Tag: The Adviser

Pepper launches mortgage offering in NZ

Non-bank lender Pepper Money has launched mortgage lending operations in New Zealand, offering advisers in New Zealand the technology and tools to write its prime, near-prime and specialist loans. Via The Adviser.

Following more than a year of consultation with advisers and intermediaries, lending partners, regulators and borrowers, Pepper Money has today (16 September) opened its business in New Zealand.

This builds on the international reach of the non-bank lending group, which already operates in Australia, the UK, Spain, Ireland and Asia.

New Zealand-born Aaron Milburn, Pepper Money’s director of sales and distribution in Australia, will head up the New Zealand business from today. His new job title will be director of sales and distribution for Australia and New Zealand.

Speaking to The Adviser about the new business, Mr Milburn said that Pepper Money will primarily distribute through the third-party channel, as it does in Australia.

Mr Milburn added that while while the company may look to launch mortgages directly in future, “the initial plan – and for the foreseeable future – is to utilise the adviser network over there”.

He explained: “We will initially distribute through the adviser network in NZ through all of the major aggregators that operate in New Zealand. 

“Pepper’s business is 95 per cent driven through brokers in Australia and in the UK, and we see no need to change that model as we enter NZ.”

He continued: “We think that advisers do a wonderful job in New Zealand, and we would like to continue to support that area of distribution as we enter NZ, as we do in Australia.”

Mr Milburn told The Adviser that his first priority in his expanded role will be to launch the suite of products in New Zealand and “deliver what advisers have been asking for at our various feedback sessions and study tours”.

According to the director of sales and distribution for Australia and New Zealand, this largely focuses around filling a “significant gap in the near-prime space in New Zealand, where families are potentially paying too much or have been in the wrong products due to a lack of choice” and providing advisers with supporting tools to help deliver these products.

He explained: “We had advisers in New Zealand contacting Pepper asking us to go over there and really inject some competition into the market and make it easier for advisers and, ultimately, Kiwi families to realise their goals.”

Pepper Money will therefore also offer advisers the Pepper Product Selector (PPS) tool in New Zealand, which will enable brokers to “get indicative offers for their customers in under two minutes”, as well as a “fully online integrated submission platform for brokers,” the marketing toolkit, the social media toolkit and the Pepper Insights Roadshow.

Pepper Money to pay trail

Notably, while the majority of lenders in New Zealand went through a “no trail” period starting in 2006 (when payments went from 0.65 of a percentage point in upfront commission plus 0.20 of a percentage point in trail commission to an average of 0.85 of a percentage point in upfront only), several lenders have begun returning to trail commission to reduce instances of churn.

According to Mr Milburn, Pepper Money in New Zealand will be offering advisers an upfront and trail commission.

He told The Adviser: “Overwhelmingly, the feedback was that an upfront and trail model was preferred. 

“A number of banks have either re-implemented trail in NZ or are looking to in the near future, so we took the opportunity to put trail back into the New Zealand market with our products.”

Mr Milburn concluded that the new operation in New Zealand would build on the practice and service offerings built in Australia.

He said: “We will continue to deliver the level of service and solutions that we do today and continue to really focus on that technology improvement side of things. 

“We want to make it easier and faster for brokers to provide solutions for their customers and help build their brand out in the community and the focus will continue in the back end of 2019 to 2020.”

Mortgage Broker Best Interest Draft Bill Released

The Treasure has released an exposure draft of the proposed Mortgage broker best interests duty and remuneration reforms.

The National Consumer Credit Protection Amendment (Mortgage Brokers) Bill 2019 — containing a new bests interest duty obligation on mortgage brokers, as recommended by Commissioner Kenneth Hayne in the final report of the banking royal commission.   Via The Adviser.

The bill states that brokers “must act in the best interests of consumers when giving credit assistance in relation to credit contracts”, meaning:

  • where there is a conflict of interest, mortgage brokers must give priority to consumers in providing credit assistance in relation to credit contracts,
  • mortgage brokers and mortgage intermediaries must not accept conflicted remuneration — any benefit, whether monetary or non-monetary that could reasonably be expected to influence the credit assistance provided or could be reasonably expected to influence whether or how the licensee or representative acts as an intermediary.
  • employers, credit providers and mortgage intermediaries must not give conflicted remuneration to mortgage brokers or mortgage intermediaries.

