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Mortgage adviceenters the Golden Age

Banks continue their retreat from the high street, and mortgage advisers stand to gain an advantage. With the new regulatory regime underway, advisers are more bullish than ever that they will grow their market share, writes Daniel Dunkley.

The Covid-19 pandemic has transformed industries across the world, and in New Zealand, the banking sector has been forced to accelerate some major changes over the past year.

To save costs, the nation's biggest lenders have reduced their high street presence over the course of the Covid crisis. This has reduced the level of choice for borrowers seeking in-person advice as they address their home loan needs.

The nation’s biggest lenders have blamed Covid-related pressures for their branch closures, continuing a trend that began several years ago. The rise of digital banking and online customer service propositions has led many banks to pare back their bricks and mortar sites.

The biggest five banks in New Zealand closed 84 branches in the year to September 2020, according to KPMG’s 2020 banking report, with the number of retail sites falling from 934 to 850.

Amid the high number of closures, prominent figures, including the New Zealand Bankers’ Association chief executive Roger Beaumont have questioned whether branches have a future, as customers are increasingly referred online and to call centres.

Between September 2020 and June 2021, the big five banks closed a further 77 branches.

The closures have affected the level of customer service for the average Kiwi borrower, impacting their ability to talk face-to-face with a home loan expert at their bank of choice.

Tightened lending conditions compound the issue for many borrowers. Customers unable to find a branch have been forced to jump through more hoops online and over the phone, with many unable to reach a satisfactory outcome for their lending needs as banks become more selective.

The incoming changes to the Credit Contracts Legislation Amendment Act will make the home loan application process even more cumbersome for borrowers.

After December, banks will need to make more detailed enquiries about customers’ affordability and will require more evidence on expenses and income. As the application process becomes more complex, it is expected that banks will turn more “non-standard” borrowers away.

As the application process becomes more difficult, mortgage advisers look set to enhance their value proposition.

The decline in face-to-face bank customer service is benefitting the mortgage advice sector. Advisers say they have experienced an upturn in business since the pandemic, with customers looking for a friendly face on the high street and frustrated with their lack of options.

Banks respond – but is it enough?

While the evidence suggests banks are reducing their high street presence, lenders say they are committed to maintaining staffing levels to serve their home loan customers.

As the market surges this year, many say they have brought in new staff to meet the rise in demand and remain committed to mobile mortgage manager propositions.

“We’ve increased staff to help process the current high number of home loan applications,” a spokesman for ANZ told TMM.

ASB’s executive general manager for retail banking, Craig Sims, responded: “ASB is focused on helping our customers achieve their homeownership goals and in recent months, we’ve increased staffing across our in-branch, contact centre, mobile mortgage and third-party lending teams to meet demand.” Westpac, meanwhile, said: “We’ve increased the size and capability of our in-branch, contact centre, and mobile mortgage manager lending teams to meet increased customer demand. We helped first home buyers to purchase 3,512 homes during the six months to the end of March – a 35% increase on the same time last year – and we encourage customers to talk to us about their homeownership goals.”

A Kiwibank spokeswoman said: “At Kiwibank, we’ve been upskilling our workforce to match what our customers want from us, that is more complex conversations including how we can meet their ongoing financial needs and advice on home loans.

“Over the past year, we’ve almost doubled the number of people able to have a home loan conversation with customers. It is exciting to be in a better place to provide this advice, enable quicker decisions for our customers and support more New Zealanders with their aspirations of homeownership.”

BNZ added: “We want our customers to have the best possible experience and have increased our workforce to match the extraordinary growth in the housing market.

“Having the right people in the right place to serve our customers is important to helping people into new homes, and we’ve significantly increased the number of people able to help customers get home loans.

“We’ve added 50 bankers to the front line, trained more people to work on lending, increased our processing staff in the back office, and enabled our bankers to work across regions so they can meet demand no matter where it’s coming from. This also includes broker. We are continuing to monitor and manage this to ensure we can deliver the kind of experience our customers expect from us.”

Though banks are closing more branches than ever, experts believe lenders will retain much of their direct business.

Massey University professor David Tripe is sceptical that branch closures will reshape the lending market.

“I would not have thought that branches were a particularly effective location for mortgage sales for banks and that their mobile managers were much more effective,” he says.

“There may be an ongoing switch to brokers, however, but it’s not clear to me how much more expensive the broker channel is than other existing channels for mortgage distribution. There might be an increase in banks’ costs, but this might be recovered through other charges – getting a loan is currently quite a cheap deal for a borrower in New Zealand compared with some other markets.”

Visible presence the key

As lenders shrink their high street footprint, top advisers say they have experienced an increase in activity as clients seek a personal connection with a broker.

Joel Oliver of SuperCity Mortgages says borrowers are struggling to keep on top of ever-changing bank policies through the pandemic and require an expert's advice.

“People are time-poor, and bank policies are changing frequently,” he says. “Often a consumer could talk to two people at the same bank and get different answers. Using a mortgage adviser’s leverage and relationship with the banks makes a world of difference to the consumer.”

Oliver believes borrowers will become more aware of the broad range of lending options available to them as lenders become pickier.

‘Using a mortgage adviser’s leverage and relationship with the banks makes a world of difference to the consumer’

Joel Oliver

“No one at a branch at one bank can tell a client that the proposition is the best for them, as they simply do not know what any other banks would have done differently or better. It can and will always only be biased.

