting and commercial services, and Astute Sydney City Central have fees on their commercial, SMSF and financial services, but residential mortgages are different, said Moses. “If a client’s happy with your service and can also regenerate additional business, I don’t see the necessity for fee-for-service, other than what I said before about commercial and asset finance and self-managed. It defeats the purpose of what we’re doing and it also gives the client the ability to go elsewhere and say, ‘Well, can I get this done for free?’”
HIGHLIGHTS FROM THE DAY One stand-out of the day was the presentation by two Aussie explorers, James “Cas” Castrission and Justin “Jonesy” Jones, who swept the audience into another world – just as they described their journey in 2012. They completed the longest unsupported polar expedition of all time, walking from the edge of Antarctica to the South Pole and back without assistance in 89 days and cross-country skiing 2275km. They also described their 3318km crossing of the Tasman Sea by kayak four years earlier, another world first. Overall, the day was a success and the broker attendees had many positive things to say about the event. “I think it’s been highly beneficial,” said Ian Perreau of Robert V Read & Associates. “It’s always good to benchmark against your peers and obviously the high performance loan writers and how they again diversify their business and stay abreast of the market. Overall, a very enjoyable event.” The Loan Lady’s Michelle Hudson said, “If you can get a few things that you can take back and implement into your business, it makes (the summit) worthwhile. And having a motivational speaker does remarkable things. I liked the reciprocity deficit idea; I’d like to try that.” The panel members also enjoyed the experience with Alliance Mortgage Solutions’ Donald Tang saying, “On the panel, all the questions are very well designed. It’s actually quite fitting for the current environment and current industry, and gave me a good opportunity to speak out about what I want.” “It’s been great – a lot of take-outs,” said George Eljouni of iFinancial Mortgages. “It’s just good to see how other operators run their business, how they grow and the strategies behind it.”
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THE BIG INTERVIEW
WARREN SHAW
“The banks offer choice across lots of different channels, but in terms of pure acquisition and net customer growth, the third party space is clearly where the action is”
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WARREN SHAW: TAKING OVER THE REINS Westpac’s new national head of broker distribution talks to MPA about property investors, his plans for the year ahead and how the bank can give back to brokers MPA: How does your experience in banking set you up for this role? WARREN SHAW: I’ve been with Westpac for 60 days, so I’m still learning the organisation. The bulk of my experience has been with NAB. I spent 27 years there and my first two roles were running the retail bank – the first party channel. I’ve got a pretty intimate knowledge of the mortgage product suites [and] consumer behaviour around mortgages. Prior to that, I ran the mortgage business for NAB, where I provided support from the centre into both the third party and the first party channels. I’ve worked with most of the aggregation groups through that relationship. So I have a deep understanding of how the industry works. This role here though is my first distribution role in terms of third party origination on the consumer side. That said, I have experience running the Banksia Financial Group. I was appointed CEO there in May of 2012. Banksia operated in the commercial third party space predominantly. That’s the linking piece, I suppose, between my NAB career and my Westpac career. The appeal for me with this opportunity, as I look to relaunch my career after doing the work out on behalf of Banksia, is the landscape of opportunity in financial services, the growth opportunities which in my mind still remains the third party consumer mortgage space. The
banks offer choice across lots of different channels, but in terms of pure acquisition and net customer growth, the third party space is clearly where the action is, and from my perspective I’m very interested in playing a role and shaping Westpac’s presence there.
MPA: Now that Tony MacRae has moved up to general manager third party distribution at Westpac and St George Banking Group, what does your role entail? WS: My role as head of the Westpac broker channel is exactly that – to be the head and the frontman of Westpac’s offering into the third party space. Tony is now operating the consumer banking third party level, all of the brands in the Westpac stable that operate in that space are under his direction, but we felt it was really important to maintain a strong presence at the head of the Westpac brand itself, rather than have someone trying to do two things. MPA: To clarify, you’re working on the residential rather than the commercial side? WS: The Westpac division that I run is first and foremost a consumer offering, but I think there’s opportunities for us to work with our commercial team, who run an extremely good and very effective business in the commercial third party space. There are opportunities to work more closely together, to face into the
WESTPAC’S BROKERS ON BANKS RESULTS With Westpac being brokers’ Bank of the Year for a second consecutive year in MPA’s survey, Shaw will have to maintain standards in some areas, whilst looking to raise them in others. Here are the core areas: Turnaround time: The most important category for brokers – Westpac came first BDM support: Also highly important to brokers – Westpac came first Needs improvement: Credit policy: Westpac came third, behind ANZ and CBA Interest rates: Westpac came third, although it was the strongest major bank Commission structure: Westpac came third, behind NAB and Suncorp
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THE BIG INTERVIEW
WARREN SHAW WARREN SHAW CAREER TIMELINE
2001
Appointed NAB’s strategy principal of financial services
2003
Moves to head up NAB’s product and pricing division
2004
Becomes regional general manager of mortgages and consumer insurance at NAB
2007
Promoted to NAB retail’s executive general manager
2012
Moves to Banksia Financial Group as CEO to supervise its winding down
2016
Appointed national head of Westpac Broker Distribution
market and help brokers who want to move from consumer to commercial as they look to diversify their business.
MPA: Are we likely to see any increase in cooperation between the banks in the Westpac group, and what will this mean for brokers? WS: I’m new to the group, so I don’t bring any baggage around why one part of the group does one thing and one part doesn’t. My perspective is if there are opportunities to have synergies with other banks in the St George stable, we should take those, particularly around sharing best practice and innovation and technology solutions around service delivery. But that said, we’re committed to a multibrand strategy, so Westpac’s offering in the market will be different to the way St George brands will face the market. I think that’s appropriate with the different segments we want to attack. We have different customer bases and different needs in many cases, and we have broker relationships steeped over time that need to be respected as well. I think an early example of where we’ve seen some cooperation already is the way accreditations are processed for the whole Westpac stable of brands, so if you’re a new broker and you want to be accredited to deal with both Westpac and St George’s banks you can do that in one process – you don’t have to go to four different banks. That is just a small example, but we think there are some synergies to extract.
MPA: What do you see Westpac doing particularly well that distinguishes you from the other major banks? WS: I want to see us becoming famous for being connected, consistent and transparent – they’re the things that I’m passionate about. I’m passionate about people and creating environments for them to be the best they can be, in particular our BDMs, connecting them as closely as we can with the broking community to help them build their businesses. As someone new to Westpac, I’m delighted with how our BDMs are perceived by the broking community generally. In the
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recent Brokers on Banks survey, nine Westpac BDMs were called out in the ‘Roll of Honour’ – more than any other bank. We consistently get great feedback about our BDMs. It’s my job to build on that great position.
MPA: So is this about more BDMs, or better trained BDMs, or better technology available to BDMs? WS: It’s about all of those things potentially, but first and foremost it’s about really wellconnected BDMs. I think brokers want to work with organisations that get them, and there has to be an investment in the quality of our BDMs on the ground. Also, where it’s warranted, an investment in more BDMs as more brokers are attracted to the proposition that Westpac provides. We’ll be ready to invest as the demand comes along. In terms of our digital presence we can help brokers with CRM capability in terms of how they manage the relationships with their customers post-settlement. I think we have lots of information at a bank and somehow I’d like to find a way to share that with brokers who own the primary customer relationship in the mortgage space at least, to make sure that those customers remain. It’s good for us, it’s good for the broker.
MPA: Moving to Westpac’s appetite for property investors, are we likely to see further tightening in the coming year? WS: It remains an important segment for us, it always has, but we need to work with our regulator APRA around the guidelines and the capacity we’d like to see us play at. We’re not going to move away from that framework. We’re open for business on property investment, we have great products and we think there’s capacity for us to do more. That’ll be our focus as we go into the remainder of this year and next. We’re buoyant about the conditions generally. Overall levels of household debt are relatively benign – we see pockets of household stress and we’ll watch those closely, but broadly interest rates are low, customer value is strong, so that usually suggests it’s an environment with opportunities and we’ll continue to support it.
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THE BIG INTERVIEW
WARREN SHAW FOREIGN INVESTORS Westpac was for a number of years particularly strong in the foreign investor space until 2015. Action from the government on illegal buying, which included several forced sales, was accompanied by APRA’s move against property investors, pushing banks to tighten their criteria for foreign investor lending. In July 2015, Westpac capped LVRs for foreign investors at 80% – lower than ANZ and NAB, who at that point had LVRs of 90%. It also sent a letter to brokers reminding them of the need for an Australian residential address and to comply with Foreign Investment Review Board rules. Shaw’s comments on foreign investors suggest there’s little likelihood of a loosening of criteria for foreign investors. Furthermore, they came a day after ANZ announced it would not be accepting mortgage applications where 100% of the borrower’s income came from overseas sources. Evidently, foreign investors remain a sensitive area for all the banks.
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MPA: Westpac appeared to be strong in the foreign investor space until last year’s APRA-related changes. Will this area continue to be one of focus? WS: In respect of foreign investment, we’ll continue to support foreign investment that’s related to activity in Australia. So for people that want to migrate to Australia and are looking to invest in Australian property, our mandate is to support more people in Australia living in homes and create wealth through home ownership. So it’s an area we’ll keep
MPA: Which clients are Westpac targeting over the next 12 months? WS: I think that all the segments are pretty strong. We don’t have any particular no-go area. I think refinance activity will naturally lift and rise in a low interest rate environment, but I’d qualify that by saying that refinances are generally associated with another need. Brokers are attuned to reviewing their relationship with clients, and when a need arises, looking at overall borrowing requirements and which opportunity is best for them.
“We’re open for business on property investment... that’ll be our focus as we go into the remainder of this year and next” under review. We have tightened our verification requirements just to make sure our responsible lending obligations are absolutely met, because it can be challenging to verify incomes, in particular in that segment. We won’t be making any major announcements, but we keep it under review all the time.
MPA: What can Westpac offer to brokers beyond residential mortgages? WS: In terms of income diversification there are small things we already do around personal lending, etc, that brokers can participate in – home and contents insurance, etc, the ancillary stuff that normally comes with a home loan conversation. But I think there’s an opportunity for those brokers who want to move into the commercial space, if they’re consumer-orientated brokers, to work with Westpac about their offering where they can jointly face the market with our support. It’s one of the priorities under my leadership. So I see myself running the consumer business, but I’ve got a broader enterprise responsibility and I’ve got a broader responsibility to the customers I serve to help their businesses be as robust as they can. I think brokers realise they need to be more than a one-trick pony, so to speak. They can potentially be marginalised through digital disruption if they continue only to be a mortgage originator and not a relationship manager of their customer base.
I think refinancers will grow as a section of the market whilst there’s uncertainty over the market and property prices. But if you look at the seasoned external commentators’ views on this, there’s going to be a soft landing – which would be my view – but still growth, and some segments represent strong growth opportunities. We stand in the refinance space as we always have, but we’ll be looking to invest some capital in how we can help brokers do faster refinancing and making the progress easier for them. But investors remain a section we have an appetite for and obviously our mandate as an organisation is to help people into homes, so first home owners are important to us as well.