The draft bill, which is open for consultation until 4 October, notes that the duty to act in the best interests of the consumer in relation to credit assistance is a “principle-based standard of conduct” and “does not prescribe conduct that will be taken to satisfy the duty in specific circumstances”.

“It is the responsibility of mortgage brokers to ensure that their conduct meets the standard of ‘acting in the best interests of consumers’ in the relevant circumstances,” the bill states.

According to the bill, the content of the duty “ultimately depends on the circumstances in which credit assistance is provided”.

Examples of such content cited in the draft bill include:

  • prior to the recommendation of a credit product, it could be expected that the mortgage broker consider a range of such products (including the features of those products) and inform the consumer of that range and the options it contain,
  • any recommendations made could be expected to be based on consumer benefits, rather than benefits that may be realised by the broker (such as commissions);
  • in cases where critical information is not obtained when inquiring about a consumer’s circumstances, the broker could be expected to refrain from making a recommendation about a loan where there is a consequent risk that the loan will not be in the consumer’s best interests;
  • a broker would not suggest a white-label home loan that has the same features as a branded product from the same lender, but with a higher interest rate, because it would not be in the best interests of the consumer to pay more for an otherwise similar product; and
  • during an annual review, a broker would not suggest that the consumer remain in a credit contract without considering whether this would be in the consumer’s best interests.

In addition to the new best interests obligation, the draft bill requires a mortgage broker to “resolve conflicts of interests in the consumer’s favour”.

The bill states that “if the mortgage broker knows, or reasonably ought to know”, that there is a conflict between the interests of the consumer and the interests of the broker or a related party, the mortgage broker “must give priority to the consumer’s interests”.

As an extension to the best interests duty, the bill builds on remuneration reforms proposed by the Combined Industry Forum, which includes:

  • requiring the value of upfront commissions to be linked to the amount drawn down by borrowers instead of the loan amount;
  • banning campaign and volume-based commissions and payments; and capping soft dollar benefits.

The proposed regulations also limit the period over which commissions can be clawed back from aggregators and mortgage brokers to two years and prohibit the cost of clawbacks being passed on to consumers.

The new provisions are scheduled for implementation by 1 July 2020.

ASIC’s Responsible Lending First Round Hearings Concluded

The big four bank has told ASIC to consider the utility of the broker channel before proposing bespoke responsible lending obligations, adding that it has not identified a notable difference in the quality of loans originated by the channel.  Via The Adviser.

In February, the Australian Securities and Investments Commission (ASIC) launched a review to update its responsible lending guidance (RG 209), which has been in place since 2010.

ASIC opened consultation by inviting submissions from stakeholders within the financial services sector and has since commenced a second round of consultation in the form of public hearings, in which stakeholders that provided submissions have been called to provide further guidance.  

Appearing before ASIC during its first round of public hearings, Westpac’s general manager of home ownership, Will Ranken, was asked to provide an assessment of the quality of mortgages originated through the broker channel.

Mr Ranken noted that the bank’s verification requirements for loans originated via the proprietary channel are the same for those originated by brokers but acknowledged that broker-originated loans require an “extra layer of oversight and governance”.

“When a customer chooses to go to a broker, we’re one step removed, so there’s another layer of oversight and governance on the broker channel,” he said.

However, the Westpac representative stated that the bank has not observed substantive differences in the quality and characteristics of home loans originated by the third-party channel.

“If you look at performance, particularly the metric around 90-day delinquencies, they’re largely the same with our proprietary channel – there’s no meaningful difference between those channels,” Mr Ranken said.

“In terms of the tenure of loans, I think on average it’s measured in months rather than quarters. In terms of the difference [in the average tenure of the loans], it’s one or two [months].

“In terms of the size of a loan, if you look at averages, and averages can be a bit misleading, the average size of a loan through the broker channel is a little bit larger. That’s probably more for smaller loan sizes, customers are happier to deal with a branch, but for larger complex lending requirements, there’s a greater propensity for customers to go to a broker.”

Mr Ranken was then asked if Westpac would support a move by ASIC to prescribe different responsible lending obligations depending on how a loan is originated.

In response, Mr Ranken warned that ASIC should consider the effect of such changes on the value proposition of the broker channel.

