Life after the lockdown

What will the industry look like after the Covid-19 crisis?

At the beginning of 2020, most mortgage brokers would have picked regulation as the biggest headwind for the year ahead. Yet four months in, a far more devastating issue has taken a grip on the industry. The Covid-19 pandemic has brought life to a standstill across the globe. In New Zealand, the level four lockdown closed all non-essential businesses and put a pause on economic activity in March and April. With no open homes, no auctions, and no viewings, the housing market ground to a halt.

With transitional licensing delayed until next year due to the virus outbreak, regulation can take a back seat for now. The immediate concern for advisers is the recovery from the Covid crisis. The property market made a tentative return on April 29 as the nation went into level three lockdown, but it will be months before we return to normal.

The property market is expected to decline significantly this year. ANZ has forecast a 10-15% drop in house prices, and credit conditions have tightened considerably for new borrowers. LVR restrictions Geoff Bawden have been lifted, but lenders have mainly shut up shop to new customers.

Mortgage advice businesses have been plunged into uncertainty and chaos amid the Covid-19 crisis, prompting questions about how businesses will survive, and whether the sector will change forever.

While level four lockdown was lifted on April 28, mortgage advice businesses are grappling with an unprecedented crisis and one of the sharpest recessions in history. Many will have gone a month without their usual levels of commission income.

Businesses will face a financial crisis for the rest of the year. Advisers expect a considerable profit drop in April with hardly any settlements during the month. May is expected to be stronger, with a backlog of settlements to push through. But advisers are fearful for the rest of the year.

One business-owner, talking to TMM in mid-April, said they have already made staff redundant.

“It’s been a mixture of using the subsidy and letting a couple of staff go as we are a mainly salaried business,” the adviser said. “It’s an unusual time.” TMM asked brokers how the industry will recover from Covid-19. The sector will be forced to adapt to the new world. Some see it as an opportunity

for advisers to prove their worth to borrowers.

Others expect more video technology and less of an emphasis on office work.

How have advisers coped during the crisis? Have they adapted their businesses? What will life look like after the lockdown? And will companies change the way they operate?

Advisers were hard at work improving their businesses during the lockdown. Most spent their time inundated with client requests, such as payment deferrals and switches to interest-only loans.

Geoff Bawden, director of Bawden Consulting Group and head of Q Advisor Group, looked after existing clients during the period, but also took time to reassess how his business operates.

“You can forget about making a lot of money for the time being,” Bawden says. “I looked critically at all of my fixed outgoings, asked myself whether they were necessary, and tried to reduce them the best I could. It’s amazing how much you can spend unnecessarily.”

" I’ve been looking at the amount of business we need to write to stay ahead of the game, and where that might come from. "

Bawden adds. “Most will come from existing clients and their wordof-mouth referrals.”

Bawden kept both of his employees on full pay during the crisis. He employs the two staff through different entities. He was able to use the Government’s wage subsidy for one employee, but not the other.

Bawden predicts adviser businesses will use video technology more often after the crisis, as people become more comfortable with Zoom and Skype, and social distancing continues for some time.

“It isn’t my preferred method of communication,” Bawden says. “I’m a people person, and I feel you don’t get the same level of understanding. But for sure, I think it will play more of a role.”

It is unclear how lenders will respond to the crisis. Some have embraced technology during the lockdown, while others have been slow to process requests and applications, due to staff shortages.

“I don’t see things changing,” Bawden says. “While they are making some concessions now, I don’t see any major changes any time soon.”

Glen McLeod of Edge Mortgages, says there’s been a “varied” response from lenders: “Some have been a breath of fresh air, making it easy for advisers. Others have made it more difficult,” he adds.

McLeod spent most of the lockdown period dealing with “hardship” mortgage requests for existing customers. He says he was “too busy” to work on his business and was focused on securing deferrals.

Advisers believe the current crisis is another chance to show customers why brokers perform a crucial service. McLeod believes advisers have an important role in guiding clients after the lockdown.

“We’ve had about 40-60 hardship requests coming in per day,” McLeod adds. “So many people have been affected that it’s difficult to keep up.

" There’s going to be a lot of conversations about these hardship requests and business loans in a few months, and how we manage clients out of them."

Glen McLeod

McLeod says advisers can demonstrate value by focusing on their clients’ needs during these turbulent times: “I’ll be calling everyone on our database to talk to them about how we can assist them.”

McLeod says Edge Mortgages will likely become more of a digital business after the lockdown.

“One thing we’ve been forced to do during this period is go paperless,” he says. “That will have some implications on what we do with our office. Do we need as much space for filing cabinets? We will look at some of those things going forward.”

The Covid crisis could prompt adviser businesses to take smaller office spaces and encourage working from home and hotdesking, McLeod says. “We’ve got a large office which has Glen McLeod served us well, but we might start to think, ‘do we need this?’ Most businesses will be going through these decisions, as many will have worked efficiently from home.”

Squirrel’s John Bolton says he worked on client communication and messaging during the lockdown, “tidying up our website, writing lots of content, and increasing the level and quality of our customer communications”.

He is prepared for a much slower market “for the next 12-18 months”, and will make changes accordingly.

“That’s mostly about cost management,” Bolton adds. “We’ve reduced our digital marketing spend as it’s not that cost-effective. We’re looking to get some cost savings

John Bolton

around occupancy and overhead costs.”

Like his peers, Bolton expects digital meetings will become commonplace following the lockdown:

" The challenge is building a strong culture and sense of team remotely."

John Bolton

But working from the office is fun and engaging. Home has its place, but so does the office,” he adds.

Meanwhile, the Covid-19 crisis could force some advisers to seek more consistent forms of income, such as trail commission, in the future. Bolton believes trail has proven to be a more sustainable model for the sector.

He adds: “Brokers who need the cashflow will continue to favour high upfronts, but it’s not building the right business model for them.

" Trail has once again proven to be a much more sustainable model for the industry."

John Bolton

We need to be able to operate no matter what the cycle and get value for the ongoing advice and work we do for clients. It should also foster stronger relationship management. Covid-19 was a classic case in point.”

McLeod adds: “The client outcome is paramount. If there’s no differential between the interest rates and terms on offer, then it could point to trail. There must be a number of advisers out there who don’t have trail who must be struggling. Trail helps you build a business and get through ups and downs like this.” ✚