Tag: Australian Broker

NAB predicts 2019 rate cuts

A big four bank has confirmed it is preparing for two rate cuts before the end of 2019, via Australian Broker.

Speaking at the NAB Budget Breakfast yesterday, NAB chief economist for markets, Ivan Colhoun, noted that the RBA has likely been stumped by the combination of the decreasing unemployment rate and slackening of GDP growth.

“The lower unemployment would say do nothing, but the slower GDP growth would say cut rates,” Colhoun explained.

That said, he pointed out the significant change in the final paragraph of the reserve bank’s announcement earlier this week which said the RBA is now “monitoring” monetary policies, a notable shift from the last several years.

According to Calhoun, “[NAB] thinks they will cut interest rates twice in the second half of this year.”

Jonathan Pain, independent economist and author with decades of international finance experience, also weighed in on the matter.

“I agree with NAB that the RBA is going to cut rates. I think they’re going to be very aggressive this time around,” he said.

“If we didn’t have this election in May, I think the RBA would already have been cutting rates. The final sentence of the reserve bank statement opened the door for a rate cut at their next meeting, in my view.”

However, there was a key difference in the predictions of the two financial leaders.

Pain said, “NAB is going for two rate cuts, from 1.5% to 1%. I’m going for four rate cuts by the end of this cycle.” The economist sees the rate settling at 0.5% in two years’ time.

The divergence stems from the two leaders’ views on what banks would do with a cut in rates.

After clarifying that he’s not personally involved in making the decision, Colhoun stated that he “expects rate cuts to be passed on” to NAB customers as long as “funding pressures stay lower.”

Pain disagreed stating, “Banks always want to protect their margins.”

“One of the reasons I’m going for a 1% cut in rates in the next two years is because I don’t think the banks will fully pass it on. I think they’ll pass on about 60-65%.

“Does it matter? Absolutely. The majority of mortgages in Australia are of a variable rate nature, so the cash rate that the reserve bank sets is very important for us from a business perspective and from a mortgage prospective,” he concluded.

More Mortgage Rate Tweaks

Three banks – two non-major and one ‘big four’ – have announced changes to their loan offerings, several of which cater to customers with a higher LVR, via Australian Broker.

Both Macquarie and ME Bank rolled out home loan rate changes for new customers, while ANZ has implemented changes to its interest-only lending criteria.

“Just when we thought the banks were finding the kitchen a little too hot, we have seen ANZ and ME Bank move to encourage borrowers at the higher end of the LVR scale,” said Canstar’s group executive of financial services, Steve Mickenbecker.

At Macquarie, for both P&I and interest only repayment, owner occupier fixed rate loans will decrease by 0.09% and 0.20% and investment fixed rate loans will decrease by 0.05% and 0.10% for 1-, 2- and 3-year loans.

At ME Bank, owner occupier variable rate loans with principal repayments, for an LVR of more than 90%, will decrease by 0.80%. Investment variable rate loans with P&I repayments, for an LVR of 80% to 90%, will decrease by 0.27%.

This means that ME Bank’s P&I home loan will decrease from 5.26% to 4.46%, potentially saving borrowers tens of thousands in interest over the life of a longer-term loan.

“The reduction for owner occupiers at the very low deposit end of the market sounds bullish, but the reduction leaves ME mid range in the market,” said Mickenbecker.

The changes at both non-major banks went into effect on 15 March 2019.

ANZ announced that, as of 25 March 2019, the interest-only loan term will increase to 10 years, up from five. Additionally, interest-only loans will have a maximum LVR of 90%, up from the current 80% LVR.

According to Mickenbecker, through raising the LVR by 10%, ANZ is responding to its “over-reaction to the APRA tightening and is now moving to restore market share in the slow investor market.”

He continued, “Lengthening the interest only period will provide attractive differentiation in the market, but also give housing prices and wages time to recover before repayments have to increase to accommodate principal reductions. This should also improve customer retention rates.”

Are CBA Demerger Plans On Hold “indefinitely”?

Yesterday, CBA announced it was suspending the demerger of its wealth management and mortgage broking businesses slated to occur this calendar year, in order to better address the recommendations from the royal commission; via Australian Broker.

Following the news, Daniel John, head of group public affairs and communications at Commonwealth Bank (CBA), provided further clarification to Australian Broker on the “pragmatic and realistic” decision to halt the split.

