Tag: The Adviser

APRA Says Digital Distribution Removes the Need for Branch and Broker Networks

The chairman of APRA has suggested that digital distribution and servicing could threaten the existence of branch and broker networks.

From The Adviser.

The chairman of the prudential regulator, Wayne Byres, was speaking at the 2018 Curious Thinkers Conference in Sydney on Monday (24 September) when he outlined a “clash of predictions” for the future of the financial sector.

Stating that the pace of change “makes predicting the future difficult, and is why the crystal balls of even the most well informed are cloudy”, Mr Byres said that “everyone agrees major change is inevitable”.

Noting that it was “clear” that companies, regulators and international agencies are “all grappling to predict the impact that technology-enabled innovation will have on the structure of the financial sector and the viability of existing business models”, Mr Byres conceded that the “consensus also seems to be that it is too soon to tell whether the financial world faces evolution or revolution”.

Despite this, the chairman of the Australian Prudential Regulation Authority (APRA) told delegates that whatever the future scenario is, the “production and delivery of financial services will change”.

“Put simply, many traditional business models will no longer be competitive without significant change driven by technological investment,” Mr Byres said.

“Moreover, some incumbents will struggle to afford that investment; for others, the challenge will be successfully managing a large transformation program.”

Later in his speech, the APRA chairman forewarned that while most technological advancements in finance have previously “worked to enhance the market positioning of the major incumbents”, the future will “likely be different”.

Despite several futurists suggesting that brokers will survive digital disruption and others outlining that brokers will become more crucial in the future as trust in finance deteriorates, Mr Byres suggested that broker networks could be under threat in the future.

He stated: “New technologies have dramatically lowered barriers to entry. Cloud computing, for example, allows small organisations to operate innovative financial services without the need to maintain their own costly infrastructure and support staff.

“The advent of digital distribution and servicing removes the need for branch and broker networks.

“Open banking and comprehensive credit reporting will help new competitors to challenge established players. And, of course, regulators are making it easier to navigate the process of entry into the regulated financial system. Taken together, competition in the supply of financial services will only intensify.”

In conclusion, Mr Byres said that APRA’s role was to “make sure regulated entities are resilient and responsive to change, but not protected from it”, adding that while the regulator is responsible for promoting stability, “that does not mean standing in the way of change”.

He added: “Ensuring regulated entities are well managed, soundly capitalised and able to withstand severe stresses is designed to protect the interests of their depositors, policyholders or members.

“But to be clear, it is not APRA’s role to protect incumbent players when better, safer and more efficient ways of doing business emerge.

“Ultimately, we seek to look at it with a sharp focus on what is in the longer-run interests of their depositors, policyholders or members — not the business itself, or its owners — and make sure that boards and management are doing likewise.

“If that means their time is up, so be it. Our role then becomes ensuring they make an orderly exit from the industry.”

FBAA hits out at comments

The executive director of the Finance Brokers Association of Australia (FBAA), Peter White, hit out at the comments made by Mr Byres yesterday, telling The Adviser: “As it is, I certainly and completely disagree with this as being a current or near-term situation.”

The head of the FBAA highlighted that its research had recently showed that nearly 95 per cent of broker clients were satisfied with their broker, adding that more than half of the borrowing population uses a broker.

“So, digital distribution is not supported by fact,” Mr White said.

While the head of the FBAA suggested that digital home loans without any human intervention may be commonplace in 20 years’ time, he added that “we are a long way from this” in the near future.

Mr White told The Adviser: “For now, most people want to transact their home loan with a person, not a screen, and this won’t change for some time. Let alone the technical and legal barriers that still exist, the human element is still far more desired.”

In a shot across the bow, Mr White concluded: “So, for now (and once again), APRA seems to be out of touch with reality and people. Possibly they should be more so focused on their governance of ADIs given what we’ve all witnessed in the [banking] royal commission rather than out-of-focus speculation.”

CIF to propose ‘customer first duty’ for brokers

The Combined Industry Forum has agreed “in principle” to extend its good consumer outcomes requirement to incorporate a “conflicts priority rule” as a “customer first duty”, via The Adviser.

