With all the changes in the Australian lending sector, the mutuals are stepping up to fill the void and seem likely to capture market share. In this feature, The Adviser profiles their responses to the current lending environment and explores how their value proposition to brokers differs from that of the banks
Unless you were living under a rock last year, you would know that the industry has seen the full force of regulators installing new policies and shifting old ones.
Whether it be curbing investor lending or raising the major banks’ capital requirements, 2015 was the year of change and many financial institutions, including the mutuals, had to adapt accordingly. Some decided to follow the major banks’ lead, while others stayed true to their traditional ideologies and practices.
Whatever move they decided on, the mutuals have shared with The Adviser their reasons behind it, explaining how the raft of policy and lending changes have affected their business and what they plan to do to capture more market share in 2016.
Combatting regulatory challenges
When the 10 per cent crackdown on investment lending took off mid-last year, how the institutions reacted was always going to be a hot topic of conversation.
“Teachers Mutual Bank (TMB) has responded to APRA’s investor loan growth concerns by implementing a number of changes across its product range,” says the group’s national manager of third-party distribution, Mark Middleton.
“We have also looked to attract new members into variable home loans with the introduction of the new Classic Home Loan product, with a highly competitive interest rate of 4.11 per cent.”
For Heritage Bank, these crackdowns meant a reduction in the amount of investor loans written.
“Heritage is under the same regulations as all financial institutions, so in terms of our stance on investment lending, we also needed to make policy changes to reduce the percentage of business written,” head of branch and third-party channels, David Ure, says.
Gateway Credit Union was also subject to the same requirements and, as a result, shifted its focus away from investor lending to get below the 10 per cent cap.
However, despite many mutuals following the lead of the majors, Newcastle Permanent was not one of these, explains CEO Terry Millett.
“We’ve seen lots of changes that have impacted the industry, but we haven’t had a real material impact,” he says.
“The reason that is, is because we’ve been really careful with how we’ve managed the business.”
One of these cautions was the decision to keep rates on hold when the news broke about additional capital requirements for the major banks, according to Mr Millet.
“When the major banks decided, given that they’d have to hold more capital, they would increase their home loan interest rates to existing customers as well as new customers – we did not do that,” he says.
“We noted that a number of regional banks and mutuals lifted their home loan rates in line with the major banks. We didn’t do that, we regarded that as an example of profit-gauging at the expense of customers, but also quite embarrassing to the mortgage brokers who are the people the customers go back and complain to.
“It has certainly been a year where you’ve had to be very attentive and manage your business very closely or else you were going to cause a fair bit of distress, both to your customers and mortgage broker partners.”
Conversely, QPCU tightened its credit policy, although CEO Grant Devine says this was “fairly limited given the strength and performance of our customer base”.
A proposition with a difference
With so much uncertainty surrounding the major lenders, there’s never been a better time for brokers to work with a mutual. Not only do these institutions offer some of the most attractive rates in the market, many also dominate the big four when it comes to customer satisfaction rates.
Teachers Mutual Bank has been one of those leading the pack in this regard, consistently scoring above 90 per cent in Roy Morgan’s monthly customer satisfaction poll for years.
“The ‘we put you first’ philosophy has resulted in leading member satisfaction,” TMB’s Mr Middleton says. “These high satisfaction scores indicate Teachers Mutual Bank’s focus on providing a personalised banking experience paired with a competitive product offering.”
Newcastle Permanent is also up there with TMB as being widely recognised for strong customer satisfaction results, picking up back-to-back Australian Home Lender of the Year titles from both Money Magazine and the Australian Financial Review, and maintaining a five-star CANSTAR rating.
Mr Millett puts it down to the group’s “consistently competitive interest rates and fees” and providing their customers with “better value and better quality”deals.
“I think, from a broker’s perspective, this concept of a simple proposition for their customers around consistently better value, exceptional quality and a much better customer experience means we’re a good place to [direct] their customers, because we’re not going to cause them any distress,” MrMillet says.
“[We also have] reliable and fast turnaround times and none of the reputational problems that plague the majors and some regional banks.”
Mr Ure agrees that one of the biggest advantages brokers have in dealing with a mutual is knowing that their clients are going to be well looked after.