MPA: How would you like to be perceived in the broker channel 12 months from now? WS: As someone who’s approachable. Certainly my goal is to meet as many of my aggregation partners and broking clients as possible in my role, and hear from them as to what their concerns are, their experience in the industry and what we could be doing better. So I’d like to be thought of as someone who is fair and transparent in their dealings and has a genuine desire to create the environment for people to do better. And [as someone who] absolutely respects the fact that the third party channel is a critical customer service differentiator, and represents choice, and we aim to support brokers on that basis.
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11/04/2016 6/05/2016 9:34:25 1:19:33 AM PM
SPECIAL REPORT
CONSUMERS ON BROKERS
CONSUMERS ON BROKERS In our second survey of consumers, we ask what consumers really think about choosing a broker, commissions, rate rises, after-settlement service and more
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SPONSORED BY
IN 2016, we all work in the interests of the consumer. Or at least that’s the message put out by regulators, bankers and most of all brokers, whose value proposition rests on putting the consumer first. Unfortunately, there’s been relatively little independent research into what the interests of the consumer actually are when it comes to the broker channel, which is why we’ve run our Consumers on Brokers report for a second year. Consumers on Brokers is about getting real consumer opinions, good and bad, to the people who really need them – brokers. Our survey ran for five weeks on Key Media’s consumer-facing yourmortgage.com.au comparison website, and on the website of Your Investment Property magazine. These databases are closely monitored. Furthermore, we made sure all our respondents had actually used a broker – this survey is about real experiences, not just perceptions. Our survey is, admittedly, not as big as those of the banks, but unlike the banks we don’t have a message or product to push. Instead, our questions have focused on current issues, namely ASIC’s remuneration review and the rate rises for new and existing customers introduced by banks in 2015. We’ve also included a number of practical questions to help brokers with their marketing and after-settlement service, and distinguished between different income and borrower groups where appropriate. As for the headline results, there are quite a few. On the plus side, our respondents were accepting of commission structures, but also relatively open to fee-for-service arrangements. However, they were highly critical of brokers’ after-sales service, with two in five never having been contacted by their broker since settling the loan, even about the out-of-cycle rate rises in 2015. When it comes to consumer trust, all these issues are linked. Many respondents were critical of ongoing trail commission, because they didn’t receive ongoing support, for example. We recommend you therefore read this entire report, and we hope the findings can help you make the right changes and investments in your business.
A MESSAGE FROM OUR SPONSOR Information is powerful. Understanding your customer’s needs, financial goals and what led them to you in the first place will play a defining role in shaping your service proposition. At Suncorp Bank, we recognise the importance of putting the customer at the heart of every decision. We know customers are increasingly engaging with brokers for their home and investment lending needs. The value lies in knowing why. With this in mind, Suncorp Bank is proud to partner with MPA to bring you the Consumers on Brokers survey, proving valuable insights into consumer behaviour. Brokers are looking for more than a mortgage broker – they are looking for a trusted partner. At Suncorp Bank, we see our service as an extension of yours. Our proposition is built around supporting the brokercustomer relationship. Exceptional service is central to this, with our national team of Business Development Managers and local call centre staffed with lending experts providing on-the-ground, dedicated support. Suncorp Bank aims to support brokers to do this by providing access to decision makers and other crucial information through the loan process. Transparency is a key part of this, allowing brokers to set and manage expectations with their customers. Feedback is one of the most powerful tools available to our industry. We hope that the Consumers on Brokers survey provides valuable insights, information and intelligence to support you to enhance your customer service proposition, as we seek to continue to elevate our own for brokers.
Steven Degetto, Head of intermediaries, Suncorp Bank
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SPECIAL REPORT
CONSUMERS ON BROKERS
WHO USES A BROKER? To get the most out of this report, it’s important to understand our respondents and this survey BEFORE GOING through the results of this survey, it’s essential to understand who we surveyed. The first point to note here is that this survey is not representative of the entire Australian public. Our typical respondent – the characteristics of which you’ll see in the box below – is far more likely to use a broker than the average Australian. Both facts are connected with how we marketed this survey – to the readers of Your Investment Property magazine and visitors to the yourmortgage.com.au website. We made it obvious in our marketing that this survey was about respondents’ experience with brokers. Additionally, we asked respondents whether they’d previously used a broker and excluded those who hadn’t from most questions. We did this to ensure this survey was based on real experience and not simply perceptions or assumptions.
OUR TYPICAL RESPONDENT
We do believe this survey is representative of customers that use brokers, dominated by investors (49%) but with pockets of first time buyers (20%), upgraders (13%) and refinancers (the vast majority of the 18% of replies to ‘other’). In terms of income distribution, 83% of our respondents earn between $37,000$180,000 p.a., covering the average Australian wage with a slight weighting towards the relatively wealthy. Geographically, our respondent share by state very closely mirrors the most recent figure from the Australian Bureau of Statistics, with NSW, VIC, and QLD making up 75% of respondents. This survey was marketed nationally. Comparing between surveys is always fraught with difficulties. We ran this survey in 2015 (see MPA 15.06, which you can find on mpamagazine.com.au), using the same marketing approach, and the characteristics
of respondents from both years are relatively similar. Whilst we can’t be sure, we suspect a number of respondents completed both surveys, so we therefore feel it’s acceptable to compare between years. If comparing our survey to those by banks, the MFAA or others, bear in mind ours is biased towards Australians who have actually used a broker. Finally, there remains the question of whether our survey is positively or negatively biased regarding brokers. The language we used in our marketing was neutral, and we used a prize to incentivise potential respondents so it wasn’t only extremely positive or negative people who took the survey. The fact that our respondents are positive about brokers – 76% of our respondents would use a broker again; only 7% wouldn’t – should therefore be seen as an effect of brokers’ hard work.
OUR RESPONDENTS’ INTERACTIONS WITH BROKERS
NO
NO
5% Is aged between 35 and 55
Used a broker when buying an investment property
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Earns between $80-$180,000 p.a. Ninety-five per cent had used a broker before (we excluded the remaining 5% from the majority of questions)
YES 95%
YES Have you ever used a mortgage broker?
76%
7% 17% Would you use a mortgage broker again?
MAYBE
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CHOOSING A BROKER Consumers want your help more than a sharp rate, and they’ll find you with a little help from their friends FOR THE second year running, consumers have named ‘help with the application’ as their top reason for using a broker. Forty per cent of respondents picked this option, with large minorities picking ‘access to specialist lenders’ (27%) and ‘lowest interest rate’ (25%) – all similar shares to last year, and similar across all income categories. The survey’s core message to brokers therefore remains the same – primarily market the assistance you provide, whilst paying attention to other factors. Before you initiate any marketing, however, consider another finding of this year’s survey – 49% of respondents ended up using the very first broker they talked to. Is marketing therefore pointless? Many leading brokers tell us they rely only on referral and repeat business, and our survey gives some clues as to why. Personal recommendations are enormously important when selecting a broker, with 40% of consumers using them to choose their broker, followed by 22% using professional recommendations. Furthermore, personal recommendations are particularly important to ultra-high net worth clients (those earning $180,000+ p.a.) and professional recommendations were disproportionately important to those earning $80-180,000 p.a. and $180,000+ p.a. Our survey suggests that being a local is not enough to attract clients, although 20% of lower net worth clients ($37,000 p.a. or below) did see this as important. Advertising and recognisable branding also don’t play much of a role, although it’s important to note that many respondents
selected a combination of options – having a strong brand and local presence can certainly add to the prestige of a recommendation. Whether you market yourself, or your clients come to you, it’s important to remember that clients may be after more than just a mortgage. We asked clients what other services they’d consider getting from a mortgage broker (other than mortgages) and only 16% answered ‘none’, while 84% of clients are open to getting other services. We
saw a fairly even split of respondents between loans for business, vehicle loans, insurance and financial planning, with many clients selecting multiple options. These findings certainly add weight to the argument in favour of brokerages diversifying beyond mortgages. If you’re looking to really stand out from the competition, you may want to consider our respondents’ relative openness to paying their broker (you can find this in our commission section).
HOW DID YOU CHOOSE YOUR BROKER? Personal recommendation 40%
Local to my area 22%
9%
Professional recommendation
Part of a brand I recognised (ie Aussie/Mortgage Choice) 9%
12%
Saw advertising
8% Other
WHO ARE RECOMMENDATIONS MOST IMPORTANT TO? 70% 60% 50% 40% 30% 20% 10% 0%
Personal recommendation Professional recommendation
Up to $37,000 p.a.
$37,001-$80,000 p.a. $80,001-$180,000 p.a. Income bracket
$180,001+ p.a.
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SPECIAL REPORT
CONSUMERS ON BROKERS
AFTER-SETTLEMENT SERVICE 2015’s rate rises for existing customers put brokers’ after-settlement service to the test and, sadly, many have failed SO MUCH for a long-term relationship. Two in five of our respondents have never been contacted by their broker since settling their loan. This isn’t the only alarming statistic emerging from our survey – 57% of respondents whose interest rate went up last year weren’t contacted by their broker. Both findings suggest that, despite increasingly powerful CRM systems, the after-settlement service of some brokers remains woeful, and could be losing them potential business. Deciding to include after-settlement service in this survey was spurred by recent events. 2015 saw APRA cause banks to raise rates for existing customers, as they attempted to limit investor loan growth and raise capital ratios to match international standards. In our Brokers on Banks survey earlier this year, 65% of respondents said banks didn’t deal with the rate rises in a ‘fair way for new and existing clients’. Their main complaint was lack of communication by banks, both to brokers and their customers, and bank-to-consumer communication that risked marginalising the broker. Yet it appears a sizeable number of brokers are doing just fine marginalising themselves, by failing to contact borrowers at all. Whether or not you view trail commission as obliging brokers to look after borrowers post-settlement, these brokers missed out on the opportunity to refinance their clients to lower rates. Only 15% of affected respondents were contacted by their broker about refinancing following the
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rate rises. Furthermore, the failings of some brokers when it comes to offering aftersettlement service will hardly reflect well on the industry as ASIC reviews commission structures (more about which you can read in this report’s section on commission). Our findings strongly imply the large majority of borrowers are open to more communication from their broker. We asked respondents how often they’re contacted by
their broker, and whether they’d like more communication. Unsurprisingly, 60% of those who have never been contacted would like to be contacted more often – more surprisingly only three per cent of those contacted monthly, and seven per cent of those contacted quarterly, would like less communication. This finding runs counter to popular assumptions about clients being overwhelmed by broker newsletters and junk
“Only 15% of affected respondents were contacted by their broker about refinancing following the rate rises” HOW DID YOUR BROKER COMMUNICATE 2015’S RATE RISES TO YOU?
They didn’t contact me
They explained the reasons for the rate rise AND offered to refinance the loan to get me a cheaper rate
15%
57%
How did your broker communicate 2015’s rate rises to you?
