Mortgages and Home Loan Industry Articles (8) April 2011

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  • Would-be home buyers keen to climb onto the property ladder

    A survey by QBE LMI has revealed that climbing onto the property ladder is more important for 62% of potential home buyers than saving a deposit.

    Ian Graham, CEO of QBE LMI said, "Although the propensity to save is strong, there is also an increasing appetite for purchasing property. Furthermore, 58% of respondents agreed that property prices will increase over the next three years."

    Graham said the expectancy of rising house prices was behind the high number of would-be buyers wanting to get into the market.

    "Whether choosing to buy now, or to wait and save, each option has its advantages and disadvantages," said Graham. "If house prices rise faster than borrower's savings, they might be priced out of the market. Nevertheless higher savings means borrowers are able to either borrow a smaller amount or upgrade on their property choice. Borrowers must assess their financial situation, have a budget and ensure they can afford future interest rate rises before they consider entering the property market."

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  • Lenders pushing products instead of focusing on customers

    The mortgage industry needs to focus on customers instead of products to remain profitable, it has been claimed.

    Industry analyst Martin North, executive director of Fujitsu Australia, has told a Sydney media gathering lenders focus too much on product development while ignoring the differences between customers. Commenting on the findings of the J.P. Morgan/Fujitsu Australian Mortgage Industry Report, North said he expects “customer pull” strategies to become more important than “product push” strategies.

    “Most financial service providers are product driven. Products are where the strategy is being driven,” he commented. “Segmentation is the way to enhance revenue. I believe the next 12 months will see some interesting innovations in segmentation.”

    North explained that segmentation identifies various demographics of potential customers and tailors service offerings to their specific needs. He identified several different types of borrower, including the “Battling Urban”, “Disadvantaged Fringe”, “Suburban Mainstream” and “Young Growing Families”, and said each of these demographics value different service propositions.

    “It’s not a ‘one size fits all’ approach. This entails tailoring and targeting propositions to specific customer groups based on their needs, preferences and value,” North commented.

    According to North, “Suburban Mainstream” households are more influenced by good service and rewards than by pure price, and the mortgage industry should target its offering to reflect this.

    “Segmentation says not all customers are the same. It’s been a price-driven market, whereas customer centric thinking is now very much the in vogue thing. It requires a better understanding of customers to identify ways to avoid over-servicing unprofitable areas of the customer base in order to improve satisfaction and in turn capture market share. This requires new approaches to banks and business and technology processes and systems to enable greater agility and enhanced flexibility,” North said.

    The J.P. Morgan/Fujitsu Report also found that “Suburban Mainstream” households are the most likely market segment to use a mortgage broker. The report recommended that lenders wanting to tap into this market segment collaborate with broker channels to develop products and service offerings.

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  • Broker value proposition justifies fees: Intellitrain

    Brokers should not shy from fee for advice if they can demonstrate a value proposition above that of lenders, Intellitrain has claimed.

    In a webinar on fee-for-service presented by the training group,Intellitrain chief operating officer Andrew Hetherington said brokers who can demonstrate value to clients should not fear losing clients over fees.

    "It is possible a client may not elect to use you, but that all comes down to your value proposition. The key to this whole fee for advice thing is you have to demonstrate value," Hetherington said.

    Hetherington rubbished the argument that clients would elect to go directly to lenders if brokers began to charge fees.

    "Do they get exactly the same thing when they walk into that lender? If they do, then absolutely you cannot justify that fee," he commented.

    Instead, Hetherington said, brokers should market their value proposition in providing a service offering above that of lenders. He commented that services such as loan structuring and even deal shopping provide a value to clients which he believes justifies a fee.

    Hetherington suggested to webinar participants that they structure their fees on a tiered system to reflect different levels of service. He commented that presenting clients with a range of price options provides context for the value proposition of services brokers provide. In spite of supporting the idea of fee-for-service, Hetherington recommended that brokers provide at least one no-fee option among their tiered service offerings.

    "What you're doing is you've got an offer where when someone says, 'Hey, I can go down the road and they'll do it for no cost,' you can still compete against that by saying 'I can do that for you as well'," he said.