“I would say on providing additional guidance on one particular channel over another, it would be important to take into account the very valuable contribution that brokers do make to the overall market,” he said.

“Specifically, I talk to the level of competition that they facilitate in the market, either through providing independence and access to a multitude of lenders, as well as the service they give to customers in terms of assisting them with complex needs. 

“To the extent that guidance may require additional steps either on the lender or the broker themselves, we just want to balance that with ensuring that it maintains a viable and dynamic broker channel.”

When pressed on the question, Mr Ranken added: “We’re comfortable with the policies and procedures that we’ve got in place around the broker channel, so it’s hard to comment on guidance… The devil’s in the detail. It really depends on what the detail of the guidance would be.”

Other stakeholders, however, including consumer group CHOICE, have called on ASIC to enshrine specific broker obligations in its RG 209 guidance.

CHOICE pointed to research from ASIC’s review of interest-only home loans in 2016, which reported that mortgage broking record-keeping from verification enquiries was “inconsistent” and, in some cases, “fragmented and incomplete”.

Despite recent reforms from the Combined Industry Forum, which restricted the payment of commission to the loan amount drawn down by a borrower, the consumer group alleged that the supposed lack of record-keeping was “particularly harmful for consumers” because “brokers are currently incentivised to sell loans that will provide them with the largest commission”.

ASIC’s first round of public hearings concluded, with the second round of hearings to commence in Melbourne on Monday, 19 August.

The regulator is expected to publish its new guidance before the end of the calendar year.

RBA flags ‘overhang effect’ of rising mortgage debt

Well, surprise, surprise, the RBA has realised that high mortgage debt reduces household consumption, according to new research they published. Yet they also note the positive economic impact of higher debt, and say the the overall impact is “unclear”! Well, the DFA surveys make it quite clear, many households are “full” of debt” and cannot spend.

This from The Adviser.

New research from the Reserve Bank has highlighted the link between mortgage debt and household spending amid debate over home loan serviceability assessment guidelines.

The Reserve Bank of Australia (RBA) has published new research from its economic research department, which has identified evidence of a link between “high levels of owner-occupier mortgage debt” and a fall in household spending, referred to as the “overhang effect”.

According to The Effect of Mortgage Debt on Consumer Spending report, if mortgage levels remained at “2006 levels”, annual aggregate consumption would have been approximately 0.2 to 0.4 per cent higher.

The RBA added that the negative effect of debt on spending is “pervasive” across households with owner occupied home loans. 

“Our results also suggest that an increase in aggregate owner-occupier mortgage debt can have important implications for aggregate spending, all else constant, and go at least part of the way to resolving the post-crisis ‘puzzle’ of unusually weak household spending in Australia,” the RBA report stated.

The central bank’s research comes amid continue debate over home loan serviceability assessment standards, with the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) moving to reform current practices.

ASIC’s proposed update of its responsible lending guidance (RG209) has been met with a renewed call from stakeholders for a revision to the way a borrower’s spending habits are assessed.

The RBA’s research has supported claims from some stakeholders, including Westpac, who have noted that changes in a borrower’s spending behaviour after they assume mortgage debt should be reflected in regulatory guidance.

In its submission to ASIC during the regulator’s first round of consultation, Westpac called for greater flexibility in the assessment of a borrower’s living expenses.

“Adopting a modest lifestyle for a period of time in order to acquire real property has been the means by which many Australians have secured long-term financial security,” Westpac stated.

“Experience shows that many customers are prepared to, and do actually, make lifestyle adjustments after acquiring a home and can then service their home loan obligations without substantial hardship.

“As such, Westpac submits that placing too much emphasis on the customer’s pre-application living expenses when determining suitability, without allowing scope for reasonable lifestyles adjustments (‘belt-tightening’), would have the effect of denying credit to many customers.”

Impact on economy still ‘unclear’

Despite confirming the direct impact of higher mortgage debt on household spending, the RBA has maintained that the impact of the “debt overhang’ on the overall economy remains “unclear’, noting the positive stimulatory contribution of the credit boom. stating that  

“[These] estimates abstract from other stimulatory effects of debt,” the report noted.

“The increase in mortgage debt has likely lifted house prices and by this also supported consumption over this period.

“Our estimates are thus best interpreted as the loss in consumption had all other trends, such as the growth in house prices, occurred even though debt remained constant.”