In its interim report, released on Monday (27 August), the Combined Industry Forum (CIF) stated that throughout 2018, it has been considering ways to build upon its good customer outcomes reforms published in its response to the Australian Securities and Investments Commission’s (ASIC) review into mortgage broker remuneration.

In its review, ASIC noted that a broker would satisfy the requirement if the “customer has obtained a loan which is appropriate [in terms of size and structure], is affordable, applied for in a compliant manner and meets the customer’s set of objectives at the time of seeking the loan.”

However, the CIF has proposed that the provision could be extended to include a “conflicts priority rule”.

“The ‘conflict priority rule’ could be formulated as a requirement for the customer’s interests to be placed above the providers, or those of their organisation, based on the information reasonably known to the provider, at the time of providing the service,” the CIF noted.

“The effect of this approach would be a requirement to place the customer’s interests first. The combination of the good customer outcome definition and a customer first duty allows both an easy to follow principle – put the customer’s interests first – and structure to follow for brokers when assessing loan suitability.”

The CIF added that further governance metrics could be built for “monitoring and oversight”.

However, the CIF acknowledged that the development and application of the customer first duty is “multifaceted and complex”, noting that “there may be unknown impacts”.

“These include the potential for limiting access to credit, and a disproportionate impact on smaller and regional lenders if lender panels require rationalisation,” the CIF continued.

The CIF noted that it had “not yet settled on a final position”, but claimed that the reform should be underpinned by the following principles:

  • placing the customer first, and having ‘good’ consumer outcomes at the centre of its approach
  • fit-for-purpose for the mortgage broking industry, considering the nature of services provided, the form of conflicts of interests inherent to the industry, the current evidence of risks to customer outcomes, and considering the current regulatory framework
  • promoting competition, and ensuring that no part of the value chain is unfairly disadvantaged
  • all parts of the value chain will have a role to play to support the implementation and monitoring the customer duty
  • providing transparency for all participants, and
  • promoting simple, achievable solutions. Finally, the CIF is aware that there is merit in moving a customer first principle from an implicit expectation, to an explicit statement that a customer and mortgage advice provider can easily understand.

The CIF concluded that it is “aware that there is merit in moving a customer first principle from an implicit expectation, to an explicit statement that a customer and mortgage advice provider can easily understand”.

The report also outlined CIF’s progress in implementing other reforms proposed in its response to ASIC, which include the standardisation of commission payments, the removal of bonus commissions, the removal of “soft dollar payments”, and the drafting of the “Mortgage Broking Industry Code”.

NSW government suggests banning trail commission

From The Adviser.

Prohibiting the payment of trailing commission could ensure that it no longer contributes to “consumer detriment with higher prices”, according to a new consultation paper from NSW Fair Trading.

In a consultation paper entitled Easy and Transparent Trading – Empowering Consumers and Small Business, released by NSW Minister for Innovation and Better Regulation Matthew Kean, the fair trading body considered reforms to help deliver the Productivity Commission’s agenda for the Innovation and Better Regulation portfolio and weighed in on recent scrutiny of trailing commissions.

The report comes ahead of the release of the Productivity Commission’s final report into Competition in the Australian Financial System, which is expected imminently and – if its draft report is anything to go by – is expected to make several recommendations regarding changes to broker commissions.

Despite the broking industry repeatedly outlining the benefits of trail and suggesting there is no evidence to prove negative impacts of it, the NSW government claimed that the payment of trail increases consumer costs and provides “little incentive” for “sellers” such as brokers to improve consumer outcomes.

The report reads: “In some cases, advisers may be earning these payments by providing the consumer with ongoing advice, regular appraisals of investments and strategy, and other services. In other cases, they are not. The commission is not based on the additional advice. Australia is one of the last markets in the world–along with some lenders in New Zealand–to pay trailing commissions to mortgage brokers.”

It continues: “The problem of trailing commissions is that they result in sellers of products continuing to receive income, irrespective of the level of service they are providing to consumers. This increases costs for consumers,” the report noted.