    Hetherington also addressed fears that widespread use of fee-for-service would cause lenders to further cut commissions.

    "Most of us aren't charging a fee and they reduced commissions by 30% and they upped clawbacks periods, so my thoughts are they're going to do what they're going to do regardless," he commented.

    As part of the interactive webinar, brokers were polled to find out the number of businesses planning to introduce a fee. The response from the 600 broker sample found 23% already charged and 62% were considering the move. Meanwhile, 16% said there was "no way" they would introduce a fee for their clients.

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  • Brokers call for FHBG boost

    A survey of mortgage brokers has revealed the majority support an increase to the First Home Buyers Grant.

    The Loan Market survey has indicated 55% believe a boost to the First Home Buyers Grant in the upcoming Federal Budget would help bring first time buyers back to the housing market.

    “A boost to the FHBG could help thousands of people wishing to purchase their first home. It could also provide a much needed spark to the property market,” Loan Market chief operating officer Dean Rushton said.

    Rushton commented that an adjustment to the grant is needed as the current amount has not kept pace with increasing property prices.

    “The latest data shows the median price of a home in a capital city is just over $450,000. When the scheme was introduced in 2000 the median price was $220,000. Clearly we’re dealing with a far different economic environment. A grant of $7,000 is no longer sufficient because of the elevated costs first home buyers are facing,” he said.

    However, some economists have suggested boosts to the First Home Buyer Grant will inflate house prices rather than aiding affordability. ANZ senior economist Ange Montalti told Australian BrokerNews in February that boosts to the grant would cause the market to price itself upward.

    "Many buyers don't realise it, and you can't prove it, but some will pay $20,000 or $30,000 more just to get the $7,000 from the government," he said.

    The Loan Market survey also revealed that 21% of brokers favoured government support of wholesale lenders as a means to aid first home buyers, while 18% would recommend tax breaks for first time buyers. Only 6% supported improvements to the First Home Saver Account Scheme.

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  • MPA: Rate the banks and win

    Have your say on bank behaviour and you could win 1 of 5 Accor Hotels Gift Cards worth $200 each!

    MPA is seeking your feedback on lenders for the ninth running of its authoritative Brokers on Banks survey.

    This industry-leading census has grown in stature year by year, to the point where the nation's largest banking institutions now use the results as a key performance indicator of how they are servicing the third-party channel.

    You will have the opportunity to evaluate the leading banks’ performance in terms of turnaround times, service levels, support, credit policy, products, rates, commissions and more.

    ANZ topped last year’s poll, ahead of ING Direct in second and CBA in third. Get voting today and help shape the future of your industry.    

    Click here to fill in the survey. 

  • Exciting new venue for 10th annual

    The 10th annual Australian Mortgage Awards (AMAs) will be held at the Sydney Town Hall, it can be revealed.

    The iconic Town Hall, one of the grandest buildings in Australia, is an appropriate setting for the AMAs, which is celebrating ten years in 2011.

    Key Media publishing director Justin Kennedy said the new venue was a step forward for the prestigious event.

    “The AMAs are celebrating a significant milestone this year and the decision to move the event to the Sydney Town Hall reflects the AMA’s reputation as the most prestigious awards in the industry,” Kennedy said.

    “The AMA team is committed to making this year’s AMAs a highlight event for all attendees, finalists and winners.”

    Over 700 mortgage and finance professionals from across Australia will attend the AMAs for a night of celebration and to recognise the achievements of the industry’s finest.

  • AFM ups offer by shaving margins

    Australian First Mortgage has cut interest rates on its Advantedge Complete Option products, in a move director Iain Forbes said would force brokers to consider the group a serious non-bank competitor.

    The 0.04% rate reduction, which brings the full doc rate down to 7.05%, comes along with no application, valuation fee, legal or annual fees, and is applicable to loans not yet formally approved.

    Speaking with Australian BrokerNews, AFM director Iain Forbes said the marketplace would need to consider the offerings of non-bank lenders.

    "Non-bank lenders, and particularly companies like AFM - which is a small family company - does not work on the basis of bottom line profit in every instance," Forbes said.

