INDUSTRY OUTLOOK -- Grassroots (Elite Business Writers special)

Mortgage Business assembled the top five Elite Business Writers for 2009 for a roundtable discussion to address some of the key issues facing the industry.

AT THE roundtable hosted by CBA, Alex Whitlock, publisher of Mortgage Business and moderator of the session, dug deep into the psyches of Australia’s top loan writers to find out what went right – and wrong – in 2009, and the challenges for the year ahead.

ALEX WHITLOCK

IT’S BEEN A CHALLENGING YEAR. HOW HAS IT AFFECTED YOUR ABILITY TO ACHIEVE YOUR BUSINESS GOALS?

MOSHE MOSES

If there was any real challenge, it’s on the commercial and business side where unfortunately there isn’t a strong level of confidence or availability of funding.

Over the past few months, there has been a growing demand from commercial clients looking for finance but unfortunately there has not been the funding, in many instances, to meet this demand.

ALEX WHITLOCK

MOSHE, YOU SPECIALISE IN THE TOP END OF THE MARKET – HOW HAS THIS SEGMENT FARED OVER THE LAST 12 MONTHS?

MOSHE MOSES

The top end of the market tends to primarily consist of residential and commercial based investors.

Unfortunately, the banks are not in a position to lend to commercial investors at the moment, so that is causing a shift in terms of how investors fund their projects. They have to look elsewhere, which makes my job harder.

ALEX WHITLOCK

WENDY, HOW HAVE YOU FOUND THE ADELAIDE RESIDENTIAL MARKET IN RECENT TIMES? HAVE YOU EXPERIENCED SIMILAR CHALLENGES TO MOSHE?

WENDY HIGGINS

We have also suffered from a reduction in lender engagement. Loans that would have sailed through two years ago are all of a sudden being knocked back and this can have a real effect on my team.

I think the biggest challenge for me over this year has been trying to keep staff morale up.

The downturn has however prompted brokers to improve the level of documentation and give more depth to each application, which has increased the level of professionalism in the industry

JUSTIN DOOBOV

I agree with Wendy. Loans that are being [declined] by lenders would have passed with flying colours less than a year ago.

I think another challenge brokers continue to contend with is lender errors.

Moreover, it is hard to keep up our high service levels when we know that each deal is taking double the time it would have a year ago.

ALEX WHITLOCK

SO ALL IN ALL, DO YOU THINK LENDER ERRORS HAVE INCREASED BECAUSE LENDER REQUIREMENTS HAVE TIGHTENED?

JUSTIN DOOBOV

Some of the lenders have been stretched. They moved staff to focus on other areas of the business during the global economic crisis and this hurt the loan approval process.

ALEX WHITLOCK

BUT IS THE SITUATION IMPROVING?

JUSTIN DOOBOV

Yes and no. Some lenders have improved their turnaround times dramatically and we can get unconditional approval in two days. However, some lenders are still taking up to six weeks.

This variation in turnaround times affects our broker proposition, which involves providing excellent customer service.

ALEX WHITLOCK

YOU HAVE HAD A SUCCESSFUL 2009 JUSTIN, BUT WHAT ARE YOUR THOUGHTS ON THE OUTLOOK FOR THE YEAR AHEAD?

JUSTIN DOOBOV

It has been a tough year, yet I have managed to write more business than ever before.

With that in mind, I can safely say that there are still a lot of people in the market for a home and this should continue into 2010. Looking ahead however I think it’s reasonable to expect that there will be further rate rises and the costs of funding will increase.

PETER ELLIS

I agree that rates will go up however I don’t think this will have a negative effect on the market.

The media has warned everyone that rates are going up so buyers should have done their homework and done their budgets on what repayments they can afford.

In that respect we should have more qualified, more serious buyers in the market which should mean more quality business.

KATHY CUMMINGS

We are in a good position in Australia relative to the rest of the world however what is happening on the other side of the world will have an impact on us, whether it be direct or indirect.

We will still feel the funding constraints and investor constraints that the rest of the world is enduring.

As far as funding goes, the price of long term funding remains high – which directly affects our bottom line. In response we need to raise our fixed rates in accordance with the costs of funding.

