Regulation has played a significant role in the evolution of Australian mortgage broking. The Adviser reflects on the introduction of NCCP and the industry’s journey towards professionalism.
There are important similarities to observe between the current mood around the ASIC and Sedgwick reviews and what was being felt by the industry as it prepared for the National Consumer Credit Protection Act (NCCP) in 2009.
Smartline’s Joe Sirianni was president of the MFAA during that period and remembers it vividly.
“The controversy about the changeover was extraordinary. I kept saying that regulation and licensing is a positive thing for our industry. As it turned out — and it’s important to reflect on this — it has been a good story for us,” Mr Sirianni says.
“When the NCCP was coming through we had the same level of hysteria, if not worse, than we have now with the remuneration reviews. But the bottom line is the industry has continued to grow off the back of some good calls made back then,” he says.
Industry veteran Kym Dalton believes the introduction of the NCCP, as well as the ongoing regulatory scrutiny of the channel, are the most significant factors in the continuing evolution of the broker market over the last 10 years.
“While initially viewed with some trepidation by brokers, the NCCP, in my opinion, has been a major step forward in the path toward maturity of the broker channel,” Mr Dalton says.
Licencing requirements effectively weeded out the dodgy operators and helped mortgage broking grow into the profession that it is today. The value of this cannot be underestimated; it helped lay the foundation for the 53 per cent market share we have today. Regulation ultimately delivered the confidence of lenders and, critically, consumers.
Increased confidence was also enhanced by the framework of ‘Responsible Lending Conduct’ requirements included in the NCCP, together with consumers’ access to External Dispute Resolution providers.
“The fact that broker market share has increased to greater than 50 per cent and that the major banks continue to support the channel is further indicative of the value brokers provide,” Mr Dalton says.
“Far from being order takers, brokers now deliver a service that provides genuine credit advice to consumers, ensuring that they receive loans that suit their needs and objective, as required by law.
“Despite increased regulatory scrutiny and such things as the Sedgwick review, so long as brokers continue provide benefits to consumers, through professional, lawful and ethical conduct, the portents for the broker channel remain bright.”
APRA a blessing for brokers
APRA’s macroprudential measures have crystallised the value brokers provide to consumers. The mortgage market has changed significantly since 2014 when the banking regulator announced measures to curb investor lending. Complexity has played into the hands of brokers, who were in the perfect position to guide customers through two-tiered pricing, LVR changes, out-of-cycle rate hikes and, more recently, changes around interest-only lending.
If the NCCP helped turn broking into a profession, then APRA’s actions gave brokers the chance to really show their skills. It’s no coincidence that broker market share has surged since 2014.
“So much is changing,” 1st Street Home Loans founder and director Jeremy Fisher says. “There are deadlines, there are dates… it's a new world and continually evolving.
“We're going to see lenders pull back from time to time. But as long as we don't see it happen across the board in one hit in one given month, there's always going to be opportunity.”
Mr Fisher started his broking career in 2002 and today is one of Australia’s most successful mortgage professionals. He says the third-party offering is far stronger than it was five or 10 years ago.
“Gone are the days of a client walking in and saying, ‘What's the best rate?’ Now you have to ask them, ‘Is it owner-occupier or investment? Is it P&I or interest-only? What's the LVR?’”
Mr Fisher explained that there are many more factors to be considered than there have been previously, which is making brokers’ offering increasingly valuable to consumers.
“I won't be surprised if the broker market continues to grow because of that fact.”
He’s not alone. Finsure boss John Kolenda says the regulatory focus on investor and interest-only lending is another chance for brokers to show their expertise and boost their ever-increasing share of the home finance market.
“Given the huge amount of volatility around out-of-cycle interest rates by banks and a multitude of changes to lender policies for investor loans, investors are turning to brokers,” Mr Kolenda says.
“In most cases, it is to find a more competitive interest rate and in some instances simply to find a lender who has a home loan solution for investors having difficulty meeting the lending criteria. Many of these customers have never used a broker before and a large proportion were loyal to their existing lender,” he says.
“The lending landscape has become a minefield in particular for investors and it’s playing into the hands of brokers to help them navigate through all the challenges.”
Good customer outcomes
We are now entering the next phase of broking’s evolution. Prompted by the ASIC and Sedgwick reviews, brokers are likely to be under greater scrutiny to ensure they are doing the right thing by their customers. Luckily, they’ve had a decade of training.
Setting aside any potential changes to commissions, the ASIC and Sedgwick reviews have looked to identify whether or not mortgage brokers provide good customer outcomes.
“That will be really interesting, because in some ways it is more problematic than commissions,” says Steve Weston, who was chief executive of mortgages and Barclays in the UK before returning to Australia in 2016.
“Everybody has focused on the commissions. But if you look at ASIC’s final recommendation, it talks about aggregators playing a different role to ensure good customer outcomes,” he says.
What this will likely mean, says Mr Weston, is aggregators and lenders paying closer attention to what brokers are providing to their customers – now and into the future.
“This sounds like more work, and it is, but it will be one of the ways we get from 53 per cent market share to a number that starts with a six and hopefully a seven.”
James Mitchell has over eight years’ experience as a financial reporter and is the editor of Wealth and Wellness at Momentum Media.
He has a sound pedigree to cover the business of mortgages and the converging financial services sector having reported for leading finance titles InvestorDaily, InvestorWeekly, Accountants Daily, ifa, Mortgage Business, Residential Property Manager, Real Estate Business, SMSF Adviser, Smart Property Investment, and The Adviser.
He has also been published in The Daily Telegraph and contributed online to FST Media and Mergermarket, part of the Financial Times Group.
James holds a BA (Hons) in English Literature and an MA in Journalism.
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