He explained, “The reason we didn’t give a timescale is there’s a degree of uncertainty out there, especially coming off the royal commission.

“It’s very much on hold. Whether it would happen in 2020 or 2021 is very difficult to predict. We don’t want to get to the point where we’re making another announcement in six months’ time saying we’ve put it off again.”

John reaffirmed the bank’s commitment to the demerger but acknowledged that “it could be revised.”  

To illustrate his point, he cited the sale of Colonial First State Global Asset Management (CFSGAM) to Mitsubishi UFJ Trust and Banking Corporation last year. The total cash consideration of the transaction was $4.13bn, and CFSGAM was pulled from the entities included in the scheduled demerger.

John said that the bank would be “duty bound by our shareholders and customers” to give real consideration to such “a definitive and attractive” offer.

However, a statement from Aussie Home Loans said the suspension of preparations around the demerger is “indefinite”.

The CBA-owned brokerage currently operates 225 franchise stores and counts more than 1,000 brokers in its network.

According to CEO James Symond, CBA’s announcement “doesn’t impact [Aussie’s] focus on [its] customers, brokers and team members”.

“We remain fiercely independent in our operations and approach to providing outstanding customer outcomes and it is worth noting that 66% of the loans provided by Aussie in 2018 were with lenders outside of the big four banks.

“We will continue working on our strategy towards building a safer and stronger Aussie,” he added.

Several months ago, CBA announced that Jason Yetton and Andrew Morgan were to head the new wealth management and mortgage broking entity NewCo, as CEO and CFO respectively.

“At the moment, nothing has changed in regards to Jason’s or Andrew’s position because we’ve still got to manage those businesses. For the time being, they’ve still got roles to play in making sure that we run those businesses for the benefit of the consumers, customers, and shareholders,” said Daniel John.

Government Reneges on Trail Commission Position

Yesterday afternoon, the coalition government announced a dramatic change to its position on the future of trail commissions, via Australian Broker.

Rather than barring trail commissions on new loans starting in 2020, Treasurer Josh Frydenberg announced that they will be left to operate as is with a review held in three years’ time.

In the statement, mortgage brokers were said to be “critically important” for securing better consumer outcomes in the mortgage market.

“The Government wants to see more mortgage brokers – not less,” the media release stated.

MFAA CEO Mike Felton said, “The announcement reflects the fact that the case for the removal of mortgage broker trail commission has not been made, nor has it been demonstrated that existing trail arrangements lead to poor customer outcomes.”

In past weeks, there has been confusion throughout the broking industry as to what benefit was being sought from eliminating the trail commission payment structure.

“Trail commission for mortgage brokers is deeply misunderstood, and is often confused with ongoing commissions earned by other financial services providers,” Felton said.

He explained, “Trail is contingent income that is only paid to a broker if the loan is not in arrears, is not refinanced and does not involve fraud.

“As such, it is an important control mechanism that aligns the interests of brokers and their customers, and ensures that the broker focuses on the customer relationship rather than simply pursuing the next transaction.”

Aussie Home Loans CEO James Symond also welcomed the news. 

“Today’s announcement is a positive step by the treasurer and provides a good timeframe for this consultation process to take place,” he said.

Meanwhile, FBAA managing director Peter White welcomed the move but said that policy changes were needed to back it.

“The Coalition’s announcement to keep trail commissions has been delivered in a pre-election environment so uncertainty remains about how exactly this will work after the election. Hayne simply didn’t get it but it’s now the case that both sides of politics are now very clear on the importance of mortgage brokers.

“Both the Coalition and Labor recognise that the recommendations of the royal commission would in fact hand power back to the big four banks, which is an absurd result,” he added.

AMP Bank To Lift Some Mortgage Rates

Weeks after posting a 97% drop in profits, AMP has announced changes to its home loan offerings, via Australian Broker.

In the next few days, AMP Bank plans to decrease a range of fixed rate loan options as well as increase variable rates.

“We have held off passing this cost on to existing customers for as long as we can. We are managing our loan portfolio in a very active market and decisions on rates are never taken lightly,” said AMP chief executive Sally Bruce.

When the bank shared its financial results in mid-February, it attributed its 2018 earnings being less than the year before to several factors, including higher cash outflows and the ongoing impact of the royal commission.

Now, variable lending rates for new and existing owner occupiers and investors will increase by 0.15% p.a.