    "As a company, we have come through the GFC, increased our volumes, and are increasing our profit growth every month, with new business settled far exceeding loans discharged.

    "We've taken the view that if we reduce rates, we'll get more volumes, and that profit trend with continue at slightly reduced margins. We want to be seen as a force in the marketplace," he said.

    Referring to AFM's previous MPA accolade for 'Best Non-Bank Lender of the Year', Forbes said that AFM wants to be seen as the best non-bank lender in the country. "We don't just say it, we mean it" he said.

    "We've now been in business for eight years, and we work on really low margins. While we are doing that, the cost of running the business has increased substantially in the last two years.

    Forbes named NCCP compliance and new work in regard to the abolition of DEFs as examples.

    "Overall expenses are quite high, and margins have reduced, but that's OK. We continue to increase our profitability, look after our existing clients, and see a reduction in loans being discharged," he said.

  • Former Wizards back Senate stance

    Two former founders of Wizard Home Loans have come out in support of Senate Economics Committee recommendations released last week, which they argue could reignite competition.

    Yellow Brick Road's executive chairman Mark Bouris and Intouch Home Loans CEO Paul Ryan reacted to the report by arguing the government has the power to stimulate competition via RMBS support.

    The report recommended that a broader inquiry into the financial system be conducted, where the question of the participation of smaller lenders would be addressed, including through liquidity support.

    The Committee also recommended Treasury develop a plan to introduce a support programme for RMBS similar to that operating in Canada, in case of future deterioration in the market.

    “The government has powerful reform opportunities available to it," Bouris said in reaction to the report.

    "For example, Yellow Brick Road believes that more policy thinking needs to be invested into ways to help vouchsafe the liquidity of Australia’s securitisation market. The value of securitisation as an alternative source of funding is that it enables lenders to secure capital on broadly the same terms, irrespective of their size. In principle, this means that Yellow Brick Road could raise funding at the same cost as CBA, so long as the quality of our loans was no worse,” he said.

    Specifically, YBR has recommended the government consider a more permanent liquidity facility via the AOFM, which would make markets in RMBS "on commercial, arms-length terms".

    "We also believe that the Government must urgently address the fact that the RMBS market remains completely unregulated," Bouris said. "APRA or ASIC should properly regulate and licence any financial institution securitizing Australian home loans."

    Ryan told Australian BrokerNews if the government is able to guarantee RMBS markets in a similar way to the so far successful Canadian model, it would provide a boost to the competitiveness of non-banks.

    Both former Wizard founders were highly critical of the current market dominance of the major banks.

    "In November, banks increased their rates over and above the RBA's move, citing cost of funds to do business," Ryan told Australian BrokerNews. "Where can any other business increase their retail prices and retail proposition to consumers, citing increased cost of funds and expenses, and in the same breath in the space of six months announce record profits?"

    Bouris said the market is "inherently oligopolist" and designed to favour the big banks.

    “This is why we have only four institutions that account for about 75‐80% of the market. The fact is the major banks have tremendous fund-raising and cost advantages over everybody else, which is why there has not been a new retail banking entrant since the advent of ING Direct in 1999."

  • NAB Broker hitting stride: Flavell

    Broker contribution to NAB’s recent mortgage growth is a signal NAB Broker is starting to perform at its potential, general manager of distribution John Flavell has stated.

    NAB’s recent first half results indicated 141% growth for NAB Broker since March 2010. Flavell has told Australian BrokerNews that while the result is pleasing, it is not unexpected.

    “It’s really about us performing where our natural market share should be. One in four or one in five of all loans written by a broker really should be on NAB paper,” he commented.

    Flavell said improvements in the bank’s service platforms and lending policies are beginning to woo more brokers. He claimed brokers were also beginning to see the benefit of the bank’s ramped trail structure. Flavell also expressed satisfaction at the quality of loans being brought to the bank through the broker channel.

    “Growth is one thing, but the other thing we’ve been able to bring on board is good quality business. The quality of the business is first rate,” he commented.