“Indeed, sellers have little incentive to apply their skills to improve the situation of people to whom they have already sold products.

“Additionally, where the fees are paid by consumers, it can be unclear for consumers what the total cost of the commission will be for the life of the product.”

The NSW government also predicted that the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry would “most likely make recommendations on conflicted payments in the financial and insurance sector”.

The government added: “This highlights the need to ensure that all consumers, regardless of the service to which they are referred, have the benefit of consumer protections available in other sectors.

“These commissions contribute to consumer detriment through higher prices. In addition, non-disclosure of such commissions means that consumers cannot make a fully informed choice to proceed with the referred service.”

The state government also proposed the following reforms that it claimed could help address such “issues”:

  • Amending the Fair Trading Act to prohibit providers of services, products or advice from paying trail commissions to intermediaries who recommend or refer customers to their business.
  • Requiring all intermediaries who refer consumers to third parties to fully disclose the benefit the intermediary will receive if a trailing commission will be paid on a successful referral, over the life of the product.
  • Prescribing that a trailing fee or commission is a “key term” which must be fully and clearly disclosed by the service or advisory business when entering into the service contract with the customer. Public comment is sought on the appropriateness of these commissions.

It should be noted, that the latter suggestion regarding a transparent disclosure of trail commissions received by mortgage brokers is already common practice in this sector.

The state government is therefore asking the public to put forward a “workable solution to balance the needs of industry and consumers where trailing commissions impact negatively on the market”.

The proposed reforms in the paper and policy ideas are reportedly “the result of a ‘sweep’ of legislation and regulations in the Better Regulation portfolio, a review of reports by think-tanks and government agencies on the Australian, NSW and other advanced economies and the Minister’s call for ideas from more than 100 think-tanks, industry groups, academics and other stakeholders”.

The public is being invited to provide comments to the consultation paper by 27 August 2018.

Changing demographics to alter dwelling demand

From The Adviser

As Generation Y begins to enter the housing market, there could be a change in the types of dwellings sought after, a new report has suggested.

According to industry analyst and economic forecasters BIS Oxford Economics, changes to the age profile of the population over the next decade will likely result in a shift in the type of demand for dwellings, as Generation Y – those currently aged around 20 to 34 years old – begin to have their own families and move onto the property ladder.

According to BIS’s Emerging Trends in Residential Market Demand report, which examines trends revealed by a detailed analysis of Census data from the past 25 years, there will be “solid demand for units and apartments over the next decade” driven by an overall increase in “the propensity to be living in higher density dwellings across all age groups”.

The report outlines that while there will be continued demand for units and apartments over the next decade, the growth in demand will eventually slow.

Senior manager for residential property at BIS Oxford Economics, Angie Zigomanis, has suggested that, over the past 15 years, there has been rapid population growth among 20-to 34-year olds, as well as strong net overseas migration inflows, which have helped support the boom in apartment construction in the past decade by supplying a steady stream of new tenants to the market.

Mr Zigomanis also noted that there is evidence that people are staying in apartments and townhouses longer.

The analyst highlighted that, in Sydney, more than half (53 per cent) of households aged 35-to 39-years old, and nearly half (49 per cent) of households with children at a pre-school age, now live in these smaller dwellings.

While households have typically favoured townhouses over apartments, in Sydney and Melbourne, there has been an acceleration in the take-up of apartments by both groups since the 2011 Census. The trend has also been similar, although less pronounced in Brisbane, Adelaide and Perth, the report added.

Looking to the future, BIS notes that rising demand for smaller dwellings by Generation Y over the next decade would be apparent across all capital cities, although will be most pronounced in Sydney, and to a lesser extent Melbourne, where separate houses are least affordable.

In Brisbane, Adelaide and Perth, it argued, householders would be much more likely to be in a detached house once they enter their late 30s and 40s, and strong demand for new separate houses is therefore likely to continue.

However, BIS argues that it is likely that rising house prices and decreasing housing affordability in the most desirable locations in the capital cities are causing “an increasing trade-off” for some couples and family buyers between price, size of dwelling, and location, with many seeking smaller and more affordable dwellings to remain close to their desired location.