“The change in variable rates is driven by an increase in costs,” said Bruce.

The bank also announced two new fixed lending offers: the three-year package investment P&I at 3.99% per year, and the five-year package owner occupied P&I at 4.05%.

AMP clarified that the two-year fixed rate of 3.75% for owner occupied principal and interest customers will continue to be offered.

The rate changes go into effect on 8 March for new business and 11 March for existing business.

Best interest duty “an impossible standard”

The royal commission’s recommendation that brokers work under a best interest duty has been called “an impossible standard” by an association CEO and former regulator who saw Canada try and fail to do the same, via Australian Broker.

In 2016, Canada’s regulatory body the Canadian Securities Administrators (CSA) announced it would introduce a best interest standard after a four-year investigation exploring how the requirement would alter the market.

Within two years, each of the country’s regional regulators had scrapped the duty having failed to define “best” or sufficiently demonstrate how the value judgment could be enforced.

“When you’re talking about the ‘best’, it’s just an impossible standard. How are you supposed to nail down all the options?,” said Samantha Gale, CEO of the Canadian Mortgage Brokers Association in British Columbia.

“When push came to shove, when the principle was explored in terms of application, everybody had a hard time trying to figure out what it meant and what it would require. It sounds good, it sounds like the right thing to do, but it wasn’t quite clear what it meant.

“It’s an unreachable, unsurpassable, unattainable standard,” she told Australian Broker.

Several articles that circulated after the duty was discarded pitted the interests of financial advisers as conflicting with those of the consumer. 

To Gale, this is not a fair representation. She explained, “The two aren’t necessarily opposed to each other. Looking after yourself in a professional capacity means that you need to be compensated. Looking after your client means they need to be the recipient of your professional services. Hopefully, you’re both satisfied.”

On the spectrum of possible regulatory models, Gale places rule-based regulations on one end and principle-based regulations on the other. The proposed best interest duty falls in the latter group.

“With rule-based regulations, there’s complete clarity. The law says, ‘You must do a, b, c.’ But principle-based regulations say, ‘we have these lovely standards and you must abide by these lovely standards, so figure out a plan to do that’,” she said.

In Gale’s experience, regulators typically shy away from providing clarity due to liability concerns, despite the fact that regulated professionals require and tend to even explicitly request, clear rules. It is a contractual business relationship between lawyer and client, with both parties understanding the terms of the arrangement.

“Regulators are good at coming up with standards, but they’re short on applying that to practical circumstances so the industry is left to wonder, ‘what does this mean and how does it apply?’ That’s the challenge of it,”  Gale said. 

When it comes to the future of the duty in Australia, Gale foresees the need for “balanced rules that provide for standards, but that also provide clarity.”

“Without that it’s like you’re trying to connect dots, trying to figure out what the right answer is, but the regulators are moving the goalposts along the way,” she concluded.

Royal Commission Report Public Release Delayed

The office of the Treasurer has revealed that the final report will not be released on Friday. 

According to the release, the Australian Government will still receive the final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry on Friday 1 February 2019.

However, it will not be released publicly until 4.10pm on Monday, 4 February. Following its release, the Treasurer will hold a press conference at Parliament House.

The interim report was released in September, when Treasurer Josh Frydenberg released the report the same day. 

During his speech at the time he called the report “frank and scathing” and thanked the commissioner for his work. 

He said the Royal Commission was announced last year because “the culture, conduct and the compliance of the sector is well below the standard the Australian people expect and deserve”.

Via Australian Broker.

Warnings to SMEs seeking finance

An insolvency firm is warning brokers that small business owners looking for finance are becoming more and more likely to break the law, via Australian Broker.

The group, Jirsch Sutherland, said with the property downturn and possible negative gearing changes, directors need to be protected by Safe Harbour regulations.

Alongside uncertainty in the residential property market, company partner Ginette Muller said a credit squeeze or crunch was coming.

She said, “The current property climate is weighing heavily on anyone who either owns, or aspires to own, real estate.

“And this is particularly acute with small business, where access to finance is usually conditional on the bank securing the loan against the director’s house.”

The group said that owners faced with a credit squeeze often turn to solutions like repayment arrangements with the ATO, use other creditors by stretching out terms, selling surplus business assets, reducing overheads and streamlining staff.

Muller said this could lead many to trade while insolvent. She added, “Australia has some of the most draconian insolvent trading laws in the world and the reality is, if you are a director and you take any of these actions, you may be about to commit an offence.”