“As a mutual, our customers own a part of our company. Their future is our future, so we do what we can to help them to achieve their financial dreams,” he says.
“We have a strong focus on relationships and providing quality service to our brokers and the customers they refer to us.”
In addition to attractive rates and customer service, QPCU’s executive manager of sales and distribution Lee Slattery says the mutuals offer a great support system tobrokers.
“We have some great BDMs available who pride themselves on the support they offer to brokers,” he says.
Mr Slattery adds that QPCU has recently built a new lending process that will support brokers on delivering fast customer outcomes.
For Gateway Credit Union’s senior manager of partnerships and alliances, Phillip Horder, this support comes with a personalised touch – something he says the big four are slipping away from.
“Obviously we’re smaller and we can build an advantage out of that, giving brokers a more personal level of service,” he says. “As a broker with Gateway, you can contact our loan assessors directly and you can talk to the person who is assessing your deal all the way through the process.
“They’ll even call a broker if their application is declined and discuss the reason behind that decision.”
Aggregators weigh in
It’s all well and good to get the opinion of the mutuals from the mutuals, but to really get a sound understanding of what they can offer during this changing lending period, The Adviser spoke to several aggregators about their thoughts on the offering of the mutuals.
Gateway Credit Union, Beyond Bank, Heritage Bank and TMB are among those mutuals who make up an “essential part” of the Vow Financial lender panel, according to CEO Tim Brown.
“I think they’re an essential part of your overall offering because often they play really well into niches,” he says.
“They’re less complacent [than the majors]. They fight for every bit of market share they can get.”
However, Mr Brown says the challenge for the mutuals is sometimes their capability to handle large volumes.
“In the aggregation space, especially with some of the competitive rates they come up with, you can really load them up with volume, but what happens is they really struggle sometimes to meet those volumes simply because of their capabilities, both in system and resources,” he explains.
“Generally we find that the service ethic is better in the sense of response, but capabilities are where they fall short.”
Ballast CEO Frank Paratore says having mutuals on his lender panel presents a good value proposition to both broker members and their clients.
“The whole value proposition for a broker really is the diversity for them to be able to provide as many options as possible to clients,” he says.
“The mutuals, I think, tend to provide specific niches that cater for certain areas of the market.”
Mr Paratore believes that over the next 12 months, the industry will begin to see a shift as the mutuals look to take on more market share.
“One of the things that you’re starting to see is a little bit more of the mutuals banding together – strength in numbers,” he says. “There’s a little bit more of that, so I wouldn’t be surprised to see more of that happen over the next 12 months as well.
“Certainly their proposition for what it is stacks up pretty well in the‑market.”
Similarly, eChoice national sales manager Blake Buchanan says the mutuals are in an “effective position” to capture greater market share in 2016.
“We’ve already seen volume upswings in favour of mutuals. As many are smaller organisations or new to the third-party channel, they have not been impaired by the recent changes to the investment lending space as some other lenders, because they were not exposed to the APRA-imposed cap,” he explains.
“As a result, they’ve been able to pick up volumes in this segment of the market as they’ve been able to respond to demand without having to materially change their offering.
“With sharp pricing and often unique product offerings, such as 100 per cent offsets against fixed rate loans, mutuals are in an effective position to continue to develop, innovate and capture a greater portion of the market.”
What this year will bring
Capturing greater share in a market that has four large, respected players as well as a plethora of competitive non-major institutions will be no easy feat. However, the mutuals have gained increased momentum in 2015 and this seems unlikely to lessen in 2016.
This year will see Teachers Mutual Bank introduce NextGen.Net’s ApplyOnline service, making the application process faster and more convenient for broker partners and customers.
Mr Middleton says we can expect Teachers Mutual Bank to continue offering a personalised service, and competitive rates and product features, including a free 100 per cent offset facility available on all fixed loans.
“We are committed to keeping our standard variable rate lower than the four major banks,” he explains.
Also, following the recent merger with Western Australia’s UniCredit, Teachers Mutual Bank will look to expand its education focus into the tertiary space with the new UniBank brand throughout2016.
On the cards for Gateway Credit Union is a shakeup of legal services and settlement agents.