The analysts argued that, should this trade-off activity increase as Generation Y gets older, then this provides an opportunity for developers in all capital cities to meet this demand, especially given the fact that the boom in multi-unit dwelling construction has up until now been investment-driven “with design being geared toward Generation Y renters living as singles, couples without children, and in share households,” BIS said.

“To meet the potential growing number of Generation Y families in established areas, multi-unit dwellings will need to be designed to be more appropriate to family life, offering more space, both indoor and some outdoor, or located adjacent to public outdoor spaces,” said Mr Zigomanis.

“In particular, new apartment designs will need to change to provide more appropriate product for Generation Y families.”

However, should Generation Y follow the trend of the previous generations and eschew renting for owning their own, larger dwellings as they age, then this would “support a decade-long boom in demand for new houses and land in the new housing estates on the outskirts of Australia’s major cities and affordable major regional centres,” said Mr Zigomanis.

“Pressure is also likely to be maintained on house prices in established areas, as competition remains strong for Generation Y families looking to remain in the established areas where they have already been living and renting in smaller apartments,” he said.

Broker Review May Be Delayed Further – FBAA

From The Adviser.

The head of the FBAA has suggested that the government response to ASIC’s 2017 review of broker remuneration could be delayed until the second half of 2019 if formal conclusions aren’t made before the end of the year.

Speaking at the 2018 Industry Commercial Masterclass in Sydney on Thursday (26 July), the executive director of the Finance Brokers Association of Australia (FBAA) told delegates that he had been meeting with the Minister for Revenue and Financial Services, Kelly O’Dwyer, members of the Productivity Commission (PC) and other government officials to discuss the value of the broking industry.

Peter White revealed that he had asked Minister O’Dwyer when a government response was due on ASIC’s comprehensive report on broker remuneration, given that the consultation on the report had closed more than a year ago.

According to Mr White, the government has decided to wait until it has considered both the PC’s final report into competition in the Australian financial system and the first report from the financial services royal commission.

Noting that the PC’s final report had now been handed to the government, Mr White highlighted that the government had to table the report within 25 sitting days of receipt. Given that Parliament is not back until 13 August, he said that this could mean that the report may not be tabled until October.

He also reiterated that the interim royal commission report is not due until 30 September and that the final report is expected by 1 February 2019.

The head of the FBAA suggested that a government response may therefore not come “until the end of this year”, if not longer, given the country is expecting a federal election next year.

Recalling a situation in 2012 when Treasury was consulting on the second phase of the National Consumer Credit Protection Act (NCCP II) and delayed its response until after a federal election had taken place, Mr White warned that such a scenario could impact the industry once again, given that a federal election will be held next year.

Mr White said: “We may, or may not, get a decision on all this [review of broker remuneration] this year.

“[Minister O’Dwyer] said that, at the end of the day, there will be no determinations made on the ASIC remuneration paper until such time as the royal commission is finished, and those reports are out and the discussion has been had.”

Mr White added: “Bear in mind where we are heading this year, if we do not get decisions on these things before the end of this year, it won’t happen until the second half of the year after the federal election. That is the bottom line, and we’d just have to deal with that and roll with it as we go.”

IO borrowers increasingly turning to friends for finance

Interest-only mortgagors are generally wealthier and have a higher risk appetite than other mortgagors, but they are increasingly turning to alternative sources of finance as lending criteria tighten, a Westpac economist has said; via The Adviser.

Writing in a bulletin titled Profiling Australia’s ‘interest-only’ borrowers, Westpac senior economist Matthew Hassan and graduate William Chen looked at two data sets relating to owner-occupier loans before the introduction of APRA’s 30 per cent cap on the share of interest-only loans in 2017.

The report argued that, in many cases, the borrowers that are rolling off IO period will be facing increased repayments and may encounter difficulties refinancing against the backdrop of tightening lending criteria.