Safe Harbour was introduced in 2017 and is progressively being used as an insurance policy by directors in a bid to minimize the risk of breaching directors’ duties.

Directors are advised to seek Safe Harbour protection prior to negotiating repayment terms.

“Safe Harbour protection is confidential and is not expensive as the director and senior staff remain in control,” Muller said.

“There are rules they need to comply with to ensure they have a plan and are not driving themselves and creditors off a cliff. In exchange for their diligence, they can avoid the potential threat of insolvent trading. Safe Harbour is just another word for insurance.”

Bankwest starts 2019 by cutting rates

Bankwest has reduced owner occupier rates on its Complete Variable, Premium Select and Complete Fixed Home Loans, as of today (8 January) for new borrowers with deposits of more than 20%, via Australian Broker.

It has also introduced a new pricing tier for borrowers with a deposit of up to 10%.

The interest rates have reduced by up to 18 basis points and are for new borrowers with principal and interest repayments.

For borrowers taking out a Complete Variable Home Loan and a loan to value ratio of less than 80%, the variable rate has dropped from 3.85% per annum to 3.72%.

Borrowers with a loan to value ratio of between 80.01% and 90% will not see any change and will therefore now have a higher interest rate of 3.85%.

For new borrowers taking out a Premium Select Home Loan, the interest rates have also only changed for borrowers with loan to value ratios of less than 80%.

If the loan amount is between $20k and $499k, the interest rate has dropped from 4.00% to 3.82%.

For loans of more than $500k, the loan has also dropped to 3.82%, from an original rate of 3.94%.

The new pricing tier for borrowers with a loan to value ratio of up to 90% on a two-year term Complete Fixed Home Loan sees the interest rate drop from 3.88% to 3.75%.

Bankwest also started the new year implementing its decision to remove reverse mortgages from its offering from 1 January.

Other banks which have decreased interest rates at the start of 2019 are IMB and P&N Bank, both of whom are still offering reverse mortgages.

IMB dropped its variable interest rates for owner occupiers by up to 43 basis points.

P&N Bank dropped its fixed rates for owner occupiers by up to 36 basis points and also for investors by up to 49 basis points.

Kogan launches home loan offering

After plans were originally announced in September, online Australian retail group Kogan.com has launched its home loan offering today (28 November), via Australian Broker.

The website sells everything from technology and homewares to holidays and insurance, and will now begin offering Kogan Money Home Loans.

The products are for a range of borrowers, including first home buyers, refinancers and investors.

Rates for owner-occupiers start from 3.69% per annum, comparison rate 3.70% p.a. or 3.83% p.a. with 100% offset. Investor rates start from 3.89% p.a., comparison rate 3.90% p.a. or 4.03% p.a. with 100% offset.

Kogan lists other benefits as fixed and variable home loans with the option of 100% offset accounts, as well as catering for specialist loans for self-employed, debt consolidation and those with credit issues.

The retailer said it provides a loan calculator to help borrowers get a quicker understanding of how much they can borrow, as well as lending specialists who will call borrowers back “within a few business hours”.

The home loans are funded by Adelaide Bank and Pepper Group.

The Essential Home Loans range, funded by Adelaide Bank, boasts free online redraw, no monthly or ongoing fees on the home loan and $10 per month for the 100% offset account, unlimited extra repayments (up to $20,000 p.a on fixed), interest only options available, and weekly, fortnightly, or monthly repayments (for P&I loans).

The Options Home Loans range funded by Pepper helps those that have unique circumstances, such as having a non-standard income, having suffered previous financial setbacks or are self-employed.

David Shafer, executive director of Kogan.com, said, “Kogan.com delivers products and services that Australians need at some of the most affordable prices in the market, and we’re proud to extend our offerings to the financial services Australians use every day through the launch of Kogan Money Home Loans.

“Digital efficiency continues to be a key driver of our ability to achieve price leadership, and we’ve taken this approach with our Kogan Money Home Loans offering.

“Knowing where to start when getting a home loan can be difficult, especially in a crowded market. Kogan Money Home Loans is making this process easier and more efficient for the many Australians looking to secure a home loan either when purchasing a property or as part of a refinance.

“A large part of Kogan Money Home Loans’ mission is to provide solutions to help people lower the cost of owning homes and investment properties and to achieve property ownership.”