The RBA concluded: “As a result, the net effect of the increase in debt since the mid-2000s is unclear.”

Associations call for ‘clarity’ on expense verification

The MFAA and the FBAA have called on ASIC to provide the mortgage industry with greater guidance surrounding expense verification, but have urged the regulator not to adopt a “prescriptive approach” to responsible lending, via The Adviser.

The Australian Securities and Investments Commission (ASIC) has published submissions from its first round of consultation regarding its proposal to update its responsible lending guidelines (RG 209).  

In February, ASIC stated that it considered it “timely” to review and update its guidance (in place since 2010) in light of its regulatory and enforcement work since 2011, changes in technology, and the release of the banking royal commission’s final report.

ASIC added that its review of RG 209 will consider whether the guidance “remains effective” and will seek to identify changes and additions to the guidance that “may help holders of an Australian credit licence to understand ASIC’s expectations for complying with the responsible lending obligations”.

In submissions to ASIC, the Mortgage & Finance Association of Australia (MFAA) and the Finance Brokers Association of Australia (FBAA) called for greater clarification surrounding guidelines that relate to the verification of a borrower’s expenses (which was a key point of scrutiny during the royal commission).

The MFAA encouraged ASIC to provide “as much guidance as possible”, and lamented the lack of uniformity in the application of current guidelines.  

“An unfortunate side effect of these changes is that the requirements of individual lenders have changed from being reasonably consistent to being quite diverse,” the MFAA noted.

“This is causing significant cost, confusion and delay for consumers as well as for brokers.

“This is not a good consumer outcome because it has become very difficult for brokers to be familiar with the requirements of multiple lenders whose credit policies vary considerably.”

The industry association claimed that a disparity in the credit policies imposed by lenders may limit borrower choice by “resulting in brokers dealing with a smaller panel of lenders”.

“It is important that RG 209 provides as much guidance as possible, specifically dealing with the five most common finance types (home loans, residential investment loans, car loans, credit cards and personal loans – excluding small amount credit contracts) to assist consistency in consumer accessibility to these products while supporting the spread of credit access across the market through the enhanced clarity of regulatory expectation,” the MFAA added.

“We envisage that within each of these five loan types, RG 209 should specify ‘base’ inquiries and verifications because current industry standards are often quite similar across the product range.”

The FBAA agreed, calling for “some additional guidance to be provided around expense verification”, but has warned against a move to a more prescriptive approach to responsible lending.  

“Responsible lending is principles-based and intended to be flexible, adaptable and technology neutral,” the FBAA stated.

“There are genuine risks associated with guidance becoming too prescriptive. It would undermine the intentions of the responsible lending framework, stifle productivity and innovation and impede consumer access to regulated finance.”

Public hearing to be held in August

Last week, ASIC confirmed that it will host a new set of public hearings to further discuss its proposed changes to its responsible lending guidelines.

The corporate regulator has now confirmed that the hearings will take place in August and will be held in both Sydney and Melbourne.

ASIC stated that the hearings, which will be live streamed online, are aimed at “testing the views of stakeholders and providing greater understanding of business operations”.

“The responsible provision of credit is critical to the Australian economy,” ASIC commissioner Sean Hughes said. 

“We are taking this opportunity to test views to make sure our guidance remains relevant, clear and timely.

“Public hearings will provide a robust and transparent way to air issues and views raised in written submissions.”

The stakeholders invited to participate in the hearings will be drawn from the groups or individuals who provided a written submission to ASIC on the responsible lending guidance.

Credit resurgence could have ‘undesirable’ impact

The fall in interest rates and an easing of lending standards will “breathe life” into the property market, but not without consequences, according to Moody’s Analytics, via The Adviser.

Financial intelligence agency Moody’s Analytics has released its Second Quarter 2019 Housing Forecast Report, in which it has noted its outlook for the Australian housing market.

Drawing on CoreLogic’s Hedonic Home Value Index, the research agency noted the correction in residential property prices, which it said was “a long time coming” after a “strong run-up” in values across more densely populated markets, particularly in Sydney and Melbourne.

However, Moody’s has observed that while residential home prices have moderated from their peak in September 2017, the decline has not led to a “material” improvement in housing affordability, with values still 20 per cent higher than during the pre-boom period in 2013.