It noted that interest-only (IO) borrowers have experienced significant increase in mortgage rates between 2014 and 2016, being 46–58 basis points higher than their standard counterparts.

By using data from the Melbourne Institute’s Household, Income and Labour Dynamics in Australia Survey (HILDA), the researchers therefore sought to understand what a typical interest-only borrower looks like to “get a better idea of how some of these pressures might play out”.

The report suggested that just over 12 per cent of mortgagors had IO loan terms, accounting for 3.8 per cent of all households, down slightly on 2014 when just under 4 per cent had an IO loan. The report argues that this “likely reflects tightening lending conditions and the introduction of rate tiering measures from 2015 on”.

According to the 2016 survey, the quality of interest-only borrowers has improved over 2014–16 as lending conditions have tightened, with a notable decline in the share of high loan-to-value ratio (LVR) loans — from nearly 10 per cent of IO borrowers having a self-assessed LVR over 0.9 — down to 6.7 per cent in 2016.

Most IO mortgagors, the researchers outlined, came from eastern capitals and Perth (accounting for just under 70 per cent of all IO borrowers in 2016) and are generally wealthier than their non-IO counterparts.

Just under 30 per cent of IO borrowers in 2016 had “regular” disposable incomes over $150,000 a year (compared to around 20 per cent of other mortgagors), up from 25.9 per cent in 2014, while the proportion of IO borrowers with casual jobs or self-employed was down by 5 per cent in 2016 when compared to 2014.

While the report found that the share of fixed term IO contracts remained “relatively high” (around 10 per cent versus 6.9 per cent for other loans), which it said was “likely reflecting the product’s appeal for those with intermittent income flows”, it added: “Overall, it appears that ‘lower-quality’/‘higher-risk’ borrowers are being squeezed out of the interest-only market as lending standards have tightened.”

Behind schedule and borrowing from others on the rise

Other findings in the bulletin included:

  • A higher prevalence among interest-only borrowers to identify as financial “risk takers” (in 2016, 20.4 per cent of IO borrowers self-assessed as willing to take “above-average” or “significant” financial risks, roughly double the 10.1 per cent of other mortgagors).
  • An increase in risk appetite among interest-only borrowers across 2014–16.
  • IO borrowers also tend to be more trusting (71.7 per cent of IO borrowers agreed that “most people can be trusted” while just under a third of other mortgagors said the same).
  • IO borrowers are also more likely to have high spending on education fees (5.6 per cent paying more than $10,000 a year compared to 4.4 per cent of other mortgagors), which the authors argued “may impact those seeking to refinance loans, with some lenders changing the way education costs are treated in loan serviceability assessments (shifting more towards a mandatory expense rather than a discretionary one).

Notably, the bulletin showed that less IO borrowers are ahead of repayments than other types of mortgagors (28.3 per cent compared to 56.4 per cent), which the researchers suggested could be an indication that interest-only borrowers have “less financial ‘headroom’ to make ahead of schedule repayments” and/or reflect that those with higher risk appetites may be more likely to put spare cash towards investment in yielding assets rather than service their mortgages ahead of schedule.

Those behind schedule are also higher than other types of mortgagors — 3.9 per cent versus 2.2 per cent. However, this marked an improvement from 2014 when 7.7 per cent of IO borrowers reported being behind schedule.

“This likely reflects the wider improvement in borrower quality seen in the income, employment and LVR profile of interest-only borrowers. An increased reliance on ‘alternate’ funding sources may also relate to tightening credit criteria and affordability pressures,” the report read.

Further, more IO borrowers are borrowing from others (friends, relatives, solicitors or community organisations) in order to help finance their home purchase, up from 5.4 per cent in 2014 to 7.9 per cent in 2016. This compares to a small decrease among non-interest-only borrowers over the same period.

“It is evident that some are having to resort to alternate sources of finance as lenders apply tighter lending criteria. Some would-be borrowers that have been unable to raise alternate funds have likely been squeezed out of the interest-only market.”

In conclusion, the senior economist wrote: “It is very likely that there are several different ‘stylised’ types of interest-only borrowers. Some will be making choices that suit their income flows. Others may be actively seeking to take on financial risks but with the capacity to do so.

