An evolving industry

SK:
Steve Kane
General manager broker distribution
NAB

IR:
Ian Rakhit
Head of specialist banking
Bankwest

MW:
Mark Woolnough
Head of broker distribution
ING DIRECT

JM:
John Mohnacheff
National sales manager
Liberty

DH:
David Holmes
Chief operating officer
Pepper

TM: Currently, competition remains fierce amongst lenders and margins continue to be tested. Although the wholesale funding cost position may have improved a little, we continue to see strong competition for retail deposits where the bulk of funding is coming from. Balancing these competing forces may see price pressure continue for some time.

MW: Absolutely. ING DIRECT has leading LVR-based pricing at the moment. We have market leading fixed rates and we have recently waived fixed rate applications. We have also reduced the commercial fee from $1,000 to $500. We are making it very clear we are hungry across a range of business sectors. The reality is all lenders are looking to grow their portfolio. That said, everyone is seeing their book shrink due to the low rate environment. People are deleveraging, paying off their mortgage faster and refinancing to other lenders. With this in mind, lenders know they need to be more competitive on rates, or bring something else to the table if they are to win more business.

SK: At NAB, we’re absolutely committed to remaining competitive and growing our business. Mortgages provide a vital platform for growth in assets, and new customers for all lending institutions as well as a continued low credit growth environment will ensure vigorous competition remains in the mortgage market.

IR: The competitiveness amongst the majors has been fascinating to watch and has benefited Australian consumers, who have become savvy when it comes to obtaining the best deal for their home loan or investment property.
As funding costs fluctuate, the industry is likely to still face challenges with the cost of wholesale funds. In turn, this could see the price war subside over the coming months.

DH: It will go on. Volumes are down. System growth isn’t where people thought it would be. As such, I believe the banks and non-majors will look for ways to increase volumes and, at this moment in time, I think pricing is the only lever lenders can pull. Of course, I would caution any pricing war because funding costs – especially for the majors – are very volatile at the moment. The Chinese economy is coming off the boil, as are the European economies. With this in mind, funding costs could falter from where they have been over the past few months.

Where do the greatest business opportunities for brokers lie in the months ahead, and which segments are likely to be most active?

SK: Looking at the data from NAB's Quarterly Australian Residential Property Survey for June, resident owner occupiers are still the main players in the new property market. Demand for new properties from local investors and foreign investors strengthened during the quarter, especially in Queensland and Victoria. Demand for existing property continues to be dominated by resident owner occupiers, although resident investors are also beginning to see better value in the market. The inner city will remain the choice location for new and existing properties, with demand for houses outstripping apartments at all price points. Overall, with interest rates at historical lows and house prices looking positive nationally, there is real opportunity for brokers to grow their share of the market over the next year.

TM: Two key areas constantly come up in the conversations I have with industry commentators – strong market indicators point to the big opportunities that lay both within the investor and self-managed super fund (SMSF) segments.

IR: Diversification is a regularly discussed topic within the industry. However, I still believe the greatest business opportunity for mortgage brokers in this current market is to diversify their sources of income, such as insurance sales and wealth and financial planning opportunities. Brokers who do this will be more active and equipped to offer more choice to their clients and become a 'one-stop shop' for all of their financial needs. Bankwest understands the importance of diversification and remains committed to improving cross-sell opportunities for our broker partners as a means of contributing to their greater business needs.

What impact do you think another rate cut would have on the current property market?

JM: I have never known rates to be lower. As such, I don't think a lot would happen if the Reserve Bank (RBA) were to cut rates again. The official cash rate is now below three per cent and I think if low rates were going to affect the property market, they would have already done so. I think it will be exciting to see what happens in this spring season. While I do expect to see a little pick-up, I don't think the property market will run hot. I think people are savvier now – they buy when they are ready. Because rates are so low, there is no urgency to buy. I think we are in a level market, which is a good thing because it will help affordability.

IR: Auction clearance rates in most states are up in recent times, although there is still some political uncertainty and economic concerns about China, which will be giving buyers a lot to think about. Further RBA cuts will only create heightened competition and provide additional consumer savings.
At Bankwest, we are all about providing our customers with more value for money and putting more in their back pocket, with savings of up to $400 on application fees, low monthly offset fees of $3.99. In an increasingly competitive market, the size of our business allows us to be nimble and innovative in terms of changing the way we do business to meet the needs of Australians; a prime example is our Premium Select discounting tiers, which reward lower risk with improved pricing.

DH: I think it will have a positive impact. Rates are now sitting at historic lows. That said, the first home buyer market is still relatively muted. So, if rates were to come down lower, it could encourage first home buyers into the market. I think there is still some uncertainty in the market caused by the impending federal election. People don’t know when the election will be or who will win it. When there is a level of uncertainty in the market, people tend to sit on their hands. Once the election is over, I think a level of certainty will return to the market.