Nonetheless, Moody’s has reported that it expects the Reserve Bank of Australia’s (RBA) cut to the official cash rate and proposals to ease home loan serviceability guidelines from the Australian Prudential Regulation Authority (APRA) to rekindle demand for credit and spark activity in the housing market.

“An important driver of the slowdown in Australia’s housing market has been tighter credit availability, partly as a consequence of the regulator – the Australian Prudential Regulation Authority – tightening lending conditions, which has made it relatively more difficult to purchase a property, particularly for investors,” Moody’s noted.

“These serviceability requirements were eased in May.

“Expectations of further lending reductions flowing on from RBA cash rate reductions will also breathe life into the property market and add weight to our view that the national housing market will reach a trough in the third quarter of 2019 and gradually improve thereafter.”

However, Moody’s warned that a resurgence in the housing market activity could further expose the economy to risks associated with high levels of household debt.

“This could see the household leverage-to-GDP ratio climb, making Australia stand out further amongst its peers,” Moody’s stated.

“This is an undesirable position to be in, particularly given the questions around sustainability of the potentially rising debt load.”

Moreover, recent changes in the regulatory landscape have been interpreted by some observers as as a sign that the economy could be at risk of falling into recession amid growing internal and external headwinds.

Treasurer Josh Frydenberg recently acknowledged that “international challenges” could pose a threat to the domestic economy.

Fears of a looming recession have prompted some observers, including the CEO of neobank Xinja, Eric Wilson, to encourage borrowers to pocket mortgage rate cuts passed on following the RBA’s decision to lower the cash rate.

Mr Wilson claimed that resisting the urge to accrue more debt would help borrowers build a buffer against downside risks in the economy.

The Australian Bureau of Statistics’ (ABS) Australian National Accounts data for the quarter ending March 2019, reported GDP growth of 0.4 per cent, with annual growth slowing to 1.8 per cent – the weakest since September 2009.

However, Moody’s economist Katrina Ell has said she expects the RBA’s monetary policy agenda to help revive the economy.

“The combination of increased monetary policy stimulus, expectations of the housing market reaching a trough in the third quarter of 2019, and fiscal policy playing a relatively supportive role including via income tax cuts should boost GDP growth to 2.8 per cent in 2020,” Ms Ell said.

Brokers On The Boil?

Broking groups have reported a spike in borrower enquiries following the Reserve Bank’s decision to slash the cash rate to a new record low, via The Adviser.

On Tuesday, the Reserve Bank of Australia (RBA) cut the official cash rate for the first time in almost three years, dropping the cash rate by 25bnps to 1.25 per cent.

Several lenders, including the big four banks, have passed on the rate cut partly or in full to mortgage customers, which according to broking franchise groups Mortgage Choice and Loan Market, has triggered an “influx” of borrower enquiries.

Andrea McNaughton, Loan Market’s executive director of growth, told The Adviser that the broking group received an overwhelming response from clients after informing them of changes in the interest rate environment via a marketing campaign.

“I think it’s been an exciting few weeks, a lot more confidence has returned to the market and I think the trifecta was Tuesday, with the announcement of a cut,” Ms McNaughton said.

“We’ve sent out a text message and an email campaign to our client base, simply saying, ‘great news about the interest rate reduction this week, let’s chat so we can tell you what this means for our loan and how simple our process is to review – message me back and let’s get the ball rolling’. 

“We had about 12 response to that in 20 minutes to see brokers.”

Mortgage Choice CEO Susan Mitchell also reported a sharp uptick in borrower enquiries, from both refinancers and those looking to secure a new loan.   

“A number of brokers received calls from their existing customers, who had heard news from the media and their family and friends about low interest rates, with many new enquiries originating from referrals,” she told The Adviser.

“Brokers have said a number of customers had called asking if they can get a rate below 4 per cent, particularly investors who had been holding back on their property buying plans.

“Interestingly, some brokers have reported an increase in enquiries from customers wanting to exit a fixed-term and while it isn’t always economically feasible, there are lenders offering competitive deals.”

Ms Mitchell said that the spike in enquires has also been evident among first home buyers (FHBs) that were previously hesitant to enter the property market amid uncertainties.  

“Brokers have also reported an increase in enquiries from first home buyers who feel more confident about taking their first steps towards home ownership,” Ms Mitchell said.