We still struggle to get this understood in the marketplace. The Commonwealth Bank has to adapt to a changing funding environment and a changing risk appetite globally.

MIKE COOMBES

The market moves in cycles. While liquidity dried up over the last year, which forced all of the lenders to tighten their purse-strings, many brokers understand that it will eventually seep back into the market. In 12 to 18 months the banks will probably be out there throwing money at us again.

Since the onset of the global financial crisis, there has been a fundamental shift of power. Second tier lenders are no longer as dominant in the market and instead the majors are reigning supreme. Having this power gives them the ability to ask silly questions at every point and decline loans that would have sailed through a little over two years ago. But I believe the power balance between second tier lenders and the major banks will eventually shift back to where it was, so we just have to hang in there until that happens.

ALEX WHITLOCK

SO ARE YOU SEEING AN APPETITE FOR FIXED RATES?

JUSTIN DOOBOV

No. People are happy to take their chances with variable rates.

If you look at the spread between fixed and variable, there is approximately a 2 per cent difference, which is forcing customers to ask ‘should I deal with that two per cent difference today, or should I defer it for another quarter. The fact of the matter is, even if the RBA increases the official cash rate by 25 basis points each month for the next four or five months, the consumer is still better off sticking with their variable rates.

MOSHE MOSES

People will most certainly gravitate towards fixed rates again once the spread evens out.

I think as variable rates increase over the next year, many of the major banks will reprice fixed rates so that they are more in line with the variable rates. At the moment, I can tell you that I have over 400 clients on my books and only two are fixed.

Bankwest made a very smart move and introduced a capped fixed loan. Even though this may not be the best product on offer at the moment, it has created a lot of interest among consumers who understand that it may become the best product on offer if the Reserve Bank continues to lift interest rates by 25 basis points each month.

ALEX WHITLOCK

PETER, HAVE YOU ALWAYS LOOKED AT INSURANCE AS A POTENTIAL OFFERING TO YOUR CLIENTS OR HAS THIS BEEN A MORE RECENT EVOLUTION OF YOUR BUSINESS?

PETER ELLIS

I only picked insurance up around six months ago and I don’t know how I managed beforehand.

I see it as part of my duty of care to ensure that I provide insurance to clients. It’s been something we have been looking to establish for a long time and we finally got it to a place that we are really happy with.

ALEX WHITLOCK

DIVERSIFICATION HAS BEEN TALKED ABOUT FOR MANY YEARS IN THE INDUSTRY, AND IT’S NOW CLEAR THAT IT IS BEING ADOPTED BY SOME BROKERS. BUT TO WHAT DEGREE HAS DIVERSIFICATION BECOME A MAINSTREAM CONSIDERATION?

WENDY HIGGINS

I think more and more mortgage brokers are beginning to see the benefits of diversifying their core business.

Mortgage Choice is really pushing towards diversification at the moment. They are encouraging their brokers to focus on other products including insurance. It is definitely something I will look at in the future, but for the time being I am solely focused on my residential loan book and am happy to refer any insurance questions on to a qualified insurance provider.

ALEX WHITLOCK

LICENSING IS ALSO GOING TO BE A SIGNIFICANT ISSUE NEXT YEAR. HOW PREPARED ARE YOU FOR LICENSING AND WHAT SORT OF IMPACT WILL IT HAVE ON YOUR BUSINESS?

MOSHE MOSES

Niche Lending is already gearing up for licensing by completing a needs analysis for our clients. I don’t think it will have a huge impact on our business because we already like to perceive ourselves as being compliance ready.

That said, most other brokers will have to take part in various educational programs, which will cost their business.

KATHY CUMMINGS

The brokers around this table, the diamond brokers within CBA or the flame brokers with St. George – and indeed all the other quality brokers – already have the nouse to know where this industry is going.

They already have the knowledge and they certainly have the ability to take on the education and to be able to adapt to a more regulated environment.

MIKE COOMBES

Regulation has already been introduced in WA. At the end of the day, the regulation requirements didn’t have a huge impact on our industry but, when they were first introduced, the industry panicked and consolidation occurred as a result.

I think the rest of the nation will see a lot of consolidation when licensing is introduced next year; however, this can be perceived as a good thing because it will rid our industry of some of the part-timers.