“A good mortgage adviser does not care what bank offers the best outcome, as long as it is the best outcome for the client. That is paramount. The brokerbanker client relationship grows stronger year on year, and people enjoy dealing with a specialist for financial advice.”

Kris Pedersen of Auckland-based Kris Pedersen Mortgages says the older demographic is likely to be most affected by branch closures, as they have grown accustomed to in-person service.

While NZFSG’s Bruce Patten says borrowers are frustrated with banks at the moment.

“I’m still getting a lot of customers that are disgruntled with their current bank and the lack of responsiveness. I had a client that walked into their bank to ask about rates, and they referred him to the app. He was like, ‘that’s not what I expect from my bank’, and he came to us.”

Before the recent Auckland lockdown, Patten said more customers than ever were coming through the door.

“Clients want multiple options,” he adds. “I’ve never had so many walk-ins as I’ve had recently. You used to get maybe one a week. We’ve had three today alone and one yesterday. We’re definitely getting enquiries from people that we wouldn’t have done in the past.”

Adrienne Begbie, managing director of non-bank lender Prospa New Zealand, believes banks retrenching from the high street will boost the adviser channel.

“Their share of business will increase as customers look for personal service they don’t or can’t get from the banks,” she says. “This is another reason we value the adviser channel; they are in a prime position to give customers better customer service and help them with all their lending needs, including business lending.”

Market share growth

Though broker market share has increased in recent years, the Covid crisis could accelerate the shift in New Zealand as bank resources come under pressure. NZ advisers’ share of the mortgage market remains a long way behind other nations, at roughly 50%. In comparison, across the Tasman, Australian brokers took 60.1% of the market in Q3 2020, according to the Mortgage & Finance Association of Australia.

The CEO of Aussie Home Loans, James Symond, expects Australian brokers’ market share to surpass 70% within five years. He says customers are increasingly aware of the range of finance options at their disposal. The AHL boss predicts that repeat business, customer loyalty, and word of mouth referrals would drive the trend.

How long will it take for New Zealand to approach the same levels?

NZFSG’s Patten predicts that broker market share will eventually resemble more mature markets like the US and UK, where brokers take a 60-70% slice of the mortgage market.

Although direct-to-bank dominates in New Zealand, Patten believes it’s only a matter of time before the trend follows other markets.

“That’s just the way it is going to be. Brokers’ share of the mortgage market is increasing. It’s hard to know for sure as the banks don’t share that information with us, but we are very confident that our share has increased and will continue to. I’d say we [advisers] are somewhere between 40% and 50%.

‘We value the adviser channel; they are in a prime position to give customers better customer service and help them with all their lending needs, including business lending’

Adrienne Begbie

“It’s a bit of a secret over here as to what our true market share is,” Patten added. “Which is strange because in Australia, it’s talked about constantly.”

According to Patten, Australia’s 2019 Royal Commission into financial services has raised awareness about advisers: “Brokers became more well-known over there, and that has flowed over here.”

He predicts market share growth will continue.

“It’s just an inevitability. We are going to take more mortgage business because the banks can’t cater for the volume of customers. They want to be involved in the origination of home loans, but it will be more digital-focused.”

Oliver agreed that market share would rise in the years to come.

“I believe mortgage advisers’ market share will continue to trend upwards just like in Australia where it is now [hitting] about 65%.”

Sarah Johnston, chief executive of Astute Financial, believes bank branch closures will continue to boost the industry.

“We have already seen the increase in business to the adviser network since Covid 2020, and branch closures only continue to support the value of the advisers who continue to provide face to face and one on one connections.”

Johnston remains confident that market share will build as it has in other comparable markets, “based on the fact a mortgage adviser is truly an expert in this field” and has “in-depth knowledge across all lenders”.

Regulatory benefit

Advisers believe that the new regulatory regime will enhance the industry’s position of strength.

The FSLAA regulatory regime, which came into effect on March 15, could also be a positive for the adviser sector in the long term.

While adviser firms have been hit with greater compliance demands, brokers expect the legislation to build confidence with consumers.

Patten believes the FSLAA regime will enhance the position of the industry in the eyes of the consumer.

“The legislation is another thing that works in our favour. It will lead to greater trust in the profession. Before, it was an under-regulated regime. Now we are accountable for what we do and say. In the long term, that will lead to more business,” he says.

Katrina Shanks, chief executive of Financial Advice New Zealand, echoes the level of optimism felt across the industry.

“Mortgage advisers have always provided significant value to a client who is seeking to obtain lending for their home. The personal service, trusted relationship and transfer of knowledge reassures their client they are in the hands of a professional. Due to the trusted relationship that is formed, they also know the adviser cares about their outcome,” she says.

“As the environment changes, and there are reduced opportunities to build relationships and access advice face-to-face through other channels, there is an opportunity for the mortgage adviser channel to flourish. Mix a vibrant property market and the appetite for personal advice which is delivered faceto-face. This is an ideal opportunity for financial advisers to grow the market segment.

“As we have now entered a new regulatory regime, this will only increase consumers’ public confidence and trust in seeking financial advice and increase their financial health, wealth and wellbeing.”

‘Mix a vibrant property market and the appetite for personal advice which is delivered face-to-face. This is an ideal opportunity for financial advisers to grow the market segment’

Katrina Shanks

With a robust regulatory regime, increasing customer confidence, and a visible high street presence, the mortgage advice sector is increasingly well placed for a period of growth. ✚