“Some have attributed this sentiment to a change in the political climate, others put it down to the news around lower interest rates and falling property values.”

The rise in borrower enquiries following the RBA’s monetary policy adjustment was also reflected in an analysis from comparison website Finder.com.au, which reported an unprecedented 654 per cent increase in traffic to home loan deals within 48 hours.

According to Finder, interest in variable rates grew by 564 per cent, while refinancing enquiries spiked by 369 per cent.

However, despite the uptick in enquiries following widespread cuts to mortgage rates, tighter lending conditions have inhibited borrowers from easing their mortgage burden, at least according to new research from S&P Global Ratings.  

Ms McNaughton acknowledged the challenges, but said she expects the Australian Prudential Regulation Authority’s (APRA) proposed changes to home loan serviceability guidelines to improve access to credit.   

“I think we’re all hoping that that will ease a bit now [that] APRA has made that decision,” the Loan Market executive said.

In the meantime, Mortgage Choice CEO Susan Mitchell encouraged brokers to capitalise on the growing demand for finance.

“As sentiment turns, brokers should take the opportunity to reach out to those in their database who have made an enquiry in the last few months,” she said. “Check in with them, find out where they are on their property buying journey and remind them that you are here to guide them.”

She continued: “Similarly, it is paramount you communicate with your existing client base and ensure their needs are still being met. Invite them to do a home loan review to ensure they are getting a competitive deal and ask them if their loan is still meeting their needs.

“This will be particularly important to those customers whose lender has not passed the rate cut on in full.”

Ms Mitchell also urged brokers to use the opportunity to promote their brand to strengthen their client base.    

“For brokers out there, who do not have a database, take advantage of the positive sentiment in the market. Increase your local marketing efforts, boost your profile – even if it means hitting the pavement, shaking hands in your local area and introducing yourself as the local home loan expert,” Ms Mitchell concluded

CBA reports post-election spike in mortgage applications

The number of home loan applications received by the major bank in the week following the federal election hit a six-month high, according to CEO Matt Comyn, via The Adviser.

Following his address to the Trans-Tasman Business Circle, CEO of the Commonwealth Bank of Australia (CBA) Matt Comyn revealed that the bank experienced a surge in home loan applications via both the proprietary and broker channel following the Coalition government’s election victory.  

“I think, in particular at the moment, quite rightly, there is a strong interest in property,” Mr Comyn said.

“We did have the strongest week in applications that we have seen in more than six months. It did feel – certainly from a demand perspective – there is quite a shift in sentiment.”

The election outcome signalled the defeat of the Labor opposition’s proposed changes to negative gearing and the capital gains tax, which some observers feared would further dampen sentiment in the housing market.  

Expectations of a rate cut from the Reserve Bank of Australia (RBA) also heightened following the election, after governor Philip Lowe conceded that the central bank would “consider the case for a rate cut” in June.

Mr Comyn said the bank has revised its monetary policy forecast and now expects an imminent rate cut from the RBA; however, Mr Comyn downplayed its contribution to lifting market sentiment. 

“It has an effect but there are other things that have a higher impact,” Mr Comyn added.

“Fiscal stimulus, cuts to taxes, and increases in sentiment tend to have a much bigger transmission effect to the broader economy.”

Further, commenting on the fall in home values, Mr Comyn said that the correction is an overall positive for the broader economy.

“It’s painful for anyone who owns a house and sees the value of their asset or any asset reduce, but I do think it’s a good thing,” he said.

“It’s in the interests of long-term financial stability.”

CBA launches new ‘green mortgage’

During his address, Mr Comyn unveiled a new “green mortgage” initiative, designed to reward “energy-efficient” mortgage holders.  

Mr Comyn said CBA plans to pass on the benefits of continued demand for green bonds from investors, by offering $500 cashbacks to mortgage holders who have solar panels installed in their homes.

Commenting on the announcement, Daniel Huggins, CBA’s executive general manager, home buying, said: “We are always looking for innovative ways to support our customers, which is why we are launching this new initiative.”

He added: “We understand many of our home loan customers could reduce their energy volume and usage and pay less or become net positive for energy by investing in energy efficient devices.”

Mr Huggins said the bank is in the process of introducing other initiatives to encourage home owners to make “greener choices”.

“We want to support more of our customers who wish to install small scale renewables by reducing their installation costs and payback periods,” Mr Huggins added.