    Flavell referred to recent half year results from rivals ANZ and Westpac which indicated a spike in mortgage arrears. He said while arrears are rising for the other majors, NAB has seen its delinquencies decline.

    “Ours continue to go down. That’s reflective of the quality of the business we continue to put on the book. Run-off is also down, so the customer/NAB Broker relationship is extending all the while,” he said.

    Flavell commented that while NAB and the other majors will continue to diversify their mortgage origination through both third-party and proprietary channels, he believes brokers should be the main source of origination for the bank.

    “I’m very one-eyed and focused on brokers. I want to get out there and make sure the broker channel is the biggest part of the pie,” Flavell commented. “When I can go into the broader NAB business and say, ‘Look at the potential this channel has to produce good volume and quality business,’ it makes a really strong proposition to the NAB Group to continue to invest in the broker channel.”

  • Investment interest spells opportunity: MFAA

    Property investors could present an opportunity for brokers in an otherwise flat housing market, the MFAA has stated.

    According to the MFAA BankWest Home Finance Index, 60.7% of home owners were likely to make their next home purchase an investment property, while only 39.3% indicated they would upgrade from their current residence. The poll also found the proportion of home owners who believe now is the best time to buy investment property increased from 74.8% in March 2010 to 76.5% in 2011. MFAA CEO Phil Naylor said the result shows opportunities exist within the investment market.

    "It's good to see confidence alive and well in the property market, but you must have a borrowing strategy when interest rates are volatile. Property investors may not be aware of different strategies, but mortgage brokers understand all of the options," he commented.

    Naylor said the survey also indicated that property investors were sensitive to interest rate movements, and that brokers could play a key role in helping potential investors understand the debt market.

    "Given the current interest rate cycle and inflationary environment, we urge people to understand all their options before taking on more debt," Naylor said.

  • Online could limit channel market share: Cannon

    Changing consumer behaviour and online sales could pose a threat to the broker channel according to FirstMac managing director Kim Cannon.

    NAB's online proprietary arm, UBank, has cut its standard variable rate to 6.59%, available until the end of the month and only through home loans sold online. The move puts UBank's offering more than 100 basis points below the standard variable rate of the other majors.

    Cannon has told Australian BrokerNews consumers will become increasingly comfortable with the idea of sourcing their home loan online, in a threat to the third party channel.

    "The way the world is changing with online and the way consumers are changing, I would question whether the broker channel will ever grow again up to where they were dominating. I think it will dwindle off over time," Cannon said.

    Cannon pointed to the investment by major banks in technology platforms, saying banks are increasingly positioning their online networks to act in competition to third party distribution.

    "Consumer behaviour is changing quite dramatically at the moment, and it’s no coincidence the majors are spending billions and billions on computer systems. You think they’re spending that money for brokers?" he commented.

    In addition to proprietary online sales, Cannon said consumers are changing in the way they gather information. He commented that borrowers no longer have to seek out a broker to become informed about the home loan market.

    "If you go back 20 years ago, the Australian consumer was pretty misinformed. They became reasonably informed by using brokers. They are super informed now because of Google. There will always be a place for a salesman or broker to advise what product to buy, but the consumer is really informed now," Cannon said.

  • Broker reluctance driving non-bank decline

    Broker reluctance may be driving a recent drop in non-bank market share, a non-bank lender has claimed.

    Recent ABS figures have indicated non-bank share of the mortgage market more than halved over the March quarter. Homeloans general manager of third party distribution Tony Carn told Australian BrokerNews much of the decline in volumes may be due to broker uncertainty over the impact of the DEF ban.

    "Talking to brokers there’s a reluctance, largely due to uncertainty around what the removal of exit fees will mean," Carn said.

    With many non-banks implementing or considering clawbacks, Carn said brokers may be waiting to see how the lenders restructure their third party propositions before moving forward. Carn commented that recent surveys show seven out of 10 consumers would consider a non-bank lender, and a "sizeable proportion" would prefer a non-bank. He commented that non-banks will have to retain an appealing proposition to brokers, and said Homeloans' commission restructuring would be revealed soon.

    "We're very upbeat and optimistic about it," Carn commented. "This is a big test for brokers. It's their opportunity to stop being dictated what commission they'll take."