“Some, however, may have opted for interest-only loans as a more desperate measure to acquire property that could see them more stretched and exposed.”

Mr Hassan added: “Since the last HILDA release, there has been further tightening in lending conditions, with APRA imposing a 30 per cent cap for interest-only lending in March 2017. Given this further tightening, it will be interesting to see what picture subsequent surveys paint for Australia’s interest-only borrowers.”

Indeed, some statistics have already shown that interest-only lending is falling out of favour with borrowers. In March, Mortgage Choice revealed that the proportion of interest-only (IO) mortgages written by its brokers fell by more than 20 per cent in the 12 months leading to February 2018. IO loans accounted for 12.22 per cent of all home loans written in February 2018, down by 23.73 per cent from 35.95 per cent.

Meanwhile, APRA property exposure figures show that only 15.71 per cent of loans written in the March quarter were interest-only.

More Lender Hike Rates

From The Adviser.

On Monday, Macquarie Bank became the latest lender to reprice its home loans, announcing that owner-occupier variable rate loans with principal and interest repayments will increase by 0.06 of a percentage point, while those with interest-only repayments will increase by 0.10 of a percentage point across all LVR bands.

Investment and SMSF loans with variable rates will increase by 0.10 of a percentage point.

Macquarie will drop its three-year fixed rate by 10 basis points for all owner-occupier and investor loans.

The changes are effective from 13 July for new customers and 23 July for existing customers.

ING also flagged the need to increase rates by 10 basis points this week for variable owner-occupied mortgages.

Non-bank lender Pepper is also believed to have lifted rates. As of 6 July, Pepper’s rates are understood to have increased by up to 55 basis points.

Late last month, AMP Bank and Auswide Bank also announced rate hikes in response to increased funding costs. Speaking to Mortgage Business, the chief financial officer (CFO) of Auswide Bank, Bill Schafer, attributed the lender’s decision to lift interest rates on its mortgage products to the sharp rise in the bank bill swap rate (BBSW).

“Our funding costs have risen significantly in the last four months,” Mr Schafer said.

“The BBSW — the 30-day rate and the 90-day rate — has had a large effect on our wholesale funding lines, and they’ve increased by between 30 and 35 points since the beginning of March, so that’s had a substantial effect on our net interest margin.

“We’ve been trying to absorb that across that period of time, with the hope that those costs would be relieved and the BBSW rates would decline, but now we’re nearing the end of the fourth month, we’ve taken the decision that the impact on our net interest margin is too severe, and unfortunately we needed to do an out-of-cycle rate increase.”

The latest Deloitte Australian Mortgage Report 2018, released last week, found that the biggest challenge for non-majors is access to funding relative to the big four.

“We have seen that in the most recent fortnight, some of the non-majors have had to move their standard variable rate in response to movements in the underlying BBSW spread over cash,” Deloitte financial services partner James Hickey said.

“The majors have so far been able to absorb that and not pass on that movement. They may well move on it soon, but it just goes to show the heightened level of sensitivity the regional lenders have to wholesale funding markets.”

MFAA launches major broker advocacy campaign

A multi-channel advertising campaign is being launched by the Mortgage & Finance Association of Australia to promote the value of brokers to the general public.

DFA comments that the industry should focus on fixing the inherent conflicts in the broker channel, as revealed in the Royal Commission.  This is not marketing perception problem, it is the reality of current practices!  The MFAA are fighting the wrong war… ASIC’s analysis showed that contrary to myth, borrowers who use brokers do NOT necessarily get a better deal.

Via the Adviser:

Starting from this Saturday (7 July) and running through to the end of October, the Mortgage & Finance Association of Australia’s (MFAA) national advertising campaign – developed by creative agency Redhanded, in partnership with MFAA advisers GRACosway and Porter Novelli – will run across regional television, national newspapers, social media, national radio, as well as on billboards, bus stops and on branded buses, among other channels.