28%
They explained the reasons for the rate rise Note: These statistics only apply to the 67% of respondents who were affected by last year’s rate rises
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mail. What it suggests is that those brokers running monthly and quarterly contact schedules are contacting their clients with interesting, relevant information, which
getting services other than a mortgage from a mortgage broker, and only 17% said they would not be interested in this. Obviously, brokers should target clients with relevant
WHAT OTHER SERVICES WOULD YOU CONSIDER OBTAINING THROUGH A MORTGAGE BROKER?
“60% of those who have never been contacted would like to be contacted more often” clients are happy to continue receiving. Given that more interaction with the client gives the broker more opportunities for repeat business, then it appears contacting clients more frequently has all of the positives and few of the negatives. Regularly contacting clients after settlement could generate not just refinancing enquiries, but a number of other revenue streams for brokers, our results suggest. We asked borrowers whether they’d be open to
19%
25%
19%
20%
Loans for business
information, but services such as insurance and financial planning have wider appeal. There are plenty of external developments pushing brokers to contact their clients more – the potential for further APRA-driven rate rises, ASIC’s abovementioned remuneration review, not to mention increasing competition between brokers. Our survey suggests that there’s little danger in communicating more with your clients – but a lot to be lost by not communicating at all.
Financial planning
Vehicle loans
16% None
Insurance
2%
Other
*Other included health insurance, credit cards and property investment advice
HOW OFTEN DOES YOUR BROKER CONTACT YOU? Desired frequency of contact
Proportion of respondents
60% 50%
More frequently Less frequently
40% 30% 20% 10% 0% -10% Monthly
Quarterly
Annually
Biannually
They haven’t contacted me
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SPECIAL REPORT
CONSUMERS ON BROKERS
PAYING THE BILL As ASIC reviews brokers’ remuneration structures, our respondents say they’re comfortable with commission, and almost half are open to paying their broker WE COULDN’T run a report about consumers without talking about this year’s biggest consumer issue – ASIC’s review into mortgage brokers’ remuneration. ASIC are concerned that commissions could act as a form of ‘conflicted remuneration’, producing worse results for consumers. We therefore asked our respondents how they thought commission affected their experience with a broker – and whether they were aware brokers were paid commission at all. The headline figure is that 70% of our respondents didn’t think being paid commission affected the service they received from their broker. We asked respondents to give us their thoughts on commission, and the comments were encouraging for brokers. In one typical comment, the respondent said they had “no problem [with commission]. He... tells me the commissions he receives from each bank. I do not feel it has an impact on the decision I make, and it saves me paying him.” Another respondent who had no problem with broker commission wrote that “they provide a service that none of my banks ever did”. Breaking down the results by type of borrowers helps explain borrower attitudes. Investors and those switching properties – those who’d experienced the application before – are more comfortable with commission, whilst only 60% of first time buyers believe it didn’t affect service. Worryingly, 11% of first-time buyer respondents said they weren’t aware their broker was paid commission. Moreover, one in five of all respondents saw commission as restricting the lending options they were offered, although only one in ten believes commission prevented them from getting the best deal.
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Given that brokers are supposed to clearly disclose commission, a significant number of our respondents appeared to be confused as to how commissions work. The biggest misapprehension was that all lenders pay the same level of commission, with one respondent writing, “Even though they get the same commission from different lenders, I believe lenders can find other ways to encourage brokers to recommend that lender.” Another respondent suggested that brokers should disclose the commission levels of the lenders on their panel. Additionally, a number of respondents who were comfortable with upfront commission cast doubt on the need for trail commission. “I expect them to be paid but feel it’s not appropriate to be paid for the life of the loan,” wrote one respondent. “I’ve never had follow-up service from my first broker I used over 10 years
ago and, in fact, he complained when I went back to him as he specialised for a certain target audience.” As you may have noticed, in our section on After-Settlement Service, 40% of our respondents have never been contacted by their broker since settling the loan. It’s therefore far from surprising these clients have a negative perception of trail.
Implications for fee-for-service ASIC are investigating all remuneration structures, including fee-for-service. Responses by industry players, particularly AFG, have questioned the viability and consumer appetite for fee-for-service. We asked our respondents whether they’d ever pay for a broker’s services, and if so, what they’d expect. Almost half of respondents (47%) said they would consider paying their broker. Whilst this also means 53% of respondents wouldn’t
HOW DO YOU THINK BEING PAID COMMISSION AFFECTED THE SERVICE YOU RECEIVED FROM YOUR BROKER? I didn’t know my broker was paid commission
It didn’t 4%
70%
How do you think being paid commission affected the service you received from your broker?
9%
17%
It stopped me getting the best deal
It restricted the lending options I was offered
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consider fee-for-service, these findings certainly suggest the market for fee-for-service brokers could be larger than is currently assumed. We split the results down by income bracket and found that high income borrowers ($180,000+) were the most willing to pay their broker (57%), and that openness to fee-forservice decreased with wealth. However, even
upgraders – to pay their broker. Given almost all lenders currently do pay commission it’s natural that consumers would expect additional value from a fee-for-service broker. This year and in 2015, we asked respondents who were open to fee-for-service which additional services they would expect. ‘Financial advice included’ continues to be top
“70% of our respondents didn’t think being paid commission affected the service they received from their broker” amongst the lowest income bracket (less than $37,000), 38% of respondents would still consider paying their broker. There was no pronounced difference in the willingness of different types of clients – FHBs, investors,
WOULD YOU EVER PAY FOR A BROKER’S SERVICES?
option (30%), followed by the lowest interest rate (25%) and priority turnaround time (21%) – you can read more about this in our section on Choosing a Broker. This year, we also included another potential
response for this question: ‘To stop my broker being affected by commission payments’. We introduced this to gauge whether respondents were so concerned about the negative effects of commission that they would pay to avoid it. The response rate – just 16% of respondents – suggests the majority of consumers would not contemplate taking this approach. We had some interesting comments on the subject of why a consumer would pay a broker. “If it ensures the right loan structure with consideration to all other loans and future plans,” explained one comment, “then it is well worth it.” Several comments mentioned the importance of structuring with a view to a long-term relationship and portfolio building. Added to the abovementioned appetite for financial advice, this suggests that wealth-orientated brokerages are best placed to offer fee-for-service options, and indeed some already do.
WHY WOULD YOU PAY FOR A BROKER’S SERVICES? 30% 25% 21% 16% 7%
Yes 47%
No
53%
Lowest interest rate
Priority turnaround time
Financial advice To stop my broker being included affected by commission payments
Other
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SPECIAL REPORT
CONSUMERS ON BROKERS
WHAT CONSUMERS SAID ABOUT YOU Reader comments suggest the industry should be concerned about commissions, but also show that many brokers continue to do outstanding work WHETHER YOU’RE discussing ASIC’s remuneration review, broker and bank communication of rate rises, or why personal recommendations are so important, all come down to a question of trust. Whilst we’ve tried to keep other questions statistical – which makes it easier to provide you meaningful insights that you can act upon – the issue of trust is too complicated to be encapsulated by a ‘yes/no’ answer. Instead, we finished the survey with a straightforward question – ‘Having used a broker yourself, would you say you trust brokers?’ – and gave consumers as much text as they needed to answer it. Almost all the answers we received were interesting, extensive and relevant. We’ve included as many of the best as we can in this section. What’s most evident from the comments is that trust has to be earned. Many
commenters noted that they had not originally trusted brokers, often due to a perception that commission would sway their judgement. It was only after having a positive experience with a broker and seeing the benefits that they came to trust their broker. That doesn’t mean, however, that they trust brokers as a group. Many consumers sought personal recommendations for their broker for the same reason. What can the industry do to build trust in brokers as a group? In the section title ‘interesting suggestions’, we’ve featured a few respondents’ selections. Many of these suggestions involve brokers having consistent, transparent structures. It’s therefore possible that ASIC’s review into remuneration could end up benefiting brokers hugely, by increasing public awareness of how the third party channel actually operates.
STAR COMMENT Our final question to consumers was short and simple: ‘Having used a broker yourself, would you say you trust brokers?’ One respondent – who is now the recipient of a $250 gift card – eloquently summed up broking at its best: “I trust my broker. He talks to me like we are mates, he puts everything into language I can understand and has done out-of-hours Skype calls to my wife and I, working around our schedule. He has contacted me almost daily, as often as I have needed and helped me tremendously with more than just the loan, but with me being able to bounce my strategy off him. The industry needs brokers like this who actually enjoy doing what they do and want to provide the best service for people.”
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ROOM FOR IMPROVEMENT “I prefer to deal with the banks direct, so you know who you are dealing with. When you use a broker you are treated like a third party and the bank treats you differently.” “It depends. Our loan was with a non-standard lender and so more complex, and I felt our broker really didn’t put the time into understanding it. We had to do a lot of follow up with the bank. We refinanced ourselves, including ensuring we were getting the deal the broker said we would. All in all, I didn’t feel like the broker really cared about what happened.” “No. He took on too many clients, fobbed me off to his assistant, didn’t set up my finances as I requested and became an expensive, time-wasting third party interference between myself and the bank.” “I do trust brokers, however I do not feel they earn their trailing fees. After the deal has been done they are not interested and expect you to deal with the bank direct, then the bank doesn’t want to deal with you, so you go back to the broker and they have one of their juniors in the office complete the work.”
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GOING ABOVE AND BEYOND “I trust my broker. As a firsttimer entering the property market, I had no knowledge at all about how to set up the loan so that I could maximise my benefit. He explained the loan strategy and how to refinance my own home loan to get a few investment properties.” “I trust some brokers, but not all. My guy went the extra mile for me in a difficult situation, so I would be loathe to go to someone else. I am a person in small business, I work hard in my business and I want someone who works hard. But then I would reward them with loyalty.” “We have known our broker since we bought our first house and have always received quality service. I love that I can just call him up – he knows me and my financial history. He also knows my family, who use him as well. I feel confident when he puts forward offers and gives advice on which products to use. I have found his recommendations to be very competitive. I hope he sticks around because I wouldn’t want to switch to anyone else.” “My broker for my first home made the purchasing and finance organisation simple. The broker made it very clear that he is paid commission from the lending institute and that he cannot legally make a lending recommendation based on the commissions he receives. I do trust brokers and would consider using a well-regarded franchise that has a professional image to protect, ie Aussie or Mortgage Choice.”
PROBLEMS WITH COMMISSION
INTERESTING SUGGESTIONS
“I would say I’m wary of brokers. Some are just in it for the commission and try their hardest to manipulate their clients into a situation that’s better for the broker, ie getting a home loan with their specific bank so as to get a bonus or more commission. Whereas I’m lucky I found the broker I had.”
“I think they should receive the same commission/fee from all organisations/institutions and no ‘kick-backs’ as this would remove any trust issues in regard to the broker choosing one over another. I guess, like any industry, there are good and bad ones but ours is fabulous. And our wonderful broker is CFC George Kanellis at Parramatta NSW.”
“Yes, I trust my broker. The information and advice he gives me is always open and backed up with figures/ justification. I am fully aware of the commissions he receives from each bank. I do not have a problem with this. Better the commission comes from them than from me. The research he does into products available on the market saves me valuable time and money. I was unsure about whether to use a broker, but after having used one, I cannot see any reason why you would not.”
