According to industry veteran Nick Young, Trail Homes, with so many concurrent pressure points, it’s no wonder that 2021 was the “perfect storm”.
There’s no doubt that we’re in a state of perpetual transition fuelled by multiple legislative, economic, governmental and market sentiment shifts. And let’s not forget the elephant in the room: a relentless global pandemic.
If we cast an eye back, there’s been tremendous and sustained efforts to cushion businesses throughout a time of extreme disruption. Though as irony always has it, the governmental support and encouragement provided to financial institutions to lend coincided with responsible banking laws hitting – making it difficult for lenders to fund people under financial pressure. The upshot was that borrowers who needed the funding the most were either turned away or unable to obtain funds quickly enough.
So with funds to lend, but with responsible lending laws limiting where it could be lent, refinancing quickly gained momentum. Not only were residential home loan rates at a record low – particularly with fixed rates well below 2 per cent, but prime borrowers were in an enviable position of being offered thousands of dollars to switch banks. At the same time, we experienced one of the biggest year-on-year jumps in real estate prices since the 1980s land boom occurred.
Literally ‘overnight’, borrowers were in an unprecedented position where an enormous amount of equity was created in their property portfolios. This spurred the desire to refinance at a better interest rate and/or increase the borrowings against them. It’s worthwhile to stop and note that we have probably never seen a refinancing boom like this.
So, what does this mean for the year ahead? Firstly, what goes up, must come down: and vice versa.
The industry is now buckling up to prepare for the aftermath of business subsidies ceasing, compounded by an upward trend in interest rates despite the RBA’s current commitment to a static baseline rate. Less well documented is that the quantitative easing program that the RBA has been undertaking will be ending early next year. In short, brokers need to be acutely aware that the refinance bandwagon has stopped.
In addition, we should address two related consequences: firstly, ‘The Great Resignation’ and the ongoing ‘sea and tree change’ movement. Concurrently, it’s very clear that the metro property market is course-correcting.
The global trend of a mass exodus of workers from traditional employment towards self-employment is hitting our shores. This has substantial implications across the board, including demand for alternative housing types, a prolonged boom in sub-regional and regional locations, and the upsurge of funding requirements that supports self-employed borrowers.
There are two main ways the finance piece can go: regulatory bodies and the major banks relax their lending criteria, or the non-bank sector capitalises on the increased willingness to finance away from the major four. Now the interesting thing to note about the non-bank sector is that there’s a distinct shift toward having lower rates, broader product offerings, sustained credit risk flexibility, and a far greater level of consumer acceptance for alternative funding solutions. Watch this space.
Let’s not forget market sentiment. There’s an infectious sense of optimism as we’ve all finally escaped house arrest (we just need all the borders to catch up…) And the spending blitz is on. With savings at a record high, there seems little qualm about splashing out on travel, lifestyle and business. This means lots of dining, playing, exercising, travelling, partying and plain old appreciating life. It’s also expected that there will organically be less demand for home renovations as peoples’ lenses become less focused on their four walls.
In addition, businesses, by force rather than choice, have also been projected into the new millennium of the digital world and consequently have discovered far greater efficiencies and have created leaner, more robust and more agile operations (including brokerages).
Employees have had the sweet taste of autonomy, and employers are increasingly aware that they need to release incumbent expectations of office infrastructure and now antiquated protocol, or face the real consequence of losing key people in a tight market. Simultaneously, ‘working from home’ has a new dynamic and is no longer a glorified ‘sickie’. There’s also a far greater acceptance of personal choice and lifestyle, which has a run-off effect on consumer demand.
The greatest piece of advice I can give to the market is to actively keep your eyes wide open and your ears to the ground.
Now is the time to stay in tune with your clients and anticipate their circumstances. Tell them what’s happening. Give them solutions (not products) and put into place a game plan to ensure that when the ‘perhaps’ morphs into ‘now’, there’s a solid strategy and action plan in place. More than ever, now is the time to consider your clients’ requirements holistically – particularly if they’re part of the emerging cohort of self-employed who are going to find it potentially difficult to borrow in their start-up phase and will invariably rely on their professional partner network more than ever to maximise opportunities and avoid getting into a bind.
And a word of caution: the old stockbroker in me is noting that everyone is saying how economically good 2022 is going to be. CEO surveys, economists, business confidence indexes, etc, are all about as strong as they get. All major stock markets are at, or close, to their record highs. The old-timer in me is saying be optimistic, but be careful.
Nick Young is a results-driven specialist who has more than 20 years’ experience in the mortgage broking industry, and now heads Trail Homes: Australia’s most established and longest serving trail book purchaser.
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