Featuring real broker customers, including winners of The Block, Kyal and Kara Demmrich, the advertising campaign aims to highlight the experiences customers have had with brokers and the value they place in the broker offering and service.

Several leading brokers will also front the campaign, including award-winning broker and director of Rise High Financial Solutions Marissa Schulze, and share what their typical day looks like.

The campaign, which runs with the tag line Your Broker Behind You (showcasing that the broker is supportive of the customer and their dreams of home ownership) and utilises the hashtag #findafairerdeal, also aims to involve other brokers.

The 30-second television commercial, social media posts and several other assets are being made available to brokers through the campaign website brokerbehindyou.com.au, and the MFAA is calling on all brokers to post their own videos, photos and posts using the hashtag to create a wealth of content showcasing how Australia’s brokers are making a difference.

‘We have a wonderful story to tell’

Highlighting that broker market share has increased over the past six years, with the MFAA’s recent stats showing that broker market share in the March quarter reached its higher ever figure, the association noted that while the recent negative publicity has not yet impacted the proportion of people using brokers, the association believed it was the “the right time” to come out in a public campaign to “promote and defend” the industry.

The CEO of the MFAA, Mike Felton, commented: “There is no doubt our reputation as an industry has been challenged through repeated regulatory reports, inquiries and negative media coverage over the past year, but we have a wonderful story to tell. Brokers drive competition, value and choice, which creates positive customer outcomes and fairness for all Australians.

“While we are continuing our ongoing efforts in advocacy and education, through such actions as our involvement in the Combined Industry Forum, this campaign will highlight more publicly the value of the mortgage broking industry.”

He continued: “Many broker businesses are comparatively small, but working together, we represent an industry of real significance, which is systemically important to the Australian economy. It’s time to make that size and scale count.”

Mr Felton revealed that the association tested and shaped the initiative with the help of an advisory panel made up of brokers, aggregators and lenders to ensure it reflected the views of the entire industry.

He continued: “We’re focused on the positives. The message is: ‘Your broker is behind you all the way, providing you with a choice of lenders and products, and support for the life of the loan. Your broker is on your side’.”

The marketing campaign comes off the back of calls from brokers for such an advertising campaign.

Several brokers have taken to the comment section of The Adviser in recent months to call on the associations to put out a public-facing marketing campaign on the broker proposition, with one commentator calling on the associations to “launch an Australia-wide media campaign outlining the fact that the banks are in the process of killing the broking industry and when they do consumers will be far worse off”.

Some brokers have already taken steps to rebut the negative headlines and misinformation being disseminated to the public following the financial services royal commission and Productivity Commission’s inquiry into the financial sector.

Tasmania-based broker Lance Cure launched a local TV advertising campaign to strengthen the public’s perception of the broking industry, while Steve Milligan, broker and director of Mandurah-based brokerage Launch Finance, presented a whitepaper for Federal MP Andrew Hastie titled The Value of Finance Brokers and Positive Consumer Outcomes to “get the truth out there about why brokers are doing so well”.

Likewise, the MFAA recently presented to government departments and regulatory agencies a data package to provide an evidence-based rebuttal of the negative reports and to emphasise ASIC’s review of mortgage broker remuneration, which did not conclude that the upfront and trail commissions have detrimental impacts on consumers.

The association also revealed that a new Deloitte Access Economics report, Value of Mortgage Broking, will be released in the coming weeks.

 

CBA Withdraws from Low Doc Lending

CBA has announced that it will remove low documentation features on all new home loans and line of credit applications from 29 September, as the bank continues its ongoing move to ‘simplify’ the bank, via The Adviser.

The Commonwealth Bank of Australia (CBA) has told brokers that it is “simplifying” its product suite to ensure that it is “providing a suitable range of products that align with [its] customers’ needs”.

As such, from Saturday 29 September 2018, the big four bank will remove all low documentation features on new home loans and line of credit applications. Should a customer wish to top up an existing home loan or line of credit with the low doc feature, they must provide full financials for all new applications.

All new loans that have low doc feature, including Home Seeker applications, must reach formal approval by close of business on Friday 28 September 2018.