“Yes, I would say I trust a broker that has been recommended by other people’s experiences… My suggestion, in order to improve the level of transparency within brokers, is to have all lenders and products identified to their clients to include another column with the fee these lenders are offering brokers, therefore the client will have a better understanding when brokers choose certain products and lenders to be more open.”
“Yes, I did trust my broker and that was purely from how I perceived him and his friendly and professional nature. It does play on your mind though, that they get paid a commission for their work and you may never be 100% sure they picked the best product for you when they have their own self-interest in it as well.” “No. First of all, my broker charged $400 as a consultancy fee for securing a mortgage for my investment property. From the outset it was very obvious that he preferred one or two lenders as a result of the amount of trailing commissions he was going to get. His communication was very poor and to top it all off we had to do all the work and provide all relevant information for him. He provided zero value.”
“Subject to an individual understanding that a brokerage (in this case mortgage broking) is a business, and provided the broker is forthcoming regarding the limitations of their services and their incentives, including how this relates to any advice they provide, I see no reason not to trust brokers. Some level of professional governance within the mortgage broking industry (if not already in existence) could assist with any reputational challenges in addition to guidelines for best practice service (which could include follow-up contact).” “I would definitely trust a broker. Particularly if they are referred to you. We live in a small area and if you do the wrong thing, you don’t get a recommendation, so it follows you can trust them to do the right thing.”
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FEATURES
FIRST HOME BUYERS
EXTENDING THE LADDER A number of new options have emerged to help struggling first home buyers get a mortgage, and assist brokers in creating a client for life
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WHAT FHBS THINK ABOUT BROKERS
FIRST HOME buyers have become a classic ‘bad news story’ within the industry. Whereas 2015 saw first home buyer anger rise to the surface – most notably when then-treasurer Joe Hockey suggested the solution was “to get a good job that pays good money” – 2016 has seen this embarrassing subject pushed aside entirely. The prospects for first home buyers are grim, and unlikely to get better. Indeed, in his introduction to March’s Housing Affordability Report, Adelaide Bank general manager Damian Percy noted, “The fact that many young families, particularly those in Melbourne and Sydney, now see home ownership as something their parents achieved but they likely never will, is a national tragedy.” The report did find that the number of FHBs had increased in every state except WA, but a proportion of the owner-occupied market still remained well below the longterm average – 15% compared to the long-term average of 19.7%. Whilst QBE/ BIS Shrapnel’s Housing Outlook 2015-18 reports prices in some cities will fall, Robert Mellor, managing director of BIS Shrapnel, told MPA that “until we get to flat price growth or small declines, or income growth gets to 3-4%, we won’t see an increase in first home buyer activity.” Moreover, regulators are unlikely to look kindly on a type of lending which by its nature involves high LVRs and borrowers with limited assets. Meanwhile, the vehemently negative reaction to Labor’s suggestions regarding negative gearing means political parties will hardly be inclined to get involved in housing-related debates. All of which mean that FHBs’ best friends are now brokers and lenders. Whatever your reason for dealing with FHB clients – and there are several that remain compelling – this article will present various ways to overcome the deposit gap, the changing preferences of
A recent survey by NAB Broker and Genworth found that aspiring first home buyers (FHBs) hold a number of major misapprehensions about brokers:
27% Aspiring home buyers said they were most likely to apply through a broker
27% Thought they could get a better deal by going direct to a lender
35% Aspiring home buyers were unlikely to use brokers because they simply hadn’t considered it
47% Those likely to use a broker expected to pay a fee Source: NAB Broker/Genworth, Engaging Consumers and Empowering Brokers, November 2015
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FEATURES
FIRST HOME BUYERS first home buyers, and the ways that brokers can position themselves in this space.
Understanding 2016’s first home buyers When dealing with FHBs, brokers should note the characteristics of this group have changed considerably in recent years. “The average age of Australians buying homes has shot up over the last decade,” notes Me bank’s general manager of broker sales Lino Pelaccia. “Many first home buyers are now predominantly in their 30s and 40s.” A rising average age has two implications – the first of which is that older borrowers have had longer to save for a deposit and may earn higher incomes. Higher wages won’t by themselves solve the deposit gap, according to Richard Irving, head of third party at Bank Australia. “There is also an interesting profile starting to take shape where individuals who have a very good servicing capacity just can’t get enough money together to meet genuine savings requirements.” Nor does it mean that parents and relatives can be safely ignored. In fact, parental involvement is growing due to guarantees and gifts, as discussed below. The second implication of older borrowers is that brokers cannot assume they’re dealing
HOW PROPERTY PRICES IMPACT FHB DECISIONS QBE’s 2015 Barometer report asked prospective FHBs how rising property prices could impact their buying decisions. Predicted impact on buying decision
Proportion of first home buyers
May have to give up buying property
Up from 25% in June 14
17%
Will end up buying something smaller than I want
40%
Will end up buying in another location
40%
Will buy less than I want
28%
Considering a larger loan Considering buying an investment property instead of a property to live in
23% 7%
Up from 14% in June 14 Source: QBE/GfK Australia, Barometer 2015. Note numbers do not add up to 100.
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with the ‘digital native’ generation, according to Adelaide Bank head Percy. A large amount has been written on marketing approaches for younger buyers (see our own take on this in MPA 15.11), but brokers would be advised to instead focus on a particular message and keep their marketing broad-based. And what is that message? In its most basic form, it’s that you will help your client to get on the housing ladder and challenge negative perceptions held by FHBs, some of which are not grounded in reality. For example, a recent study by Commonwealth Bank found that 50% of potential home buyers overestimate the median dwelling price of their capital city which, according to general manager of broker sales Sam Boer “indicates there is a gap in perception and reality when it comes to affordability”. Adelaide Bank’s Percy sees the perception challenge as being two-fold. “There’s a real risk that first home buyers start to give up, that they start to form the view that a. it’s too hard to get in, and b. once they do get in, the financial stresses and pressures that will come from carrying debt will create hardship.”
Overcoming the deposit gap The challenges of FHBs are epitomised by their struggle to get a deposit together, and for many, the solution lies in parental guarantees. Previously a niche option, parental guarantees, where borrowers use the equity in their parents’ home as security, have ballooned. At Bank Australia they find that over 50% of FHB applications “now have some sort of support from parents”. All the lenders involved in this piece offer some sort of guarantor options, and it’s worth noting that parents may be more open to this option then you’d think. Parents also read about declining affordability, observes Percy from Adelaide Bank, and want to help their kids out. “They’re useful tools and increasingly, as a parent of a 10- and 12-year old, you start to look at housing for your kids and you almost assume you’ll have a role.” Financial gifts, where parents provide some of the finance needed for the deposit, are also becoming more popular, Bank Australia have found, and is now quite common. It’s worth
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FIRST HOME BUYERS “Individuals who have a very good servicing capacity just can’t get enough money together to meet genuine savings requirements” Richard Irving, Bank Australia
noting here that lenders will want assurance that the money is indeed a gift and there is no expectation from parents it will be repaid. Less traditionally, some lenders, such as CBA, have begun to introduce shared property products. “Our Property Share product allows customers to split the cost of buying a home with family and friends, explains Sam Boer, “while retaining individual control of your finances”. Irving says Bank Australia can also look at this kind of arrangement. “It is less about a specific product and more about understanding how to structure an arrangement.” Research by Me bank found that 14% of buyers purchased jointly with parents, 12% with other family and 4% with friends, and Pelaccia sees that growing further. “With property values remaining strong, the trend of co-buying looks set to gain momentum.” He recommends drawing up a formal co-ownership agreement with a solicitor, which “will set out in writing how various possibilities will be handled by everyone – from the arrival of a partner on the scene to what happens when one owner wants to sell up.” Whilst property share products may seem exotic, it’s important to remember even guarantor loans carry risks. “We need to be
careful not to undersell the risks of parental guarantees to parents,” says Percy. “It’s a guarantee and all guarantees have risks. If it wasn’t the transfer of some sort of risk from the bank to the parents, the bank wouldn’t guarantee it in the first place.” Suncorp’s Degetto advises brokers to meet independently with guarantors to make sure they understand this fact. Irving from Bank Australia urges brokers “to consider the ‘exit strategy’ for guarantors… It is also important for brokers to make sure the guarantee is ‘limited’ and not a guarantee of the entire loan.” First home buyer grants vary considerably by state (see the accompanying table), and have been slashed in recent years, but should of course still be considered. In some cases, brokers may wish to look at the governmentbacked lenders in the market, who can offer solutions for those on low incomes or from disadvantaged groups. Examples include HomeStart Finance in South Australia and KeyStart Finance in Western Australia. Looking forward, a risk-free ‘quick fix’ for the deposit gap remains a distant prospect. One solution, suggested by Adelaide Bank’s Percy, is equity-based loans, where those looking to invest can take a share of a first home buyer’s loan, and take a share of any
CROSSING THE DEPOSIT GAP Genworth’s Streets Ahead report for March 2016 looked at the changing ways FHBs get together a deposit. 80% 70% 60%
2010
50%
2013
2016
Note: ‘Other than savings’ comprised of all other deposit sources
40% 30% 20% 10% 0% er Oth
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ngs avi s n tha
up ed v a Is
nts om are it fr nts p d e re from row pa Gift Bor
ce itan r e Inh
an l lo a n so Per
ion etit p om y/c r e t Lot
er ily ily Oth am ts) am ts) f f from ren ift from paren d it not pa G not e ( row ( r o Source: Genworth, Streets Ahead, March 2016 B
rd t ca i d Cre
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FEATURES
FIRST HOME BUYERS appreciation in the property’s price. These products exist – Adelaide Bank introduced theirs in 2006 – but have been held back by the unwillingness of superfunds, the most obvious investor, to get involved.
Features of loans Receiving less attention than deposits, but still important to brokers, is what sort of loans FHBs are after. FHBs have traditionally been associated with simple low-cost, high-LVR products, and Me boss Pelaccia finds this is still the case. “Our basic home loan – our no-nonsense loan without all the bells and whistles – is popular with first home buyers.” FHBs do want a redraw facility, but are less keen on application or ongoing fees, he adds. Irving sees the same at Bank Australia, where offsets have not been particularly popular, whilst noting there has been some enquiry from FHBs about interest-only options. Other banks, however, argue that FHB preferences are changing. “Over time, we have seen a shift towards package loans with all the benefits of flexible payments and offset facilities,” observes Suncorp’s Degetto. “The focus for consumers has very much been on saving interest where possible in order to pay off their loan quicker.” He’s also seeing low interest rates encouraging FHBs to fix some or
GOVERNMENT FINANCIAL ASSISTANCE BY STATE Established properties
New properties
State
Cash grant
Stamp duty concession (max)
3Cash grant
Stamp duty concession (max)
NSW
$0
$0
$10,000
$10,000
VIC
$0
$15,500
$10,000
$10,000
WA
$0
$14,400
$10,000
$10,000
TAS
$0
$0
$10,000
$10,000
NT
$0
$0
$26,000
$26,000
ACT
$0
$0
$10,000*
$10,000*
*set to reduce to $7000 in Jan 2017 Note: figures correct as of September 2015
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Source: State Government Revenue Offices, BIS Shrapnel, QBE Housing Outlook 2015-18
all of their loans to provide security around repayments. Furthermore, he finds some FHBs looking for loans with lower LVRs and more competitive rates, which they access through guarantors and parental gifts. According to Commonwealth Bank and Adelaide Bank, FHBs are looking for more control over their repayments. FHBs won’t just settle for a bill coming through the door, explains Adelaide Bank’s Percy. They want interactivity through offsets and budgeting tools, ideally using technology, such as mobile applications. Indeed, Percy believes that brokers should look at challenges around repayments, not just the deposit, when selecting products. “Brokers and banks have an obligation to keep an eye on that sort of thing… You’ve just given that person the largest debt they’ve ever had.”