“We will soon be working with our new partner[s] on generating documents via email to our customers, improving turnaround times even further,” Mr Horder says.
He notes the group’s biggest challenge in 2015 was brand awareness – something Gateway is committed to combatting in 2016 by significantly increasing its media presence through Domain.com.au and Realestate.com.au, amongst other initiatives. According to Mr Horder, Gateway’s service proposition will remain competitive in 2016.
“We allow unlimited extra and bulk repayments on fixed rates, unlimited free offset accounts and up to four free splits,” he says. “We don’t credit score and all applications are assessed by a highly experienced underwriter who’ll take the time to discuss the deal in detail with the broker.”
Mr Ure says a large focus for Heritage Bank in 2016 will be around “being easy to do business with”.
“The main challenge for a smaller institution is remaining relevant in a very competitive market. We [will] achieve this through competitive rates, a great service proposition to both brokers and customers, and a diverse product range,” he adds.
Despite being a relatively new player in the third-party channel, QPCU strived to thrive in 2015 and this looks likely to continue over the next 12 months.
“Since QPCU entered the mortgage broker channel with AFG, and particularly in the last four months, we have had a record number of applications. Our own first-party volumes have also been at record levels,” Mr Slattery says.
“We believe brokers provide a genuine and unique offering to their clients and see them as critical to our proposition and future success.”
This year, subject to APRA approval, QPCU will change its trading name to include the term ‘bank’.
Mr Devine says this decision is due to the term ‘credit union’ not clearly resonating with prospective younger members.
“Our new brand will look to honour our heritage and provide us with the best chance for growth into the future as well,” he says.
For Mr Millett and Newcastle Permanent, 2016 is bound to be a strong year for the group.
“Last year we wrote approximately $1.8 billion in new home loans and that was approximately a 30 per cent increase on the prior year,” he says. “We’re at that half way point this year and we are looking very, very strong.
“It’s looking like we will be writing somewhere around $2 billion of home loans and we will get a home loan portfolio growth rate of somewhere around eight per cent.
“By our calculations, that will mean that we are growing faster than the national home loan system growth rate and we’ll be growing faster than certainly three out of the four major banks, so in effect taking market share off them.”
On top of this, Mr Millett says Newcastle Permanent will continue on expanding its business to Sydney.
“We actually have $1.3 billion of home loans in Sydney and that achievement has happened over a 10-year period,” he says.
“I know 10 years sounds like a long time, but the major banks have been around in markets like Sydney operating for 110 years, so for us to get there in 10 years we think is an indication that we’re doing some things well and we just need to stay focused.”
Mr Millett adds that in order to go up against the majors in 2016, the mutuals will need to continuously step it up.
“Even when you think you’re better than the major banks, you realise when you’re competing against [organisations that] are up to 80 times your size, you have to be a lot better than them and a lot smarter and a lot quicker on your feet,” he says. “You don’t get by on good looks, dare I say.”
Beyond Bank and Qantas Credit Union were approached for comment but were unable to meet The Adviser’s editorial deadline. ME Bank declined to comment.
MUTUALS MAKE UP ‘AT LEAST HALF OF MY BUSINESS'
An experienced broker who has worked with the mutuals for almost 12 years says they account for at least half of his business, due to their attractive rates and customer friendly proposition
Mortgage Choice broker David Hooper operates in the Hills district of Sydney’s north-west, and told The Adviser that the mutuals are stepping up to fill the void left by the major banks recently.
“The big four have stepped away from that personalised service a little and the mutuals have stepped into that gap, so I think that’s where they’ll win more business,” Mr Hooper says.
“[The majors] probably feel that they’re not getting the service that they were used to getting.”
Out of the mutuals, Mr Hooper works mostly with Newcastle Permanent and says he has no qualms about encouraging other brokers to do so as well.
“I’m probably giving at least half of my business to the mutuals, if not more,” he says.
“If I’m happy to recommend them to clients, then I’d have to be happy to recommend them to other brokers in my network.”
Looking ahead, Mr Hooper believes the mutuals are likely to capture greater market share over 2016.
“From a client’s point of view, there isn’t necessarily a big difference between a mutual and a bank anymore,” he says.