TM: For customers and potential property buyers, a reduction in rates should generally be viewed positively. However, a downward move in rates is just one factor; the employment rate, our economy, and consumer confidence continue to be other key variables by which to gauge the market. Rates are currently at historical lows, and this could suggest the need for stimulus within property markets to kick-start full growth.

SK: We’ve definitely seen an improvement in residential property prices since 2012, as a result of the low interest rate environment and increased housing affordability. While national house prices took a backwards step in the second quarter of 2013, the 25-basis point interest rate cut in May and NAB’s forecast for a further 25-basis point rate cut in August should help support prices moving into 2014. However, we expect these gains to be modest, with job security looming as a constraint on house prices as 2013 unfolds.
Employment security continues to be cited as the biggest impediment to purchasing property in all states, and more so than in previous surveys. Softer economic growth and downside risks posed by the economy’s structural adjustment may also undermine confidence and prevent many consumers from entering the market, despite the recent pick-up in house price growth.

Do you expect to see broker market share grow over the coming months and years?

DH: I think we will see broker market share continue to grow, as long as brokers continue to add value to customers. Brokers need to make sure they don’t get caught up in a rate war. Brokers should never fall victim to finding their clients the lowest rate, as that is not what their proposition is based on. In this day and age, clients can use the internet to find out the lowest rate in the market. Brokers can do more than search for rates; they can look at a client’s individual case and find them the right solution today and into the future. Brokers are there to source the best product for the client and while rate is an important factor, it should not be the only factor. They should look at debt structuring and property management.

TM: Mortgage brokers continue to be an integral part of the changing Australian financial landscape. Consumers are becoming savvy about the important role brokers play in advising and assisting them with their home loan journey. I can only see their role continuing to grow and evolve with new technology, which will then see their market share increase through this demand.

JM: I believe broker market share can grow if brokers get out there and grow their own business. To do that, I don't necessarily think they need to write more 'new business'. Instead, they can help their existing clients create wealth through property.
Brokers have the perception that if they write a home loan as well as an SMSF loan for their client, they are committing to a lot more work. That is simply not the case. An SMSF loan is not that dissimilar to a residential property mortgage. In the first instance, brokers should direct their clients to a financial planner to see if an SMSF investment property would suit them and their wealth management strategy. In almost all cases, an SMSF investment property is a good idea. Better yet, as SMSF loans become more widely spoken about, more borrowers are happy to look into the option and they are happy to do their research with the person who has helped them into their dream home – their mortgage broker.
Once a borrower has agreed to take out an SMSF loan, the broker can organise the bare trust and set up the strategy through their chosen lender. Most lenders will help set up the structure. Following that, all brokers have to do is follow the bouncing ball and the job is done.

IR: Lenders are recognising brokers’ increasingly important role within the mortgage market and as a result, their share will continue to gather momentum over the coming months and years. Growth of market share will continue to be a focus for lenders committed to the broker channel, especially those who rely on the broker market as a key distribution channel for residential mortgages and as a large source of revenue. For us, our brokers are critical to our success and strategy moving forward. Currently, 69 per cent of our mortgage balances are introduced by brokers, and we want to increase this. Bankwest remains committed to this channel as a means of delivering our volumes and helping more and more customers purchase their home, refinance or invest. Bankwest will continue to gain feedback and work with our broker network to further strengthen our resolve and improve how we deliver to our business partners.

SK: More and more often we’re seeing that consumers value the advice they receive from mortgage brokers and broker market share continues to trend upwards. Buying a house is one of the biggest decisions in people’s lives and in an increasingly time-poor and complex environment, we believe more Australians will seek the advice of a broker. Brokers are at the forefront of NAB's mortgage growth strategy and that's why we'll continue to invest in the broker channel.

A majority of brokers have said the industry needs more product innovation from lenders. Do you think we will continue to see this?

IR: Innovation is vital to set yourself apart from your competitors. This is true in all facets of business, not just the mortgage industry. Lenders are always finding ways to lead the pack and be innovative in their product range, as well as their platforms, systems and processes. At Bankwest, we are proud of the fact we have remained innovative and stayed ahead of the market, with sharp pricing and great product offerings that are attractive for both the short and long term, with no ongoing fees and low monthly fees on offset facilities.
The next 12 months will be no different; we will continue to invest in our broker channel and we are committed to listening to and acting upon our brokers’ feedback. It is an exciting time for Bankwest as we embark on several initiatives that will focus on quality improvement and subsequently larger rewards, growth of market share and back-end processing enhancements to deliver fast timeframes to approval.

DH: The smaller lenders have always led the charge in terms of innovation. That said, I don’t think we are in an environment where the non-majors can come out with innovative products that would be meaningful to the market. I don’t think we will see much in the way of product innovation moving forward. I think brokers need to concentrate less on product innovation and think about how they can grow their business by sticking to what they are good at – writing mortgages. The fact is, credit has tightened over the past few months and years and there are good, strong mortgage applicants who can’t get a home loan through the traditional lenders. This is a new niche area that I believe brokers should concentrate on as it will not only mean more business for them, but could potentially lead to more repeat and referral opportunities.