Taking the long-term view So far this article has been focused on products, but of course brokers in all areas of lending are looking to build long-term relationships. In the case of FHBs, brokers do this by starting that relationship long before the loan has settled, helping borrowers with their savings journey. Suncorp boss Degetto believes brokers play a pivotal role here. “It is important brokers position themselves as an invaluable source of knowledge and expertise in this market.” Percy agrees, and picks out as an example Bluebay Home Loans, an associate of Adelaide Bank. Their brokers work with borrowers for six to nine months, helping them save for a deposit. This gives their brokers an advantage when the borrower is in a position to buy. “The broker will have greater insights than anybody else and, generally, they get a lot of respect and love from those first home buyers for having assisted them.” There are ways brokers can engage with prospective FHBs even earlier. Financial planners have become increasingly interested in young professionals in their mid-20s, attempting to reach them through technologydriven, low-cost planning options. One growing trend, which is relevant to brokers, is the use of margin lending to help prospective FHBs grow their wealth from a low base. To
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find out more, MPA talked to Julie McKay and Keith Hilsdon, who work in wealth management at Bendigo and Adelaide Bank. McKay and Hilsdon aim their Investment Funds Multiplier product at clients aged 22-23, who want to build wealth faster than a term deposit would do, whilst spending much of their income on leisure activities. The bank then loans them money to invest in equities – most financial planners advise 50% gearing –
decline to take up a service after committing. However, in their recent submission to ASIC’s ongoing remuneration review, aggregator AFG argued that FHBs would particularly suffer if fee-for-service was mandatory, as they already lack resources, meaning they would go straight to lenders to minimise costs. For most brokers therefore, the commercial incentive to deal with FHBs remains the same – that these become clients for life, with
“We need to be careful not to undersell the risks of parental guarantees to parents... It’s a guarantee and all guarantees have risks” Damien Percy, Adelaide Bank and starting with $1000, the client makes contributions of $250 a month upwards. The advantage, according to Hilsdon, is that “you’re building credit worthiness in the eyes of a bank, and you’re also building up your portfolio of assets… When it comes to sit down with your bank you’ve demonstrated a track record of repaying a loan and invested in assets that will return value.” Owing to the GFC, margin lending has a poor reputation, and isn’t something a broker can formally recommend, cautions McKay. “Certainly, if the broker isn’t accredited to give advice, they can only direct the customer to a financial planner or to the MoneySmart website.” Brokers should also be aware of the timeframes involved, according to McKay. “This is a medium-term plan. It’s a couple of years out for people, but it’s a sensible way of doing it, and it doesn’t entail them hoping they win the lottery or something like that, because I don’t think that’s realistic.” Margin lending products do not offer commission to the broker, and indeed many brokers will look at the entire ‘savings journey’ approach and ask, ‘What’s the payoff?’ It’s a question lenders struggle to answer. In the investor lending space, some brokerages now charge borrowers for a package of all-round advice, or, in the case of AMA Brokerage of the Year, The Australian Lending and Investment Centre charges borrowers if they
accompanying referrals for life. “First home buyers turn into second home buyers, who turn into third home buyers,” comments Adelaide Bank’s Percy. Me bank’s Pelaccia also notes this possibility for repeat business, whilst adding that FHBs continue to represent “a fair share of the market”. In terms of personal referrals, FHBs are particularly valuable to brokers because a settled loan creates further clients in grateful mums, dads and relatives. Given the continual bad news around affordability, prospective first home buyers are looking for ways to get on the ladder and personal referrals from friends count the most. Marketing yourself as a specialist can work well here, explains Percy. “Being able to create a story around your business, where you’re helping them get what they want and you’re prepared to assist them earlier than others, adds to that opportunity for referrals and positive feedback.” Finally, there is a moral case for helping first home buyers. Almost all the lenders MPA spoke to for this article made this point, but we’ve chosen to end with the argument from Bank Australia’s Irving. “Our job, collectively across the industry, is to find a way to work together on solutions for first home buyers. Affordable housing is one of the biggest challenges for the country and accessibility to finance in turn needs to seriously be considered. We need solutions.”
WHATEVER HAPPENED TO RENTVESTORS? Last time MPA covered the FHB sector, in early 2015, we wrote about ‘rentvestors’ – those buyers whose first purchase is an investment property in an affordable suburb, whilst they themselves continue to rent and enjoy the inner city lifestyle, who LJ Hooker flagged as a growing trend. Seven per cent of FHBs told QBE’s Barometer in early 2015 that they would consider buying an investment property instead of one to live in. Rentvestors still exist, but were hit particularly hard by APRA’s restrictions on investor lending later in 2015. “The one who has been disadvantaged the most is the person who has never bought before and they don’t want to buy the family home – they want to buy the investment property,” Simon Pressley of Propertyology told the Brisbane Courier Mail. “They are the ones who have been hit hardest because all investors have to raise around a 20% deposit. Brokers will have to work a lot harder.”
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FEATURES
LOW DOC
LOW DOC: EMBRACING THE WIDER MARKET As lenders improve their processes, low-doc clients are being offered a bigger range of products, giving brokers more choice and more ways to engage these clients
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EVERYONE TALKS about the current instability of the mortgage space – the aggressive regulators, rate hikes and bank scandals. In doing so, they overlook one sector of the market which is stable, and growing steadily. That’s the low-doc sector, often referred to as alt-doc space. Here, relative regulatory stability has allowed the non-banks to introduce new products, particularly in the prime and near-prime space. MPA has talked to the key lenders in this area to understand the new options available. To understand the sector you need to understand ASIC Report 410, published in 2014, from which low-doc lenders emerged relatively well. ASIC deputy chairman Peter Kell commented that “our review shows lenders have lifted their game since the introduction of responsible lending laws.” The report, recalls La Trobe Financial vice president Cory Bannister, put “many minds at rest that the operators in this space have appropriately prudent policies in place around the assessment of low-doc loan applications”. In some cases, developments in regulation since then have made brokers’ and lenders’ jobs simpler. Australian First Mortgage boss David White has been seeing “simple changes, like not having to provide a declaration of income plus two other forms to support the declaration, being bank statements, accountant’s letter and BAS. Now only one of these is required and not two.”
That’s not to say all restrictions have been loosened. Murray Cowan, managing director of Better Mortgage Management, has seen a tightening of serviceability requirements regarding an applicant’s total expenses. Furthermore, the low-doc sector has not escaped the furore over interest-only lending, he explains. “It [is] more difficult to obtain an interest-only loan without having a reasonable explanation/ acceptable loan purpose.”
Prime loans in the low-doc space The new generation of low-doc products has been guided by lenders’ target clients. As RESIMAC Financial Services’ Daniel Carde puts it: “Alt doc lending by its very nature is for the self-employed market.” Due to their business requirements, self-employed borrowers are more likely to borrow money on a regular basis, to finance equipment, vehicles, business expansion and the purchase of business premises. Self-employed borrowers may lack payslips, but lenders increasingly refer to ‘prime alt-doc borrowers’ – those with limited documentation but a clear credit history. RESIMAC has been looking to expand their presence in this space by removing LMI and increasing the maximum loan amount on their Prime Alt Doc loan. This article’s product guide – which you can find at the end of the article – features prime alt doc products from almost all lenders: Pepper Prime Alt Doc, Bluestone’s Crystal Blue and Homeloans
LOW DOC OR ALT DOC? In this article you’ll find lenders refer to both low-doc and alt-doc loans, and indeed some lenders, such as Pepper, argue they only use the term alt doc, because “both the lender and the borrower have an obligation to ensure they carry out the same level of income/capacity to repay assessment as they would for a full-doc loan.” At MPA, we use the term low doc. We do this for two reasons: brokers’ familiarity with the term and because ASIC – and thus consumers and the mainstream press – use it (ie Report 410 ‘Review of low-doc lending’). Alt doc may be a more useful term, however, in that it reflects the actual process of getting a loan. We’ll keep our eyes and ears open to what brokers and regulators say about low-doc and alt-doc loans in the year ahead and, if necessary, change our wording.
Ltd’s new near-prime construction loan, to name just a few. With complicated tax arrangements, and given the risks associated with starting new businesses, many self-employed borrowers don’t have clear credit histories, which is why the products for both low-doc and non-
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FEATURES
LOW DOC BROKER VIEW: KERRY KALENDRA, OPTIM FINANCIAL As director of Optim Financial, Kerry Kalendra has been dealing with low-doc clients for over 10 years. He first encountered these clients through working with accounting firms and these referral relationships continue to make a difference, although Kalendra’s client base is still broad. Many clients don’t initially realise they are low-doc clients, Kalendra notes, and so this discussion must be carefully structured. To reduce turnaround times, he insists clients provide all documentation – covering all the lenders’ verification requirements – before starting on their file. He also recommends using lenders that can switch loans during the application process, rather than going back to square one. Rather than avoiding low-doc clients, Kalendra believes that brokers should see them as “just another client”.
conforming clients continue to be offered by lenders. Indeed, some have expanded their offering in this space. Early in 2016, Homeloans introduced their Envizion product range, which is for “business owners looking for a loan to be considered on its merits rather than a credit score”, according to Ray Hair, Homeloans’ general manager of sales. As lenders introduce increasingly specialised new products dependent on credit histories, brokers do have to take care they don’t treat the self-employed as a homogenous group, nor assume that lowdoc, alt-doc and self-employed borrowers are easily interchangeable terms. Pepper’s Mario Rehayem advises brokers to “be careful marketing directly for alt-doc clients as this is targeting a specific assessment criteria/ product feature as opposed to targeting the self-employed market as a whole.”
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Marketing to low-doc clients A lot of the rhetoric surrounding low-doc lending talks about missed opportunities for brokers who turn down low-doc clients. There’s some truth in this. Many brokers are approached by low-doc clients after being rejected by banks. Yet, as in any area of broking, most brokers will want to take proactive action to improve their lead flow. Furthermore, the right marketing can not only bring more clients through the door, but
If you can afford it, a broad-based marketing strategy will be most effective, insists Liberty Financial’s national sales manager John Monacheff. “The key to any successful marketing campaign is to reach out to the customer in as many different ways as possible. Some low-doc borrowers will respond to local area campaigns, others to more targeted marketing, and then, finally, some will require a direct touch… The key is not to put all of your eggs in one basket.”
