The growth of a non-major bank’s broker channel has contracted over the first half of the year to 2017, buffeted by regulatory pressures and “onerous” application processing.
In announcing its half year results earlier this week, Bank of Queensland (BOQ) revealed that 15 per cent of housing loan settlements were broker-originated in 1H17, down from 19 per cent in 1H16.
Commenting on the results, chief financial officer Anthony Rose said: “We saw only $50 million in growth from the BOQ broker channel during the half, compared with an average of around $500 million from this channel in the four prior half-year periods. This was the biggest driver of the portfolio contraction during the half.”
He elaborated that the lender has had to take steps to manage APRA’s 10 per cent cap on investment lending growth, which created issues for its broker market.
“Our return to growth has taken longer than we would have liked for a number of reasons,” he added.
“There has been a lot of regulatory focus on serviceability calculations and ensuring living expenses are appropriately considered as part of any lending application. It’s fair to say there have been some different policies in use across the industry, and variability by borrower type, geography, income levels, etc.
“In many cases, we have found that we were willing to lend a lower maximum amount than our peers, particularly in the Sydney and Melbourne markets where the strongest growth has been. As a result, we found ourselves off the consideration set for many brokers.”
Further, Mr Rose said that the bank’s application processing for broker-generated loans has been “more onerous”.
“We still complete validation of 100 per cent of loan applications. This is a time-consuming process. It involves reviewing the customer’s application and ensuring that the income and expenses declared and used in the assessment can be verified from supporting documentation and is consistent with activity on an application’s bank statements,” he said.
To remedy this, Mr Rose explained that the lender is in the process of rolling out the second phase of its retail lending origination system.
“We are still working to improve other elements of the end-to-end lending process, to ensure we become easier to deal with for brokers, branches and customers alike.
“By the end of this calendar year we should be in a much stronger position in this regard.”
Mortgages outlook ‘promising’
BOQ’s Mr Rose highlighted that the bank has seen “more promoting” mortgage applications in the past six weeks.
“Application levels have been running over 30 per cent higher in the last six weeks than the average for the first four months of the year.
“The increase in applications appears to be partially driven by credit and serviceability standards of our peers being brought more into line with where we have been operating for some time.
“This more level playing field improves our ability to lift new business volumes and gives us confidence of returning to a reasonable level of mortgage growth in the second half.”
Further, the launch of the Virgin Money Reward Me home loan under 12 months ago continues to gain traction with customers and mortgage brokers, delivering loan growth of $200 million for the half.
Managing director and CEO Jon Sutton commented: “We have successfully launched the Virgin Money Reward Me home loan and significantly increased the number of brokers accredited to distribute this product.”
“We will continue to expand the distribution reach for Virgin Money’s Reward Me home loan,” he concluded.