ROUNDTABLE - Taking up the challenge

Competition between the majors has never been more intense. So, is there room for Australia’s second tier lenders? ING DIRECT asked some of Australia’s leading brokers for their frank opinions on market competition and the future of the third party distribution channel

Attendees

Lisa Claes, ING DIRECT, executive director distribution

Mark Woolnough, ING DIRECT, head of broker distribution

Fred Obeido, Proforma Financial Solutions, director

Ben Herden, Mortgage Choice, franchisee

Sam Ayliffe, FYI Group, director

Steve Bowers, Complete Home Loans, owner

Catherine Lezer, Smartline, franchisee

Robert Lorenzato, Financial Organisers, director

Q1. WHERE DO BROKERS SEE THEIR BUSINESS HEADING IN THE NEXT 12 MONTHS? AND ARE THERE STILL BUSINESS OPPORTUNITIES FOR BROKERS?

STEVE: We are working harder than ever to deliver the same results. A lot of potential buyers are sitting on their hands and I think that is because there is simply too much doom and gloom around. The media is responsible for a lot of doom and gloom at present. There is so much talk around interest rates, but when you drill right down to the nuts and bolts, interest rates actually are not that big a concern for borrowers. Two years ago, borrowers were happy to buy property when interest rates were over nine per cent. Now, you can get something under seven per cent, but people don’t want a bar of it. It’s not because interest rates are too high, but because the cost of living is on the rise. People can’t afford to move at the moment.

SAM: I agree. Borrowers are very hesitant to make any purchasing decisions at the moment. They are sitting on their hands and waiting to see if property prices come down even further. Moreover, many can’t afford to buy at the moment. The rising cost of living is having a negative impact on borrowers everywhere. That said, I am seeing signs of more bullish behaviour. Borrowers are beginning to understand that interest rates are stable, unemployment is low, and incomes are high – so now is a good time to buy.

BEN: Sam is spot on. While a lot of borrowers are still showing cautious behaviour, we are starting to see more business flow in from the investor market. Savvy investors realise now is a good time to buy. What I am also seeing is a lot of defaulters. There are plenty of people out there that want finance, but the majors’ lending policies stop them from getting it. The majors have definitely tightened their lending criteria once again and that is stopping a lot of buyers from getting onto the property ladder.

LISA: I agree we are definitely seeing a lot of caution amongst borrowers. But, this caution opens up a lot of opportunities for brokers. In times of volatility, people need reassurance. So, brokers need to make sure they are in constant touch with their client database. They need to be proactive, rather than reactive. I know it sounds basic, but in times of volatility, people will do crazy things and that is when they need their broker to step in and calm them down. Also, brokers need to remember that while the property market is flat now, it will come back. History has shown that when the economy is volatile, people look to put their finances in the safety of bricks and mortar.

Q2. WHAT IMPACT HAS NCCP REGULATION HAD ON YOUR BUSINESS?

SAM: I can’t speak for everyone, but I can say that I am spending a lot more time each day servicing existing clients and answering their general questions. Realistically, our workload has gone up by four or five times because of NCCP.

CATHERINE: I agree. The amount of information people have at their fingertips now is incredible. They didn’t have access to this information some years ago. Today, they are better informed about the products available to them, so I have to offer more than a home loan transaction in order to win their business. I have to provide them with financial advice. NCCP also asks us to do this. We have to find products that are not unsuitable and meet the responsible lending obligations. It takes a lot longer to write a loan these days under NCCP.

BEN: While I agree with you Catherine, I would also like to say that NCCP has also given us greater business opportunities.

Q3. DO YOU THINK BORROWERS ARE CONCERNED ABOUT THE DOMINANCE OF THE BIG FOUR? AND ARE BROKERS STILL SENDING THE MAJORITY OF THEIR BUSINESS TO THE MAJORS?

SAM: Customers are searching for alternatives. But the reality is, the big four are still really competitive, so they are not unhappy with what the big four are offering. Personally, FYI Group is always looking for alternative lenders to send business to. We want to deal with lenders that can offer different rates, different policies, different commissions and different pricing to the big four. Some lenders are stepping up to the plate, including ING DIRECT, Suncorp and Bendigo and Adelaide Bank, so that is refreshing. It is good to see some competition emerging in the lending space once again.