“The only difference between our LiteDoc loans and our Full-Doc loans is income verification” Cory Bannister, La Trobe Financial improve the quality of leads, our panel of lenders explained. “There are two levels of marketing that brokers should consider with respect to lowdoc borrowers,” observes Homeloans’ Ray Hair. The first level is external marketing, which should be “targeted and relevant”. Hair suggests looking at prospective referrers and actively participating in business owners’ and self-employed networking groups, with the objective being to promote the broker’s experience and expertise in this field. The second level of marketing involves understanding the low-doc clients currently on your database. By looking for ways to move these clients onto potentially cheaper full-doc solutions, explains Hair, “the broker can obtain repeat business and perhaps identify other opportunities such as plant and equipment, debt consolidation, etc.” The low-doc space is one area where marketing through advertising still makes an impact, lenders told us. “For brokers, targeted marketing within a trade magazine or other publication is a great way to reach the right low-doc audience,” notes BMM’s Cowan. Brokers may want to target tax and accounting trade publications in order to reach referral partners, according to AFM boss White, whilst letterbox drops and an operating website continue to provide leads. Additionally, Bluestone points to industry bodies as a good place for brokers to market their services.
Pay particular attention to the language you use in your marketing. “Borrowers quite often feel ostracised when it comes to borrowing money,” says RESIMAC’s Carde. “Self-employed borrowers need to be made aware that there are other lending options available.” Also note Pepper’s abovementioned warning regarding the use of the name ‘alt doc’. Referral partners naturally play a huge role in this type of lending. “Any referral partner that has exposure to self-employed clients is a valuable referral partner,” observes Pepper’s Rehayem. “Experience has shown that accountants are one of the best sources of alt-doc referrals.” Bluestone’s D’Vaz points to accountants, as well as solicitors and financial planners, and recommends brokers maintain at least two to three good referral relationships, whilst asserting that “the best referrers in this segment are satisfied customers themselves.” Both La Trobe and Homeloans commented on the ability for accountants and financial planners to provide better qualified leads. However, Homeloans boss Hair warns that “referrers without a credit licence need to be aware of the importance of recommending a broker, not a product or specific solution. A referrer who understands the borrower’s financial, business and/or investment objectives can be expected to deliver better quality leads, but unless the referrer holds an ACL or is an authorised
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FEATURES
LOW DOC BROKER VIEW: LARRY STRANGE, FINANCE COMPANY AUSTRALIA Larry Strange encounters a large number of self-employed clients because he specialises in the commercial lending space, and finds himself arranging low-doc loans for business clients, backed by residential security. When it comes to applications, Strange observes that lender requirements have changed hugely since the GFC. “Those days are well and truly gone.” He finds that accountants’ declarations are the most popular method of verification, providing the client has a good relationship with their accountant. He advises brokers to take particular care to verify that the income the client is declaring is their actual current income, not projected income. Strange sees low-doc loans as “just another avenue of lending, which makes sense for a self-employed person if they don’t have the required documentation.”
representative of a licensee, they cannot provide credit assistance or advice.”
Adapting your application process One major concern for brokers looking at nonvanilla clients is whether it’ll require changes to their application process, especially given brokerages are being pushed to document and standardise their processes to aid efficiency. It’s therefore encouraging that low-doc, altdoc and full-doc application procedures are becoming increasingly similar. Indeed, several lenders told us the application processes for their low-doc and full-doc loans were almost identical. “There shouldn’t be any need for a broker to change their assessment process for low-doc loans,” says La Trobe’s Bannister. “The only difference between our Lite-Doc loans and our Full-Doc loans is income verification.” This happens very early in the process, so the rest of the
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process and subsequent turnaround times remain similar to full-doc loans. The converging processes are a result of the lending environment, explains Pepper boss Rehayem. “Both the lender and the borrower have an obligation to ensure they carry out the ‘same’ level of income/capacity to repay assessment as they would for a fulldoc loan... In today’s environment, we do not have policies that are of lower quality or standard when it comes to assessing a borrower’s income.” Reducing back-and-forth between broker and lender is paramount in reducing turnaround times, argues Liberty’s Monacheff. Whilst understanding the client and their goals might seem obvious, “by taking the time to understand what the client wants and how Liberty can tailor a solution, brokers can massively reduce the turnaround time.” A well-executed screening of the client
conversations should be relayed to the lender in the form of file notes.” Homeloans boss Hair put forward a number of additional tips, including checking the borrower’s ABN and GST registration on the ABN register, being aware that trading statements can involve a longer turnaround time due to complexity, and taking the time to make sure an accountant’s declaration is completed correctly, if necessary for an application.
Combating fraud Fraud remains a serious concern throughout all areas of lending, and has been particularly associated with the low-doc space. However, low- and alt-doc lenders are determined to challenge this assertion, and put forward a number of reasons. “It is easy to pigeonhole the low-doc segment as being more prone to fraud,” comments Bluestone’s D’Vaz. “But in reality – and from our experience – this is not
“Some low-doc borrowers will respond to local area campaigns, others to more targeted marketing, and then, finally, some will require a direct touch” John Monacheff, Liberty Financial can also help brokers be seen to add value, notes Royden D’Vaz, director of sales, marketing and distribution at Bluestone. “It is often the detail that provides the opportunity to match the client with a lower interest rate or more feature-rich product, or in some cases finding a solution for them.” Thorough reviewing of the client’s documentation is obviously important for a number of reasons, but it can also aid turnaround times. RESIMAC’s Carde outlines an example when confirming income. “For an alt doc, it is no different, but instead of looking at a payslip you are looking at an accountant’s letter, BAS or bank statements. If any doubt or confusion exists, the broker should seek permission from the borrower to speak with their accountant directly to gain a better understanding of the borrower’s business operations and financial performance. Once completed, those
the case.” Pepper’s Rehayem believes traditional assumptions should be reversed. “In my opinion, the full-doc loans process is more likely to be targeted by fraudsters. The assessment process tends to be more commoditised as opposed to the alt-doc process.” Lenders pointed out how they go to extra lengths compared to a full-doc process. La Trobe, for example, seeks assistance from independent accountants to confirm borrowers’ stated incomes. “We find that by involving another independent professional the incidence of fraud is greatly reduced,” Bannister explains. Improvements in software are also helping lenders combat fraud in the low-doc space. “Technology these days allows brokers to undertake more checks than ever before to verify the information being provided,” notes RESIMAC’s Carde. “From simple Google
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searches, to ABN searches, and even full ASIC company extracts where possible.” Nevertheless, brokers do have a role to play, as in full-doc lending. La Trobe’s Bannister urges brokers to “apply the reasonableness test” on all occasions, “such as considering the stated income against the industry the applicant operates in and
brokers from the innovation occurring in this area. Just as brokers have traditionally been reminded by lenders to not miss out on opportunities by turning away clients, brokers should be aware that new products, particularly in the prime alt-doc space, allow them to add more value to these clients than before.
“It is easy to pigeonhole the low-doc segment as being more prone to fraud, but in reality – and from our experience – this is not the case” Royden D’Vaz, Bluestone the length of time in the role.” AFM boss White also notes the importance of a “common sense approach” in addition to the two forms of verification AFM require, whilst Liberty’s Monacheff explains that brokers making reasonable enquiries “can go a long way to circumventing activity of any fraudsters.” Beyond common sense, the lenders raised a number of concerns and corresponding solutions. “Brokers need to be very careful to follow the strict guidelines attached to their own compliance policy,” warns Pepper boss Rehayem. “Brokers should never rely solely on a lender’s income verification.” Brokers should carefully record all discussions throughout the application process, taking care to document why the application was offered an alt-doc rather than full-doc loan. Furthermore, Murray from Better Mortgage Management advises brokers to make extra copies of trading statements for their own records. Additionally, brokers should “be diligent to make sure it is a real business and the loan purpose is correctly disclosed. BMM conduct a phone interview with the applicant as part of the process. Where applicable, we also may contact the accountant as a part of the process.”
Why low-doc clients matter Whilst the low-doc and alt-doc space is relatively stable, this shouldn’t distract
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That’s just one of a vast array of reasons for brokers to deal with low-doc and alt-doc clients, according to lenders. At the marketing stage, brokers can gain a reputation as an expert in self-employed and accountant circles, claims BMM. Furthermore, the self-employed space is large and continuing to grow, notes La Trobe, as people start online businesses outside their normal day job. Integrating low-doc products into your offering is part of a diversification strategy, according to AFM, because it is not limited to residential loans – the commercial lowdoc sector is also expanding. Both RESIMAC and Liberty urge brokers to consider associated opportunities in asset and equipment finance to self-employed clients, particularly for vehicles, on which many self-employed people are dependent. Finally, Bluestone, Pepper and Homeloans point to benefits for brokers over the long term. Clients may not remain alt doc for life, observes Pepper, but will look to that same broker in the future, whilst Bluestone observes that low-doc clients are particularly loyal referrers. Homeloans boss Hair concludes by returning to the theme of missed opportunity. “It is not just the lost revenue of the one customer you do not assist who does get assistance elsewhere. It is the lifetime value of that client directly, and the potential referrals that he or she could have delivered, that is missed.”
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FEATURES
LOW DOC LENDER DOCUMENTATION REQUIREMENTS PART 1 Please note this list is an introduction only – it is not exhaustive. Conversely, lenders could be more flexible in certain situations, meaning you should always check with the lender directly.
LOW- AND ALT-DOC PRODUCT GUIDE We asked all the lenders featured in this article to provide details of their low- and alt-doc lending products. Please note that whilst these details are correct to our knowledge at the time of writing (April) you should always check directly with the lender.
