Sentiment survey - Q3 2009 report

The results of the latest Mortgage Business sentiment survey reveal that while there are still some areas of concern for the industry, sentiment around key indicators such as business growth prospects, the federal government’s fiscal policy, and property market fundamentals all point to a period of growth ahead.

In one of the survey’s key findings, over 58 per cent of respondents agreed that Q3 economic conditions were better than the previous quarter, up from the 31.6 per cent registered in the Q2 survey.

Only 9.5 per cent of respondents felt that economic conditions were worse – down by a significant 23.6 per cent in Q2.

Respondents were also full of praise for the federal government’s economic management, with over 57 per cent agreeing that the government’s actions had been effective, compared to just 33.3 per cent in Q2.

The majority of respondents also believe that improved economic conditions will support a RBA rate hike in the coming quarter.

Economic commentators have forecast two 0.25 per cent rate hikes before the year is out, and the majority of brokers seem to agree; 57.6 per cent said they thought rates would rise next quarter, up from 3.9 per cent in Q2.

Some brokers expect looming rate hikes to dampen the demand for home loans over the coming quarter, with around 22 per cent expecting demand to waiver as a result of the RBA cash rate – up from 5 per cent in Q2. Still, 47.5 per cent believe the current rate will have a positive effect on demand.

And with the beefed-up first home owners grant soon to be phased out, coupled with a likely rate rise, most brokers expect to see a shift in the segment where they write the most business.

Over 40 per cent believe the investor segment will be most active in the period ahead, up from 23.7 per cent in the Q2 report.

First home buyers have fallen sharply as an expected key market for most brokers, with only 11.9 per cent agreeing that this sector will be most active – well down on the 45.2 per cent last quarter.

Interestingly, refinancing is a sector where respondents expect to see increased activity. This finding is reflected in a higher proportion of brokers – 51.7 per cent – who expect to generate more business from existing rather than new clients.

When it comes to loan volume growth, sentiment remains upbeat. Overall, 45.6 per cent of brokers surveyed expect volumes to increase in the period ahead, up slightly from the 40.1 per cent last quarter. Only 12.2 per cent expected volumes to decrease, down significantly from 38.9 per cent in our last report.

Brokers who indicated that they expected volumes to remain static increased from 21.0 per cent in Q2 to 42.2 per cent last quarter.

In positive news, an encouraging 49.8 per cent of brokers expect their businesses to grow over the coming quarter, compared to 43.6 per cent in Q2.

Overall sentiment towards the property market is also stronger, with the majority of respondents expecting a more robust sector in the quarter ahead. Over 49 per cent said property sales would increase over the coming quarter, up by 21.3 per cent. This was likely to bump up prices, according to 43.8 per cent of respondents.

WHAT YOU SAID ON THE ECONOMY AND THE RBA’S NEXT MOVE

“ I feel the RBA has misjudged the economy too many times and needs to reassess how it will manage inflationary issues in the future without putting undue monetary pressures on the ordinary households.”

Peter Mastrowicz, Choice Home Loans (VIC)

“The government has done a great job in keeping Australia afloat in the world economy over the past 12 months. Unfortunately we are now starting to hear rumblings that the RBA will start to increase the cash rate before the end of the year, therefore giving the banks free rein to increase their rates above and beyond the RBA movements.”

Darran Wade, Lawfund (NSW)

“It would appear that consumers are tired of sitting on their hands and are starting to show some intent to progress after two years of holding back. The RBA would be absolutely foolish to consider moving rates up until the global financial crisis has been fully contained.”

Michael, Edge Financial Services (NSW)

WHAT YOU SAID ON BUSINESS ISSUES

“As with brokers, lenders that operate within the mortgage / finance broking space should comply with specific legislation designed to ensure quality of information and competition for the consumer. This legislation should accordingly dictate that where aggregators provide intermediary services between lender and broker, minimum volume quotas only apply to the aggregator.”

Andrew Warne, Strategy Finance (WA)

“The main issue for the residential mortgage industry is the lenders that are imposing minimum loan volumes that may lead brokers to place loans to manage their accreditations as opposed to placing a loan with a panel lender that best suits the client.”

Zoran Malesevic, Harzed Finance (NSW)

“A positive attitude and a business plan are what are required to not only stay in the industry but to grow. Flexibility in offering several products – not just home loans – will even out the bumpy road of income at least enough to survive.”

Ronald Mills More, More Money Options (WA)

“Brokers need to better understand their value proposition in the new regulatory environment. Based upon overseas commission structures, Australia still seems to be out of alignment and inevitably our commission / remuneration structures will change.”

Sean Richardson, Freshwater Financial (NSW)

WHAT YOU SAID ON THE PROPERTY MARKET

“The first home buyer incentive reductions will cull a very large percentage of first home buyers from the market given their reliance on this handout, and investors plan to move into that space. The elephant in the room will be prevailing interest rates... which I think will be slightly higher but not much – 0.5 per cent higher max over the next 6-12 months.”

Martin Castilla, Smartline (SA)

“Property prices will continue to rise. I expect that investors will be in the market in force once the current level of the first home owner grant is finished. There is a perception that first home buyers have inflated house prices. I think that this is too big a generalisation as there are areas in Australia that are experiencing solid growth in property prices without first home buyers being involved.”

Rob Egan, Club Financial Services (VIC)

“The property market has already exceeded expectations in terms of price growth and activity. This will extend into 2010, even with expected rates rises, and results will surprise many.”

Wayne Slager, Your Loan Adviser (QLD)

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DATA WRAP: BUSINESS ISSUES

Which sector do you expect to be most active over the coming quarter?

Where do you expect to source most business from over the coming quarter?

What are your expectations for your loan volumes over the coming quarter compared with the previous quarter?

When it comes to staffing levels, over the coming quarter do you plan to:

Do you intend to spend more money marketing your business this coming quarter compared to the last?

Do you think current commission levels are sustainable for the mortgage broking industry?

Do you expect your business over the coming quarter to:

Do you expect you will recommend non-bank products to any clients over the coming quarter

Are you considering leaving the mortgage industry during the next quarter?

DATA WRAP: THE ECONOMY

Is the federal government doing a good job of managing our economy?

Is the RBA doing a good job of controlling inflation through its management of monetary policy?

How do current economic conditions compare this quarter with the previous quarter?

What impact will the current RBA interest rate have on demand for home loans over the coming quarter?

What will happen to interest rates over the next quarter?

DATA WRAP: THE PROPERTY MARKET

Property sales over the coming quarter will:

Residential property prices over the coming quarter will:

Do you believe the property market over the next quarter will represent good value to buyers?

RESPONDENT DEMOGRAPHICS

Total survey respondents: 377

Years in industry (average): 13.1%

Industry sector: broker 85.4%; mortgage manager/ originator 5.3%; lender 3.2%; other 3.4%; aggregator 2.7%

Residential loans as percentage of revenue: 91-100 (50.9%); 81-90 (20.2%); 71-80 (9.3%); 61-70 (5.8%); other: (13.8%)

State breakdown: ACT 1.5%; NSW 31.6%; NT 0.5%; QLD 22.5%; SA 7.5%; TAS 1.5%; VIC 19.3%; WA 15.3%; NZ: 0.3%