SK: Continuing to innovate and differentiate ourselves from competitors is a priority for NAB Broker. It’s a competitive environment and this makes it particularly important to be continually sharpening our offering. We currently lead the industry with our price for risk and ramped trail commissions structure and continue to be recognised by brokers, with NAB Broker recently named Major Lender of the Year by The Adviser’s Third Party Banking Report for the second year running. We are determined to continue listening to brokers and delivering market-leading products and services based on their feedback.

MW: I question product innovation. I think innovation is something that is said but not identified. In fact, I think there is a real opportunity for lenders to sit down with the third party channel and discuss what their idea of 'product innovation' entails. I think innovation will be in the service delivery – the interaction between the bank, the broker and the customer. I think this is where there will be some really exciting developments. Moreover, I think this is where ING DIRECT, or any lender, can really make their mark on the market. Products are generally the same and any innovation in this space is generally copied very quickly – when one lender moves on product or price, the rest follow. Product and price are never where a lender or a broker will set themselves apart. Innovative service, however, can help brokers and lenders differentiate themselves from the competition.

TM: I hear from brokers that they want their lender to be fast, efficient, transparent and easy to deal with. This means they require products they can understand and are simple to attain – new mobile technology helps enable this. Westpac’s ‘Mobile First’ approach is helping bridge the gap for customers using a transactional service to having their full financial service needs met.
We have also included mortgage brokers in to our mobile approach by providing the only broker specific iPad app from a major bank, adding new tools, housing reports and data for brokers to help their clients throughout the home loan journey.

JM: If brokers want product innovation, they need to support the non-banks. Every single product innovation has come from the non-banks. Who brought in SMSF lending? The non-banks. Who introduced asset lending for brokers? The non-banks. Who brought in electronic lodgement? The non-banks. So, if brokers are serious about seeing greater innovation in the mortgage space, they need to support non-banks. If they support us, we will create and innovate. Brokers need to ask themselves: What have the majors ever done in the way of product innovation? The answer is nothing.

Brokers believe lenders should provide more business support. What do you offer brokers in terms of business support and what more can be done?

MW: Our desk-based support continues to be very attractive to brokers. As such, it has proven very successful for us. We will continue to strengthen this moving forward. In addition, we will continue to enhance our sales support team. We will also continue to work closely with our brokers. Being a branchless bank, our brokers are critically important to us and we want to become their lender of choice. We are determined to move from a secondary bank to a primary bank.

SK: We see ourselves as a true business partner and we are committed to helping brokers grow their business. We will continue to focus our efforts on providing brokers with market-leading tools, products and services, as well as continuing to invest in our people to deliver even better support to our broker partners, including our technical workshops, technology and service improvements.

TM: We currently offer numerous areas of support for our brokers, ranging from nationally placed BDMs to a centralised Broker Support Office team for our Platinum and A+ brokers. Across service, we have a Credit Hotline to which brokers can vet their scenarios prior to submitting an application, and Post Settlements after-service, whereby brokers with the right authority can make certain changes and enquiries on behalf of their clients. Westpac still has a leading and comprehensive real-time deal tracking system through our ‘Introducer Net’ online portal, and the great tools on our mobile broker iPad app. I believe we should be capitalising more with new technology innovation currently taking place across other consumer and business markets.

DH: Lenders have to look at it from an industry perspective and work with brokers on an education level. They need to ask how they can help brokers to grow their business. If they can help brokers grow their businesses, they will benefit as a direct result. We need to look at how we can help individual broker and broker groups grow their business through local area marketing and other techniques.

IR: Like any professional or personal relationship, it is a two-way street. Both brokers and lenders must work collaboratively to achieve improved business efficiencies and more streamlined processes.
Recently, Bankwest launched our online chat platform, whereby brokers and their administrative support teams can contact us via online chat messaging to have their queries answered quickly and at their convenience. This innovative tool has taken minutes and hours out of wait times, so brokers are able to provide quick responses to their customers. And it has given them time back in the day to work on other business opportunities.
Bankwest will continue to work with our brokers to support them in their business requirements, including investing in further training and education, as well as streamlining systems to offer a quicker time to approval, with documentation submitted up front.

Do you believe we will see greater consolidation in the aggregation space?

TM: As we continue to see margins tighten, volume and book size will become important. Aggregators may see the need to trade on scale, or find a real point of service and support differentiation. I can see the opportunity for some consolidation. However, there is space for smaller players to really set themselves apart from the industry and take market share.

SK: As a result of the investment required today for aggregators in the technology and risk areas, together with the services they offer, I think we will see further consolidation. However, the smaller boutique operators who have a clearly articulated and targeted strategy will survive. It’s a competitive landscape and what’s driving competition will also drive consolidation in the industry.