MARK: One of the questions I am always keen to hear the answer to is what significance does a customer place on satisfaction with the lender? According to independent rating systems, ING DIRECT consistently leads the way in terms of home loan satisfaction, yet we fail to see that satisfaction transform itself into market share or additional volumes. Our broker partners constantly tell us that they have never had a customer come back and say they are unhappy with an ING DIRECT loan, so how do we capitalise on our good service – that is, how do we turn customer satisfaction into a greater number of clients upfront?

CATHERINE: When I am with a customer, I ask them whether or not they really want to stay with the bank they are currently with. Once we have got that out of the way, I can talk about their home loan options and very often, ING DIRECT comes up with the cheapest rate. There used to be a lot of loyalty to people’s banks, but now that loyalty is working against them. They have one late credit card payment and all of a sudden, they can’t get a loan with that bank. So, I think brokers need to explain this to their customers and help them understand why going with a different lender for their home loan can be a really positive thing.

ROBERT: That’s right. I think we also need to explain to customers which banks are going to give them the best service and the quickest decision. A lot of home owners want a quick decision, and ING DIRECT’s back office works like clockwork. I can always be guaranteed of a fast response when I submit a loan with ING DIRECT. Not all of the majors offer me the same prompt service. In addition, they don’t offer me the same products they offer their branch managers, which is ridiculous. When using the majors, I feel like I am dancing with a gorilla – any moment the party can turn from fun to fear.

Q4. WHAT CAN ING DIRECT DO TO ENSURE IT GROWS ITS VOLUMES?

STEVE: Brokers are creatures of habit and sometimes we will use a lender just because we know we can get the deal across the line quickly. I can understand why some brokers are hesitant to use ING DIRECT because it has a reputation in the market of being pedantic. The reduced equity fee is great, but most brokers don’t even think about it because they are used to the old days when ING DIRECT used to pick up on every problem.

SAM: I’ll add to that. 12 months ago, the big four had the most relaxed policy on the market. I would have loans declined by ING DIRECT that would then be picked up and approved without question by one of the big four. Now, to be fair, ING DIRECT has evolved their policy a lot in the last 12 months. Unfortunately, not everyone in the broking market knows that. I have had 457s passed with ING DIRECT at 85 per cent LVR. Brokers have utter faith in the big four. They believe their deals will be passed. However, you have a reputation of being ‘tricky’ to deal with. And with the increased lending obligations under NCCP, I am not going to [shop] a deal to two lenders, I am going to out it with the one lender where I know it will be approved. If you want to grow your volumes and market share, you need to highlight what your purple thread is. You need to differentiate yourself from the rest of the market. Your purple thread is the reduced equity fee [product]. It is a great product, so you need to highlight that product to brokers.

MARK: We interact with brokers on a regular basis and we hear your concerns. We know we need to engage brokers more. We understand that every conversation with a broker is a moment of truth, so we are trying to improve this every way we can. For years we have spoken to customers, but not to brokers – we are endeavouring to change that. We are starting to make some positive changes, but it will take time for those changes to be felt by the market. Right now, we are providing brokers with direct access to their credit assessor, so that they know who the credit assessor is and they have their contact details should they wish to query anything. We have also led the way in terms of LVR – we were the first bank to increase our maximum LVR to 95 per cent. But that said, we know there is still more work to be done. Our broker partners are our greatest customers and we want to help you build your business.

SAM: I love what you just said. I love it when a bank says brokers are your customers. I think often banks get that whole thing inverted. Brokers have their own customers and we look after them really well. We are the banks’ customers, so they should treat us with care and attention. It is the perfect mindset for a bank to have.

ROBERT: I agree that ING DIRECT does a lot of things well. But, that said, you don’t have a branch network, so I would like to see you engaging with the broker channel in a much smarter fashion. To tell the truth, some of the big banks do it a lot better than you do. I was one of the brokers you trialled the valuations program on, but you didn’t do it right. You didn’t give me all the information contained in the final valuation. You also don’t allow all the documentation to be sent to the broker.

FRED: Absolutely. If you give us the same benefits as the other banks, we will ultimately send more business your way. Coming back to your question Mark, I think brokers can get the ING DIRECT message across if they position the clients right. You have to let them know why this is the best product for them. Some of my customers will tell me: ING DIRECT is slightly more expensive, but once I show them the spreadsheet which outlines what they will pay each month, they can see that ING DIRECT is actually one of the cheapest lenders on the market.

LISA: We are very interested in the broker channel, we see ourselves as a broker bank. We are always trying to improve our products and services and thanks to your input we can do just that.