  • Forget exit fee autopsy and move on: Carn

    Homeloans general manager of third party sales Tony Carn has urged the market's mortgage brokers to "move on" and put negativity behind them, as the ban on exit fees comes into force today.

    In a statement to media, Carn said while the "autopsy" is still being done on the legislative change and despite many last minute efforts to overturn the ban, "we have to accept it's now law and look ahead".

    “In the past, deferred establishment fees have been a huge psychological barrier for clients – particularly since the GFC. But with the introduction of the NCCP, exit fees have been propelled into the spotlight, which has made it easier for brokers to recommend products which don’t have such fees," Carn said.

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

    Carn has urged brokers to use the opportunity provided by the abolition of DEFs to "vote with their feet", and begin recommending non-bank lenders.

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

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

  • Advantedge takes aim at 100% claw backs

    Advantedge Financial Services has taken aim at major bank clawbacks, with its new claw back structure introduced from today.

    The company has previously announced its claw back structure of 50% for the first 18 months, and no clawbacks thereafter. With the government's ban on exit fees taking effect from today, Advantedge general manager of lending distribution Brett Balliwell said the structure should be a "new industry benchmark".

    "Collaboration is central to our approach; we’ve listened to brokers, understand their needs, and most importantly, view them as business partners rather than just product distributors,” he said.

    Halliwell compared the Advantedge structure to that of the majority of major banks, which claw back 100% for the first 12 months. He criticised 100% clawbacks, and said the Advantedge structure more fairly reflected the work done by brokers.

    “We’re now in the new world. Exit fees are no longer a reality. This is our response and to date we’ve seen very little action from the majors. One-hundred per cent clawed back from a broker within 18 months of setting up a loan can massively impact on cash flows. We recognise the hard work brokers put in to originate the loan and our claw back has been set at a level that we believe is fair to brokers, sharing the burden in recognition of the work they have performed,” he said.

  • Households see dark times ahead

    The rising cost of living is deterring consumers from activity in the property market, the MFAA has said.

    The latest Bankwest/MFAA Home Finance Index has found 37.5% of households believe they are worse off financially than 12 months earlier. The proportion of respondents who intend to be active in the property market has also fallen, down to 19.1% in May from 21.6% in January. The index indicated that more households believe their financial conditions have worsened compared to those who believe they have improved, the weakest result since November 2008.

    The index also surveyed consumer expectations of house price growth, and found 36.3% though prices would remain flat in the coming year, while 28.8% believed prices would rise and 34.9% expected prices to decline. Most households believe the RBA's monetary tightening is not over, with 68.7% indicating they expected rates to move higher over the next year. MFAA CEO Phil Naylor said the survey indicated high rates were a factor in dampening consumer confidence.

    "The other key message from our survey is that households are still wary of higher interest rates, despite the fact that they are already doing it tough financially. It appears that people are feeling some financial pain at present but they are also anticipating things might get worse before they get better, and this cycle will need to be broken in order for the housing market to show signs of life," he said.

    The number of households struggling to meet mortgage repayments has also grown, reaching more than one in four (25.7%), up from one in seven in previous polls. In spite of the difficulties households say they are facing, 68.2% of borrowers are still meeting repayments, while 5.2% said they have repaid late and less than 1% indicated they were behind on payments.

  • Symond pleads for rate hold

    In light of weak economic data and concerns over the European debt crisis, John Symond has pleaded for the RBA to leave rates on hold.

    The Aussie Home Loans founder and executive chairman said consumers are skittish about the "spectre of new taxes" and are concerned over job security. This caution, he said, has led to a higher household savings rate.

    Symond also pointed to weak activity in the non-mining sectors of the marketplace, and said a rate hike could have dire consequences for the Australian economy.

    "We are currently seeing a two speed economy and many non-mining industry sectors are suffering. As a result, one or two more rate rises could well tip Australia into recession," he said.

  • Brokers to build Liberty network

    Liberty Financial has revealed it is currently in the process of recruiting mortgage brokers into its newly-minted Liberty Network Services business, which will commence the non-bank lender's direct retail brand push to consumers.