The bank has said that brokers who request an amendment to an application with a removed product or a low doc feature that has not yet reached formal approval by Saturday 29 September 2018 will need to discuss “another product option” with the customer to suit their needs.

Loans must be funded by close of business Friday 28 December 2018.

There are no changes for existing customers that have low doc loans.

The move marks a major change in the lending landscape, but in practice – CBA has not provided true ‘low doc’ loans for some time, requiring more documentation than most historical low doc loans required.

Indeed, this type of loan product makes up a minimal proportion of the bank’s portfolio.

As well as removing the low doc feature, the bank will also remove several home loan products, including:

One-year Guaranteed Rate
Seven-year Fixed Rate loans
12-month Discounted Variable Rate;
Rate Saver products
Three-year Special Rate Saver; and
No Fee Variable Rate

If a customer wants to top up a One-year Guaranteed Rate, Seven-Year Fixed Rate or a 12-month Discounted Rate Home Loan they must complete a switch to another available product that best suits their needs.

An early repayment adjustment and an administrative fee may apply on the One-year Guaranteed Rate and Seven-year Fixed Rate when completing a switch.

Top-up applications for Rate Saver, Three-Year Special Rate Saver and No Fee Home Loans will still be available.

A CBA spokesperson said: “At the Commonwealth Bank, we constantly review and monitor our suite of home loan products and services to ensure we are maintaining our prudent lending standards and meeting our customers’ financial needs.

“From September onwards, we will be streamlining our suite of products to deliver our customers a simplified and competitive range of home loan solutions.”

Highlighting that the bank’s product suite offers “attractive” standard variable rate and fixed rate options, while its extra home loan products offer customers “low interest rates, no monthly fees, and no establishment fees”.

“Whatever our customers’ needs, our network of brokers or home lending specialists can help them find a flexible mortgage and guide them through the entire home buying journey, providing support every step of the way,” they said.

Non-bank assumes 20% default rate for apartments

A non-bank lender has revealed how it stress-tests new residential projects amid fears of oversupply, rising defaults, falling property prices and a significant reduction in foreign buyers; via the Adviser.

Growing fears surrounding the sustainability of Australia’s new apartment market have been growing since China tightened its capital controls, the Australian government introduced new regulations and taxes on foreign buyers and the majors stopped lending to overseas investors.

The latest Foreign Investment Review Board (FIRB) figures show that overseas property investment fell by 65 per cent in FY17.

A BIS Oxford Economics report released this week forecasts that, given the extent of new apartment construction relative to houses, there are likely to be pockets of oversupply of apartments across Melbourne. The city’s median unit price is forecast to fall by a total 2 per cent in three years, or 9 per cent in real terms, according to BIS.

Meanwhile, in Brisbane, the forecast for unit prices in 2018 will be 25 per cent lower than their real peak in 2010.

Late last year, UBS warned that poor-quality projects are “under significant pressure” and that one in five, or 20 per cent, of foreign buyers are failing to settle.

Non-bank lender Qualitas, which funds residential real estate projects on the east coast of Australia, has said that it is “very conservative” about funding new developments.

“The default rates are not substantial,” Qualitas managing director Andrew Schwartz said.

“To the extent that a developer is left with some residual stock, it is generally their profit in the development. Or it is an amount that allows them to take out a residual stock loan. That is why you are not reading stories about buildings being sold by receivers.”

Qualitas calculates a decent fall over rate when funding property developers and is well aware of some of the fears surrounding the Australian apartment market.

“We already assume defaults. We assume the property market comes down in value,” Mr Schwartz said.

“What you generally find in the developments that we do is, if you start with one times pre-sale, that means if you give someone a $100 loan, they have at least got $100 of sales in their development. So long as you start on one times, what you will find is you can withstand about a 20 per cent decline in property value and a 20 per cent default on those that committed to you and you will still earn your full rate of return of interest.”

To date, the group has funded 109 projects and earned full returns on all of them.

Non-bank lenders like Qualitas have grown in recent years after the majors reduced their appetite for apartment funding, foreign buyers and mezzanine debt.