With brokers now writing more than half of Australia’s home loans and some record-breaking results for lenders and brokerages, 2014 was a year of growth and progress for the mortgage broking industry
History may remember 2014 as the year in which brokers became the dominant force in the Australian mortgage market – but potential clouds appear to be on the horizon.
According to research commissioned by the MFAA, brokers were responsible for 51.5 per cent of residential finance in the September quarter, compared to 49.7 per cent in the June quarter and 49.9 per cent in the March quarter.
Brokers were also responsible for 67 per cent of the growth in the mortgage market during the 12 months to 30 September 2014, writing $151.7 billion over the year.
Siobhan Hayden, MFAA chief executive, said the results show that customers are increasingly turning to brokers, irrespective of the health of the general market.
“The broker channel is going from strength to strength over time, and represents the consistent efforts that brokers are making to offer the best possible service to their customers,” Ms Hayden said.
Aussie Home Loans and Mortgage Choice reported record results for 2013/2014 while continuing to expand their broker networks. Aussie reported $17 billion worth of loan settlements for the 12 months to 30 June 2014, up 18 per cent on the previous year.
The group also recorded a seven per cent jump in franchise numbers from 150 to 160. Meanwhile, Mortgage Choice delivered a cash net profit of $20.1 million for the last financial year, up 27.1 per cent on the previous year.
It also released its ‘Plus One’ recruitment drive in January. Meanwhile, lenders enjoyed a successful 2014 growing their loan books and positing huge profits.
The Commonwealth Bank’s annual profits rose 13.3 per cent to $8.6 billion, Westpac’s profits rose 12 per cent to $7.6 billion and ANZ profits rose 15.2 per cent to $7.3 billion. NAB’s net profit fell 0.7 per cent to $5.1 billion, although its result was affected by $1.5 billion of one off write offs.
The large profits posted by the majors also raised the question of whether they should return some margin through higher commissions and lower rates.
FBAA chief executive Peter White said it was time for the big four to surrender some of their profit margins given that the GFC was now well in the past.
“We are starting to see that as some of the big banks have increased their commissions to brokers, which I think is a smart thing to do,” he told The Adviser in November. “They should be passing rate cut benefits back to borrowers as well. They’ve got the profits to do it.”
The non-majors continued to challenge the big four in 2014, differentiating themselves on product, policy and service.
In August Heritage Bank unveiled a one-year fixed rate of 3.99 per cent, the lowest rate of any kind in its 139-year history. Chief executive John Minz said Heritage was able to offer such a low rate because as a customer-owned bank, it could focus on giving value to members rather than shareholders.
“That mutuality means Heritage Bank can focus on generally delivering more competitive rates than the big four banks,” he said.
According to a recent poll by The Adviser, 43 per cent of respondents said the non-majors still lead the way for price and service. Another 36 per cent said the non-majors are falling behind, while 21 per cent said there has been no noticeable change in the status quo.
ME Bank’s national manager of brokers, Stewart Saunders, said his experience showed that brokers were becoming more receptive to options outside the big four.
“ME Bank has gained significant market share of the fixed-rate market in recent years by out-pricing other banks,” he said.
Australia’s economy continued its moderate growth throughout 2014 despite increased concerns of a housing ‘bubble’ due to a sharp increase in investor lending.
At the time The Adviser went to press, the cash rate remained at a record-low 2.5 per cent. The Reserve Bank has been pulled in two directions on monetary policy. On one hand, it was looking to raise rates to cool the housing market, while on the other it was looking to lower rates to stimulate the economy.
AAP chief economist Garry Shilson Josling said in November that the housing market was too strong to allow a rate cut, but the rest of the economy was too soft to cope with an increase.
“If macroprudential policies to cool the investor segment of the housing market work – and there’s no good reason to suppose they won’t – the RBA should be under no real pressure to jack up rates in a hurry,” he said.
Heritage Bank chief operating officer Paul Williams said that the Reserve Bank appeared happy to keep rates at very low levels while the economy tries to build momentum.
“The RBA will be keeping an eye on the trends in unemployment, inflation levels, developments in key offshore economies and geo-political tensions in [the] Middle East and Europe,” he said in November.
The year was marked by regulatory forces, with ASIC updating its responsible lending guidelines and APRA releasing its prudential practice guide on residential mortgage lending.
Submissions to the Financial System Inquiry came thick and fast, shining the spotlight on issues such as commissions, fee-for-service, lending restrictions, negative gearing and vertical integration.
One topic in particular that created debate between industry figures was broker education standards. The Consumer Credit Legal Service WA told the inquiry that current standards are “manifestly inadequate” and that brokers should be required to hold university degrees.
Bruce Mawson, principal of Mawson Professional Lending in Brisbane and a former director of the MFAA, said the minimum requirement to become a broker should be a diploma, but said he would “love to see a degree course available, which would allow practitioners to elevate themselves to a higher standard”.
Outsource Financial CEO Tanya Sale told The Adviser that it would be wrong to describe the current broking qualifications as inadequate.
“At the moment, Cert IV is the minimum requirement for ASIC, which is fine,” she said. “The components of the Cert IV are much more in-depth and educational than when it was first introduced.”
Convergence was another hot topic of discussion in the industry, with mortgage website Flongle warning the Financial System Inquiry that firms that combine broking and financial planning are exploiting a “legislative loophole” to offer “conflicted remuneration”.
Yellow Brick Road chief executive Matt Lawler said brokers should consider diversifying into planning because clients want one expert to handle all their financial needs.
“They want to deal with one, and they want that person to know their situation and to take care of things right across the board,” he said.
However, Mortgage Choice CEO Michael Russell warned that brokers could spread themselves too thinly if they tried to become a jack of all trades.
“While there are some mortgage brokers who successfully offer financial advice as well as home loan advice, the two professions require different skill sets, which is recognised by the fact that there are two governing sets of legislation,” he said.
Loan Market took its stand on convergence by not allowing brokers to double up as advisers for its new financial planning arm Wealth Market.
“There’s a recruitment drive going on with very stringent requirements,” a Loan Market spokesperson told The Adviser in September. “Unless somebody was going to retrain for a career change, there’s no synergy between the two roles,” she said.
The industry also had time to celebrate and recognise the achievements and efforts of brokers, lenders and aggregators in 2014.
The Adviser’s fourth annual Australian Broking Awards were held at Sydney’s Australian Technology Park in August, where Melbourne broker Mark Davis from the Australian Investment & Lending Centre was crowned Broker of the Year.
Awards were also handed out during The Adviser’s 2014 Better Business Summit, which had more than 3,000 attendees from 745 companies participating across Melbourne, Sydney, Adelaide, Brisbane and Perth.
The Elite Business Writers and the Young Broker of the Year rankings were both hotly contested this year.
Intelligent Finance’s Justin Doobov wrote a staggering $480,816,410 in business during 2013/2014 to be named The Adviser’s Elite Business Writer for 2014, while Eric Cui from Alliance Mortgage Solutions rose 18 places from his 2013 result to be crowned Young Broker of the Year.
All things considered, 2014 was a great year for the broking industry. Despite the various challenges and uncertainties that lie ahead, 2015 is looking even better.
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