    Speaking with Australian BrokerNews, Liberty Network Services CEO Brendan O'Donnell said the business had taken the best of existing franchise and aggregation models, to create an offer to recruits that would give them more 'freedom' in operating their businesses.

    To be branded Liberty 'advisers', O'Donnell said Liberty Financial's branded brokers will be granted true independence in contrast to traditional franchise models, by being granted ownership over their clients and databases, which they will be able to take with them on exit.

    The business will also allow its brokers to trade from a Liberty Financial shop front - which will be a key method of growing brand awareness - an office location, or even from their own home, and will not restrict its brokers to specific trade areas, giving them potential national scope.

    O'Donnell said the focus would be to 'minimise cost and maximise revenue' for its recruits, which he expects will come from the existing mortgage broking market, as well as new entrants to the industry.

    Part of this maximization of revenue will come from targeted 'cost management' support for brokers, which will focus particularly on how brokers can manage their client bases more effectively. This will come in tandem with a fully-fledged in-house customer relationship management (CRM) system.

    Though Liberty Financial will aim to make its own products competitive,Liberty Network Services will also give its brokers access to a panel of 12 lenders - including the major banks - which will cover most of the lending market.

    O'Donnell said the business will hold its own ACL, its brokers would become credit reps, and that it would also launch with a proposition that would see brokers diversifying into 'limited advice' areas of credit and insurance "from day one".

    The Liberty Network Services consumer push comes at the same time as Liberty Financial strives to reposition its brand among third party distributors as a true alternative to the major banks in the prime lending space, in addition to its traditional non-conforming focus.

    "We will be repositioning ourselves so we are not seen as a lender of last resort, but a lender of first resort," O'Donnell said.

    To be marketed to the retail market under the newly coined slogan - 'Choose freedom, choose Liberty' - O'Donnell said Liberty Financial would be positioned as a true "challenger" brand, that would resonate with consumers who are seeking true freedom through finance.

Consumers have undergone a 'quantum shift' toward online transactions, Firstfolio has suggested.

Firstfolio chief executive Mark Forsyth has told Australian BrokerNews the company's online sales platforms have seen substantial growth as more consumers shift their focus away from traditional face-to-face transactions. Forsyth said the company sees between 25-30% of its sales from its online channels, a shift which he believes represents changing consumer sentiment.

"We've seen a quantum shift in the last quarter. There's a sense now if you buy something in a retail store you're getting ripped off," he commented.

As more broking businesses and lenders move online, Forsyth said consumers become increasingly comfortable with the idea of doing business on the web.

"When I see competitors, I think 'happy days'. We don't want to be the only people convincing the public it's safe to go online of do their transactions online," Forsyth said.

While online channels could represent competition for brokers, Forsyth indicated that most clients with needs beyond a "white picket fence deal" would still seek out the advice of brokers.

"My advice for the broker is he has to become a better consultant. He has to actually sit there and add value. We're providing the tools, so they don't have to worry about developing online platforms. What they should be focused on is their own personal skills at consulting with the customers," he said.

  • Affordability benefits from economic chaos

    Global economic uncertainty has caused the side-effect of rises in housing affordability, it has been claimed.

    The HIA-Commonwealth Bank Housing Affordability Index saw slight improvement over the June quarter, rising 0.8%. The result the index to 7.2% above its level in the June quarter of 2010.

    HIA senior economist Andrew Harvey indicated the outcome was largely driven by the global economic uncertainty which saw the RBA leave rates on hold and improved funding conditions for banks. The HIA claimed average weekly earnings also aided the result, rising 1.2% in the quarter.

    "Earnings growth and a small decrease in mortgage lending rates worked to improve housing affordability over the June 2011 quarter. These factors more than offset a small increase in the median house price," Harvey said.

    Median house price outcomes may also have factored into the result. Though Harvey claimed median prices saw a small increase over the quarter and CBA lending figures claimed a 0.8% rise in median prices, ABS figures show house prices declined 0.1% for the quarter across capital cities, to be down 1.9% from the June quarter of 2010.

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