CBA stated that the green mortgage initiative will be formally launched in the coming weeks.

New credit card rules will impact brokers, says lawyer

Brokers should be applying new credit card assessment rules to their loan applications, the solicitor director of The Fold Legal has suggested. Via The Adviser.

The Australian Securities and Investments Commission (ASIC) last year announced new assessment criteria that is to be used by banks and credit providers when assessing new credit card contracts or credit limit increase for consumers.

Under the changes, credit licensees are required to assess whether a credit card contract or credit limit increase is “unsuitable” for a consumer based on whether the consumer could repay the full amount of the credit limit within the period prescribed by ASIC.

ASIC outlined last year that, as part of the new measures, credit licensees undertaking responsible lending assessments for “other credit products”, including mortgages, should ensure that the consumer “continues to have the capacity to repay their full financial obligations” under an existing credit card contract, within a “reasonable period”.

Speaking of the new rules, Jaime Lumsden Kelly, solicitor director of The Fold Legal, has suggested that, while it is not mandatory for brokers, both lenders and brokers should apply the same rules to their loan applications.

Writing in a blog post for The Fold Legal, Ms Lumsden Kelly elaborated: “In the past, credit card contracts were assessed as unsuitable if the applicant couldn’t repay the minimum monthly repayment for that limit. Under the new rules, credit card providers must make their assessment based on whether the applicant can repay the entire credit card limit within three years.

“If a credit card applicant cannot repay the full credit limit in three years, it’s assumed that they will be in substantial hardship. This is because a consumer who cannot afford to repay the limit within three years will probably pay a staggering amount of interest that will take an extraordinarily long time to repay. 

“If the applicant is in substantial hardship, the credit card provider must decline the application as being unsuitable,” she said.

While the rule doesn’t “technically” apply to other lenders or brokers, the lawyer added that “all lenders and brokers have an obligation to reject a credit contract if it would place the consumer into substantial hardship”.

“If the inability to repay a credit card within three years is considered to be a substantial hardship when assessing a credit card application, how can it also not be substantial hardship, if a consumer will no longer be able to repay their credit card within three years because they’re meeting new repayment obligations on a car or home loan?” she said.

Ms Lumsden Kelly gave the following scenarios as an example to illustrate the point.

In the first scenario, an applicant with a $500,000 mortgage applies for a $15,000 credit card. When assessing the credit card, the provider determines that the applicant is “unsuitable” because they won’t have enough income to repay their credit card limit in full within three years. So the credit card provider declines the application.

However, if the same applicant already has a $15,000 credit card and then applies for a $500,000 mortgage (on identical terms as in the first scenario). The licensee is only required to consider whether the applicant can make the minimum monthly repayment on their credit card when determining if they will suffer substantial hardship. On this basis, the licensee approves the mortgage.

“The end result for the applicant is the same in both scenarios,” she said. “They have a $500,000 mortgage and a $15,000 credit card limit. So how can we say that they are in substantial hardship in one scenario but not in the other?

“It’s an absurd outcome that the same person could be approved or declined for a credit product just because they applied for them in a particular order.”

The Fold Legal solicitor concluded: “Over time, the courts and AFCA may seek to align the obligations of all credit providers and brokers. In the meantime, ASIC has said it expects all credit licensees to apply the rule to existing credit cards by 1 July 2019.

“This means credit providers and brokers should consider the implications of this situation when determining how they will assess a credit card holder’s capacity to pay and substantial hardship for other loan applications.”

She urged any brokers unsure of how the rules affect their business or credit obligations to contact a lawyer.

Election 2019: What it means for brokers

The results of the federal election are in – but what does it mean for the broking industry? We unpack the key policy positions regarding the third-party channel – via The Adviser.

In a closely-run campaign that was neck-and-neck between the Australian Labor Party and the Coalition, Prime Minister Scott Morrison clinched the lead on election night (18 May).

Despite there being some surprises on the night – including Queenslanders swinging away from Labor to the Coalition; the fact that opinion polls are fallible; and the shock departure of former PM and Liberal candidate for Warringah, Tony Abbott (who lost his seat to Independent candidate Zali Steggall) – Mr Morrison will remain as the 30th Prime Minister of Australia.

Bill Shorten, leader of the opposition, conceded to Mr Morrison on Saturday night, saying it was “in the national interest” and wished him “good fortune and good courage”.