BETTER MORTGAGE MANAGEMENT Australian First Mortgage Can lend up to $2m with 1. AFM low-doc declaration 2. Accountant’s confirmation Better Mortgage Management Verification required using one or two of the following: 1. Accountant’s letter 2. BAS statements 3. Trading statements Bluestone Will accept 1. Business bank trading statements 2. Personal bank statements 3. BAS statements 4. Accountant’s letter Homeloans As a minimum will require one of the following: 1. An accountant’s declaration 2. Six months of business trading statements 3. Two most recent BAS statements La Trobe Financial At a minimum you need: 1. Borrower repayment declaration 2. Accountant’s certification OR BAS statements OR business trading statements
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Initial rate
Comparison rate
Term (years)
Variable/ fixed
Max LVR
Capital Specialist Gold
5.79%
6.18%
30
Variable
85%
Flexi One Alt Doc
6.06%
6.29%
40
Variable
85%
Flexi Ultimate
4.94%
5.09%
30
Variable
80%
Premium Power Pack
5.48%
5.54%
30
Variable
80%
OS LEO – Non Resident
6.39%
7.12%
30
Variable
80%
Initial rate
Comparison rate
Term (years)
Variable/ fixed
Max LVR
Crystal Blue
5.59%
5.75%
15 to 30
Both
80%
Lite Blue
6.04%
6.20%
15 to 30
Both
85%
Business Easy
6.54%
6.79%
15 to 30
Both
80%
Product name
Initial rate
Comparison rate
Term (years)
Variable/ fixed
Max LVR
Monipower Lo Doc
from 5.86%
5.90%
10 to 30
Variable
80%
MoniPower Lo Doc ‘No LMI’
from 6.11%
6.15%
5 to 30
Variable
70%
Accelerate Prime Lo Doc
from 4.94%
5.12%
15 to 30
Variable
80%
Flexichoice Prime Lo Doc
from 5.29%
5.34%
10 to 30
Variable
80%
MoniPower Lo Doc LOC
from 6.11%
6.28%
5 to 25
Variable
80%
MoniPower Lo Doc LOC No LMI
from 6.36%
6.53%
5 to 25
Variable
70%
MoniPower Lo Doc LOC No LMI
from 6.09%
6.36%
10 to 40
Variable
85%
Flexichoice Lo Doc
from 5.94%
5.99%
15 to 30
Variable
90%
Envizion Lo Doc
from 5.99%
6.32%
Up to 40
Variable
85%
Envizion Commercial Lo Doc
from 6.50%
6.58%
Up to 30
Variable
75%
Product name
BLUESTONE Product name
HOMELOANS
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FEATURES
LOW DOC LENDER DOCUMENTATION REQUIREMENTS
LA TROBE FINANCIAL
PART 2 Please note this list is an introduction only – it is not exhaustive. Conversely, lenders could be more flexible in certain situations, meaning you should always check with the lender directly. Liberty Financial For a self-employed loan secured by residential property: 1. Six month’s business or personal bank statements 2. Two quarters worth of BAS statements OR accountant’s declaration 3. For a loan secured by commercial property 4. Income/financial position statement completed by the applicant’s independent accountant Pepper You’ll need the following: 1. Income declaration 2. Two of the following documents: a. Last two quarters’ BAS statements b. Last six months of business trading statements c. Accountant’s declaration form RESIMAC Financial Services You’ll need the following: 1. Income declaration 2. One of the following documents a. Accountant’s letter b. Six months of BAS c. Three months of business bank statements.
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Initial rate
Comparison rate
Term (years)
Variable/ fixed
Max LVR
Residential Lite-Doc
6.19%
6.19%
30 (5 years IO)
Variable
80%
Non-resident Residential Loan
6.19%
6.19%
30 (5 years IO)
Variable
80%
Residential Construction
7.19%
7.19%
30 (5 years IO)
Variable
75% (on completion)
Commercial Lite-Doc
7.19%
7.19%
25 (5 years IO)
Variable
70%
Non-resident Commercial Loan
7.19%
7.19%
30 (5 years IO)
Variable
70%
Development Finance
8.99%
8.99%
2 IO
Fixed
70% (on completion)
Rural Loan
9.15%
9.15%
25 (5 years IO)
Variable
55%
Product name
LIBERTY FINANCIAL Product name
Initial rate
Comparison rate
Term (years)
Variable/ fixed
Max LVR
Nova
From 4.84%
5.13%
10 to 30
Variable only
60%
Nova Free
From 5.09%
5.09%
10 to 30
Variable only
60%
Initial rate
Comparison rate
Term (years)
Variable/ fixed
Max LVR
Pepper Prime Alt Doc
4.94%–5.84%
5.13%–6.13% pa
10 to 30
Variable
Up to 80%
Pepper Prime Alt Doc PLUS
5.19%–6.09%
5.38%–6.42% pa
10 to 30
Variable
Up to 80%
Pepper Easy Alt Doc
6.09%–7.35%
6.33%–7.69% pa
10 to 30*
Variable
Up to 85%
Pepper Advantage Alt Doc
6.14%–8.10%
6.38%–8.49% pa
10 to 30*
Variable
Up to 85%
Pepper Advantage Alt Doc PLUS
6.54%–7.44%
6.84%–7.80% pa
10 to 30*
Variable
Up to 75%
PEPPER Product name
* Up to 40-year term available on P & I
RESIMAC FINANCIAL SERVICES Product name
Initial rate
Comparison rate
Term (years)
Variable/ fixed
Max LVR
Prime Alt Doc 70
5.14%
5.24%
30
Variable
70%
Prime Alt Doc 80
5.24%
5.34%
30
Variable
80%
Specialist Clear
From 5.74%
From 5.85%
30
Variable
90%
Specialist Plus
From 6.47%
From 6.58%
30
Variable
85%
Specialist Assist
From 7.17%
From 7.29%
30
Variable
85%
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PROFILE
JAMES CHATFIELD
JAMES CHATFIELD: THE LONG GAME Number 11 in MPA’s Top 100 Brokers, and WA’s top performer, James Chatfield is advancing his brokerage Chatfield Consulting through a dogged focus on building wealth
MOST BROKERAGES’ websites greet you with a picture of a smiling family in front of their new home, often brandishing a bunch of keys. On Chatfield Consulting’s homepage, you’ll find a gleaming luxury yacht cruising through clear blue waters, with the line ‘Tailor-made finance solutions: Finance strategies to achieve your goals’. As the yacht makes clear, Chatfield Consulting is not just about mortgages, but about building wealth. As financial planning and broking get ever closer, many brokerages and national franchises have attempted to combine the two. What makes James Chatfield’s brokerage stand out is that it’s clearly producing results. Over the past few years Chatfield has inched ever higher in our MPA Top 100 Brokers report: 18th in 2013, 15th in 2014 and 11th last year, writing just under $150m over 329 loans in the 2014-15 financial year. The report also named Chatfield as WA’s top broker for 2015. According to Chatfield himself, the brokerage is about building wealth over the long term. “We deal with high-net-worth clients, helping them build wealth over time through mortgages, property purchases, basically provide them with education and information from buying their first home
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JAMES CHATFIELD IN THE MPA TOP 100 REPORT
11th overall through to developing their self-managed super fund.”
Background to the brokerage Focusing on wealth building, rather than just mortgages, came in part from Chatfield’s early experience in broking. He finished his commerce degree and entered broking just at the wrong time, he explains. “It wasn’t that easy to get an occupation back then… I started a week before the GFC. I was sitting there biting my nails and thinking to myself, ‘What have I done?’” His first role was at Perth brokerage IMFS. He then moved to Rate Detective. At both brokerages he concentrated on building up contacts in niche areas, particularly in the investment space. This directly guided him when setting up Chatfield Consulting in 2012. “I mainly moved because of my lead sources. I had a few good lead sources at the time in the residential investment space.” The brokerage now includes two brokers. Chatfield and Chien Low, who, despite starting in 2015, has already impressed Chatfield. “I put a lot of faith in her and she’s never let me down. The client knows from the second they talk to her that she’s extremely knowledgeable.” Taking on
Top broker in WA
Wrote $149,687,132 worth of residential loans in FY 2014/15
Wrote 329 loans in that time
Had an average loan size of
$454,976
(compared to a WA average of $380,934)
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It’s not a hard sell, it’s not a pushy sell, it’s, ‘Here’s the information, this is how it works’
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PROFILE
JAMES CHATFIELD another broker was essential, Chatfield explains. “It’s just for the simple fact that I’m going to check myself into an early grave if I continue working like this.” The brokerage also has three processing staff and a telemarketer.
I started a week before the GFC. I was sitting there biting my nails and thinking to myself, ‘What have I done?’ Beginning the conversation If you’ve attended any PD sessions recently, you’re likely to have been told about the important distinction between the transactional broking relationship – doing one mortgage for a client – and a long-term relationship. Actually making the transition to the latter relationship, as Chatfield Consulting has done, can be difficult in practice, especially for brokers whose expertise is largely confined to residential mortgages. We wanted to know how Chatfield moves the conversation towards building wealth.
PERTH’S HOUSING MARKET After years of mining-driven growth, WA house prices are set to fall, according to the CoreLogic-Moody’s Analytics Australian Forecast Home Value Index, released in February. House price forecasts (% change over a year)
National Perth Rest of WA
10% 8% 6% 4% 2% 0% -2%
Standing out
-4% -6% -8%
2015
2016
2017 Source: Moody’s Analytics
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“It’s very, very easy,” Chatfield replies. “You just say, ‘Would you like some more information on investing and how it works?’ Ninety-nine per cent of the time they say yes.” The key is to provide information, he insists, not view this as a selling process. “It’s not a hard sell, it’s not a pushy sell, it’s ‘Here’s the information, this is how it works. If you’d like, we can take it one step further. If not, you’re richer for the experience’.” A typical example would be a refinancing conversation. “If we’re saving the client $2000, $3000 or $30,000 of interest, they could essentially be paying for 1,2,3,4 investment properties with that saving. So what I show them is this is the savings from the refinance, these are the options for putting that into properties options. A lot of people will save money, as well as holding another property.” Chatfield Consulting aims to provide all that extra information – including on financial planning – although Chatfield admits it’s difficult for him to personally provide all those services. Although he’s done his financial planning qualifications, Chatfield doesn’t provide financial planning advice. “I can’t physically take it all on, as much as I’d like to. The clients expect a level of service, and they get that, but unfortunately it can’t all be managed by me.” That’s why Chatfield Consulting in 2015 set up a dedicated property and planning division. “It’s basically the full suite of products, anywhere from advice in insurance, super, planning, through to property options being leasing, strata management, sales, then obviously my core business, which is broking.” When suggesting strategies that put clients in more debt, Chatfield always advises them to consult with their own financial planner, given the potential conflicts of interest which could arise.
When talking to MPA back in 2013, Chatfield made a bold prediction. “I believe that the role of a broker will be pushed further towards that of financial planning – either because of compliance or diversification.” Chatfield’s views have mellowed since, but
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he still believes brokers need to offer more. “I do believe there’s a certain degree of structuring advice that you have to give clients. I think what’s becoming more and more apparent is that the market is becoming more and more competitive for mortgage brokers. It’s very, very difficult to set yourself out from the rest in such a saturated market. So I think the more time you can spend on each client, structure and scenario the more likely they are to speak to you.” Speak to you, and get other potential clients to speak to you – Chatfield Consulting relies almost entirely on repeat and referral business. They got to this point through a process of trial and error, Chatfield recalls. “We’ve tried some marketing – it’s a waste of time and energy. I’ve tried a lot of stuff online – it’s a waste of time and energy. We do the whole business on a repeat and referral business and relationships, and will continue to go down that path.” This repeat business is helped by the fact that the brokerage’s clients are mainly property investors with a portfolio of properties, although Chatfield insists that he’s willing to take on clients wherever they are in the investment process. The brokerage’s value proposition continues to revolve around information and expertise, and having more of both than their competitors. “The structuring is usually a lot more complicated, and combined with the level of knowledge we have, with on-panel and off-panel lenders. To give you an example, we’re writing a lot of stuff that’s not on the aggregators’ panels, because they’re providing a policy or pricing point of difference, which a lot of brokerages just can’t offer.”