“In the old days, they were a bit scared to leave one of the big four because they felt like they were safe or more secure. But now I think that they’re treating money as another commodity and why pay more for something when you don’t have to?
“Clients are moving towards the mutuals because the rates being offered are substantially lower than what they’re able to get out of the big four.”
BROKER Q&A: ALLEN BACK
Silver Fern Financial Services director Allen Back shares how he came to work with the mutuals and why other brokers should do the same
Q. How long have you been a broker?
Q. When did you start to do business with the mutuals?
On and off for many years, but more aggressively for about 12 months.
Q. What led to this decision?
I wanted to support the smaller lending institutions who were looking to support the broker channel. I also wanted to ensure that I had a well-rounded and increased product and service offering for my client base. [Plus] a number of my clients were already with mutuals, so I looked into them more closely.
I found that some of these lenders have been around for well over 100 years, so clearly they are doing something right. So I wanted to tap into this knowledge and experience and offer it to all my clients.
Q. What are the benefits of working with a mutual?
Mutuals are member-owned and thus put back into the community. I believe the amount exceeds $1 million annually with Newcastle Permanent – I like this idea and I’m happy to support this.
I find my BDMs [with the mutuals] more responsive than most of the major lenders’ BDMs. This is important because when I wish to speak to a BDM, it is usually an urgent matter, and waiting five hours for a response is very annoying.
The back-office support staff is very efficient, experienced and supportive, and this assists the whole loan process. [Mutuals also offer] competitive pricing [and] offer the same product range and services as the majors, so there’s no disadvantage in using them.
CASE STUDY: KYLIE ACKROYD
Liberty Financial’s Kylie Ackroyd has been broking since 2010 and began doing business with the mutuals early last year. She shares a personal story about how she recently helped a client by working with mutual lender Heritage Bank
I had a client who was referred to me by an existing client of mine at the very end of November.
They had to settle on 18 December, just before Christmas, and had just received the “notice to complete” settlement on their land two months earlier than initially advised and expected.
Not only did Heritage expedite the application all the way, but they actually settled only two business days later than required by the LDA, and through what is an exceptionally busy and challenging time of the year in the finance industry.
This saved my client significant penalty costs that they may have otherwise incurred. The LDA provided written confirmation that they were going to charge penalties from the date of settlement, accruing daily, despite the fact that solicitors were going on leave until 11 January. These costs were expected to exceed $1,500.
As a broker, I very much value the relationships that I have built with the mutuals’ teams that I’m affiliated with, and appreciate that each of my applicants will be assigned their own individual underwriter who will take care of their file from receipt of submission until conclusion. This allows them the ability to become very familiar with the merit of each application.
The benefits of working with a mutual as opposed to a major bank are you get to know the team you are working with very well, and can easily access and work with the underwriter who is looking after your client. The relationship is much more efficient, and allows a quicker and smoother process.
Q&A: DAREN CRAWFORD
The Adviser speaks to Trademark Finance principal Daren Crawford about his experience dealing with the mutuals
Q. Why did you decide to work with a mutual?
I deal with QPCU and the reason for that is because of the niche of products available for different types of people in the community. You’ve got to be a government worker to deal with QPCU, so it doesn’t suit everyone, [but] working with QPCU benefits those people that work in government organisations [because] if they fit the mould, they can get some better rates and reap the rewards.
Q. Why should brokers consider working with a mutual like QPCU in 2016?
The benefits are the product line-up for the people that fit their niche and also we have the ability to be able to talk to people a little bit easier because they’re a smaller organisation. If we need to find out information, or just have a general conversation about applications and customers, we can call them up and get through a lot quicker and easier.
Q. What has been the feedback from customers you’ve placed with QPCU?
All the customers that we’ve placed with QPCU are very impressed. They like the service and they like the cheap rates. Part of their product line-up is that they don’t discriminate between investment loans or residence loans, so that’s very attractive to the clients as well.
Q. How does the process differ when dealing with a mutual as opposed to a major bank?
The process is very similar. We still use the same platform as we do with a major bank. Obviously the benefits are that if the wheels fall off, so to speak, we can generally talk to someone [at a mutual] a bit easier.
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