The mortgage broking industry – which has a strong presence in Queensland, where Labor lost several of its seats – has been vocal supporters of the Coalition Government, given its stance on broker remuneration.

The industry will likely not see any imminent, radical changes to remuneration in the next three years under this Coalition, given its previous commitments.

Both the abolition of trail and upfront commissions were recommended by Commissioner Hayne in his final report for the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

While the Coalition had initially said in its official response to the final report that it would ban trail commission payments for new mortgages from 1 July 2020, it later delayed any decision on fundamentally changing the structure of broker remuneration until three years’ time.

In March of this year, Treasurer Josh Frydenberg said that the government would look at reviewing the impacts of removing trail in three years’ time rather than abolishing it next year as originally announced, following concerns regarding competition.

He commented: “[F]ollowing consultation with the mortgage broking industry and smaller lenders, the Coalition government has decided to not prohibit trail commissions on new loans but rather review their operation in three years’ time”.

The review, to be undertaken by the Council of Financial Regulators and the Australian Competition and Consumer Commission will therefore look at both the impacts of removing trail as well as the feasibility of continuing upfront commission payments.

Speaking to the broking and real estate industries via teleconference earlier this month, Mr Frydenberg thanked mortgage brokers for their “absolutely critiical role in the economy” and “for what they do for our community” and emphasised that the Coalition government’s response to the “cathartic” banking royal commission was to adopt all the recommendations in one form or another, but to leave broker remuneration largely alone until a review in three years’ time.

The Treasurer said: “[W]ith respect to the ban on upfront and trail commissions, as recommended by commissioner Hayne, that we would leave that to a review in a few years’ time.

“The reason is that mortgage brokers play an absolutely critical role in our economy, and they help generate competition in that market, and we don’t want to see mortgage brokers put out of business with, effectively, their business just migrating to the big banks.”

Mr Frydenberg said this position was taken after the government reviewed the royal commission report and after speaking to key stakeholders about “consumer and business access to financial services, the overall stability of the financial system, the impact of competition and, of course, on economic growth”.

“What we don’t want to do is weaken competition and strengthen big banks,” he said, adding that mortgage brokers were “overwhelmingly small businesses” and sole traders.

The Coalition Government’s stance differs from Labor’s position, which has said it backs a fixed fee for upfront commissions [at 1.1 per cent] and a ban on trail commissions for new loans from 1 July 2020.

“We believe this is problematic on a number of levels, particularly because many mortgage brokers will be worse off under Labor than they are today and could be put out of business.

“It will also impact on competition and, ultimately, their customers,” the Treasurer said earlier this month.

“Today… brokers get paid higher amounts for more complex loans, but under the Labor Party’s model they won’t be remunerated for this, which will exclude certain consumers from using mortgage brokers. And a fixed fee could drive brokers to encourage churn and put them in clear conflict with their best interests duty.”

Mr Frydenberg noted that it was also “not clear as to whether Labor’s policy includes GST or whether it includes the aggregator’s fee”.

“I think the Labor Party [has] created significant doubt in the sector and, obviously, concern – that is the feedback that we are getting,” he said.

However, the Coalition and Labor Party did both support Commissioner Hayne’s recommendations to introduce:

  • a best interests duty that will legally obligate mortgage brokers to act in the best interests of consumers;
  • a new requirement that the value of upfront commissions be linked to the amount drawn down by consumers;
  • a ban on campaign and volume-based commissions; and
  • a two-year limit on commission clawbacks starting from 1 July 2020.

The Coalition has also recently announced a new First Home Loan Deposit Scheme that will enable first home buyers to access a mortgage with a 5 per cent deposit.

This would make 95 per cent loan-to-value ratio mortgages available to first home buyers earning up to $125,000 annually (or $200,000 for couples) from 1 January 2020.

The First Home Loan Deposit Scheme, which will partner with private lenders and prioritise smaller lenders in a bid to “boost competition”, will be available to qualifying first home buyers from 1 January 2020.

The value of homes that can be purchased under the scheme will be “determined on a regional basis, reflecting the different property markets across Australia,” Mr Morrison said.

The Prime Minister estimated that the scheme would help FHBs save around $10,000 by not having to pay lenders’ mortgage insurance (LMI).