Taking Chatfield national Chatfield’s business model will be tested in the coming year, due both to conditions in WA and his own ambitions to expand across Australia. In February, a report by CoreLogic and Moody’s Analytics predicted that house prices in Perth would actually fall by 0.05% in 2016 – in comparison, Sydney and Melbourne are just growing at a slower pace – before recovering in 2017. This is a concern, Chatfield concedes. “To be honest, with a depreciating market and low valuations
popping up it’s obviously going to hit the business. The settlements are down anywhere from 10-20% from this time last year, and it’s just one of those things. It’s swings and roundabouts – it will come back.” His solution is to expand Chatfield Consulting to states with more positive growth trajectories. The brokerage already has clients across and beyond Australia, but Chatfield is just about to move to Brisbane for several months to develop Chatfield Consulting’s new office there. He’ll then move to Melbourne to repeat the process. These offices won’t be franchises but instead satellite offices of the main brokerage. Chatfield will take on an extra broker in WA whilst he’s gone and move to a bigger office in Perth. One potential thorn in Chatfield’s side could be APRA, specifically the high tempo of regulatory changes last year that have hit investors, who make up so much of Chatfield Consulting’s business. The result is frustration for him and his clients, says Chatfield. “There’s a huge lack of clarity about what APRA actually want, and the lenders are just running towards APRA, trying to keep their books intact. More information about what APRA want would be fantastic, so we don’t have to go back and forth to the clients 4000 times.”
“I do believe there’s a certain degree of structuring advice that you have to give clients… The market is becoming more and more competitive for mortgage brokers”
Advice for brokers For brokers who are interested in following Chatfield Consulting’s model, Chatfield advises you concentrate on that initial conversation when you first introduce the idea of building wealth. “Most people are always keen for more information, so it’s 100% down to your presentation, because clients are very good at spotting when you’re not confident and when you don’t have everything. So if you are going to promote the fact that you are knowledgeable and have these different ideas and options, just make sure you are proficient in the first place.” If you don’t have that expertise in place, Chatfield advises brokers to refer on the work whilst improving their own skills, as he concludes, “Don’t run before you can walk.”
www.mpamagazine.com.au
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BUSINESS STRATEGY
PRODUCTIVITY
HOW TO BOOST YOUR PRODUCTIVITY IN THREE EASY STEPS To truly work effectively today it is critical to harness the power of your technology, and to use it in a co-ordinated way to manage three core aspects of your work – your actions, your inputs and your outcomes, according to Dermot Crowley
WE ALL complain about being busy. Too much to do, too many emails, too many meetings. Our modern workplace demands so much from us. Technology promised us an increase in productivity that never really eventuated. You may have all of the hi-tech productivity tools at your disposal to help you plan your time and manage your priorities, but are you really leveraging this technology to meet the challenges of the 21st century workplace? Are you working smart?
1
Centralise your actions
Most of us made the transition from paper diaries to electronic calendars over a decade ago. We have one central place where we centralise all of our meetings, and we collaborate with other people’s schedules using an electronic scheduling system. Yet, when it comes to the other side of our activity management and task management most people are still very reliant on paper systems, and tend to manage their priorities in fragmented, ineffective ‘piles’. Piles of emails in our inbox, piles of paper on our desk, piles of actions in our notepad and piles of thoughts in our head. No wonder we are stressed, reactive and behind the eight-ball. One of the most powerful ways of getting
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in control of your priorities is to embrace technology and centralise all of your tasks into the task system that sits alongside your calendar in your scheduling tool. Most organisations use MS Outlook, Lotus Notes or Google Calendar as their email and scheduling tool. All of these tools have powerful task systems built into them, yet few people use electronic tasks to manage their
about how you deal with inputs. You probably receive many inputs every day, including emails, paperwork, phone calls, interruptions and meeting actions. Inputs present a number of challenges for the modern worker. Firstly, there is the volume. Where a few years ago 100 emails per day was a lot, now 300 per day is common. Secondly, how most people tend to manage these inputs is problematic. Many of
The secret to staying on top of your incoming work is to treat your inbox like a post box. It is simply where you receive emails priorities. It is time to pull yourself into the 21st century! The benefits are huge. You will be able to schedule tasks by date and create action lists for specific days. This will ensure you manage your priorities more proactively, and will help you to balance your meeting and task workloads. Best of all, as many of your actions are driven by email, you will be able to schedule emails into your task list or into your calendar for action at the appropriate time.
2
Organise your inputs
Once you have a solid system in place for managing your actions, you need to think
us have hundreds (if not thousands) of emails piled up in the inbox. We desperately try to stay on top of the pile, marking emails unread or flagging them to maintain visibility of the emails that still need our attention. But it just causes stress, reactivity and missed deadlines. The secret to staying on top of your incoming work is to treat your inbox like a post box. It is simply where you receive emails. It should not be used as a to-do list or a filing system. It should be cleared to zero at least once per week. When you process your emails, be decisive. Delete what you don’t need. File the things you are finished with, but feel you
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need to keep (but please, a few well thought out folders is quicker and more effective than a complicated filing hierarchy). Delegate anything that is not a good use of your time. But most importantly, schedule your actions into your task list or calendar rather than keeping them highlighted in your inbox. This will give you greater control over your actions as you will be managing the priority within the context of your time.
3
Realise your outcomes
How often do you feel like your job has become a series of endless meetings and emails? What about the time that you need to work on the really meaningful work? That time just seems to evaporate or get stolen by somebody else’s urgent crises. While meetings and emails are a critical way of getting stuff done, your ability to deliver in your role requires more. It requires time to think, to plan and to work on the activities that are driven by
your outcomes, rather than just your inputs. Many executives that I work with complain about not being able to find time for the important work. But you will never find time for this, you have to make time in your schedule. You need to proactively schedule time for the important stuff, and then protect it fiercely. You should protect it from the other people that want to steal your time away, and also from yourself, as it is easy to procrastinate over the more complex work that contributes to our outcomes. The best way to create a connection between your outcomes and your actions is to invest time in personal planning. Sometimes we need to stop doing, and take some time to plan and prioritise. Having a robust weekly planning routine in place is a good way to build a habit around this. Each week, review last week, organise next week, anticipate what is coming up, and realign your priorities with what you are trying to achieve – your outcomes.
Tools like MS Outlook are seen as email clients, but they are so much more. They are designed to help you manage your actions, inputs and outcomes. If they are used in a co-ordinated way, they can give you the leverage you need to stay productive in the modern workplace. Nelson Jackson once said, “I do not believe you can do today’s job with yesterday’s methods and be in business tomorrow”. I would also suggest that we cannot do today’s job with yesterday’s tools and be in business tomorrow. Technology has contributed to our productivity challenges over the past decade, and it can also be a part of the solution. But only if we learn to use it in a smart way. Dermot Crowley is a productivity thought leader, author, speaker and trainer. He is the author of Smart Work, published by Wiley. For more information, visit dermotcrowley.com.au or email dermot.crowley@adapttraining.com.au
www.mpamagazine.com.au
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n
UPFRONT
CAREER PATH
SPEARHEADING INNOVATION ING DIRECT’s executive director of customer delivery Lisa Claes has been introducing and driving technological developments in the mortgage industry for over 20 years
1992 GRADUATES
2003
EXECUTIVE DIRECTOR SAVINGS Claes moved away from the law when ING’s then CEO, who she had been advising on legal and risk issues, encouraged her to run for the position of executive director, savings. She hadn’t contemplated moving into nonspecialist management, but was interested in expanding her business and leadership skills.
2008
ELECTRONIC VERIFICATION
Spearheaded the introduction of electronic verification into Australia. It was a battle against industry and government conservatism, which resulted in billions of dollars in savings, a major leg-up for branchless banks and an early step towards the still-unrealised goal of fully digital mortgages. “The direction at the time was to outlaw electronic verification, and we were very much out on our own in terms of position,” she told Australian Retail Banker. “[It] was a complex undertaking. And it started from a ‘what if’ idea.”
“The direction at the time was to outlaw electronic verification, and we were very much out on our own in terms of position” 2015 LIXI
After graduating from Sydney University with a Master of Law, Claes worked as a barrister in Queensland for two years before being appointed as general counsel to the ING Group in Australia and New Zealand, which had then just entered the market.
2009
EXECUTIVE DIRECTOR MORTGAGES Claes was appointed as executive director of mortgages in 2009, then took a broader role as executive director of customer delivery in 2011. Claes also currently sits on ING Group’s mortgages forum, and represents Australia at the ING Group Retail Council, and talks and writes extensively about how innovations abroad could benefit the Australian banking system (and vice versa). 2015 saw the introduction of a rewards scheme for mortgage holders and 2016 saw profits rise by 6%.
2011
THE ING FOUNDATION Became director of the ING Foundation. The ING Foundation, which was wound up in 2014, was the charitable arm of the ING Group, concentrating on disadvantaged Australians. Claes continues to work with UNICEF, the Cerebral Palsy Alliance and the School for Social Entrepreneurs and sits on the board of Loreto College Coorparoo in Brisbane.
“We’ve got the benefit of a very tight global network… If we agree something is the best of the best, it often gets implemented abroad”
Joined LIXI as director. LIXI is an Australian not-for-profit which develops the data standards used by the banks, including standards for mortgage transactions and broker commissions.
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nominations now open
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6/05/2016 1:22:39 PM
PEOPLE
OTHER LIFE
PR
3,500
families in Australia per year experience the sudden and unexpected death of a child
$600,000
has been raised by the Cooper Trewin SUDC Fund over the past six years
Learn
D
Visit sudc.com.au to learn more Source: SIDS and Kids
WHEN TRAGEDY STRIKES
After broker Robert Trewin’s 16-month-old son passed away, he and his wife mobilised friends and colleagues to support research into sudden unexplained death in childhood E
ONE MORNING in 2010, Victoria broker Robert Trewin woke up to what he describes as “every parent’s nightmare”. His 16-month-old son Cooper had passed away in his sleep. Cooper was healthy and his death inexplicable. “We had two choices,” Trewin recalls of the day. “The easiest was to curl up into a ball and hide from the world. However, we chose to honour his memory and establish international research to find a reason why these toddlers slip into the night without any apparent reason.”
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Trewin and his wife set up the Cooper Trewin SUDC Fund to support research into sudden unexplained death in childhood. Trewin has been strongly supported by the industry, particularly by his aggregator National Mortgage Brokers, who helped establish a fundraising golf day, sponsored by CBA and WBC, and raise money at NMB’s national conference. AFG broker Jim Henwood and his wife, Lisa, also helped, with funding from the Brighter Days Foundation. “It is amazing how many people want to help raise money for Cooper,” says Trewin. “It
always brings a tear to my eye with how generous people are.” He urges other brokers to get involved in supporting a good cause. “I am a firm believer that in this life you only get out what you put in, so we have dedicated our life to Cooper’s legacy to try and save another family from experiencing the tragedy that we still endure to this day. If everybody just gave a little, helped out where they can and supported causes close to them, it would make a big difference to many lives, and hopefully you feel that little bit better about yourself.”
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