2011 saw plenty of change in the lending industry: new NCCP regulations; the majors battling it out on price; and the RBA’s cutting the cash rate by 50 basis points. In this Viewpoint, The Adviser asks some key industry stakeholders for their predictions for 2012
Meet the panel:
cheif executive office
general manager, mortgage broker distribution
general manager, distribution
general manager, sales and operations
chief executive officer
chief operating officer
DO YOU THINK THE PRICE WAR BETWEEN THE MAJORS WILL CONTINUE TO RAGE, OR CAN WE EXPECT OTHER LENDERS TO MAKE THEIR PRESENCE FELT?
Choice is already seeing non-major lenders making their presence consistently felt, with over 30 per cent contributing to settlement volumes. While I expect price competition to remain, the new battle for broker business will surround service. Assuming products are competitive, lenders who provide great service and sensible credit decisions will win broker support.
While the major banks have focused on price to attract new borrowers, other lenders, particularly non-bank lenders, have been able to make inroads by continuing to offer rates that are very competitive, which they also complement with good service. RESIMAC will continue to manufacture and supply home loans to its various distribution channels at competitive interest rates in order to provide Australian borrowers with financing solutions that meets their needs.
I think we can expect the non-majors to continue to challenge for market share but I would be surprised if the price war continues at its current rate. There is no doubt that the cost of funding has increased so it is likely that there will be an adjustment in product pricing accordingly. Competition will therefore most likely revert back to service, product niches and broker remuneration.
With the general consensus being that system growth will be around four to five per cent, which is about a third of what it has been historically, you are not getting a market that is running ahead at a huge rate. What this means is that all of the lenders will look to take a bigger share of a pie that is not growing that significantly, effectively breeding a very competitive environment. I don’t think that it is going to be an environment where you will see a lot of new entrants come in.
A MAJORITY OF BROKERS BELIEVE THE NCCP HAS HAD A NEGATIVE IMPACT ON THEIR BUSINESS. HOW DO YOU THINK THE INDUSTRY HAS ADAPTED TO THE NEW REGULATIONS?
I think some brokers, especially those who aren’t attached to a larger organisation taking the burden away, are feeling the administrative pressure of having to tick all the boxes that the introduction of NCCP has enforced. At Resi we are continually prompting and supporting our network through our risk compliance department and online training.
In Choice’s recent member survey, 81 per cent of members believe that licensing will improve professionalism in the industry and 90 per cent of members have a good understanding of licensing. There remain mixed views on the impact NCCP may have on their business, with 66 per cent of members believing it will enhance the value of their business, while 59 per cent agree it would help them deliver a better client experience. While regulations are here to stay, there is significant opportunity to streamline processes, in particular client NCCP documentation.
The industry is still currently adapting to its NCCP obligations and the policy changes after their initial implementation. This has meant brokers have had to change and adapt accordingly. Those who embrace NCCP as part of its service offering and work within the guidelines with their lender partners will create greater opportunities to provide more positive experiences to their clients and help lift the overall professionalism of our industry.
NCCP RESULTED IN INDUSTRY-WIDE CONSOLIDATION. CAN WE EXPECT TO SEE GREATER CONSOLIDATION OVER THE COMING YEAR? IF SO, WHY?
In regards to the increased administration with NCCP, I think we are going to see a lot of the independents join larger groups for support and some leave the business altogether. I think that if brokers are feeling that pressure administratively they need to look at joining a national group or organisation that will provide them with that support.
Brokers will face increased costs initially as they transition to become fully compliant with their NCCP obligations. As a result, this could see many ‘part-time’ brokers exiting the mortgage industry. The highly competitive mortgage market we currently face will continue to drive ongoing consolidation, and in conjunction with tough lending conditions, those professional brokers with the strongest lender partnerships and relationships will be able to capitalise on key opportunities to grow their business.
I think consolidation will continue this year. The cost of doing business continues to increase and brokers are looking for more from their aggregator to help them adapt to the changing market and consumer behaviour. It follows that those with the ability to invest in these areas will grow, and those that can’t will look to join forces with those that can.
THE RBA CUT THE CASH RATE TWICE LAST YEAR. WHAT IMPACT WILL FURTHER RATE CHANGES HAVE ON THE PROPERTY MARKET?
The issue is really one of consumer confidence, uncertainty in international markets, and the current low level of confidence in the federal government also continues to be a negative influence. The lack of positive messages has done little to improve consumers’ expectations for the future and has therefore suppressed spending, including [on] property. It is difficult to see a significant improvement in consumer sentiment without further rate cuts.
Further reductions to interest rates are likely to have a positive impact on the property market as consumers benefit from lower loan repayments, which would be great for lenders and mortgage brokers. However, the high savings rate in Australia shows that consumers are still cautious about spending and taking on new debt. This can be attributed to additional factors, such as employment outlook, share market performance and European financial instability.
With residential rates in capital cities at about two per cent, yields in those areas going up and the number of new housing starts at historic lows, these three fundamentals point to a market that is going to heat up. Put a reduction in rates on top of that and you would certainly expect that this would create stimulus over a period of time. While the domestic drivers are strong and are pointing towards a healthy property market and growth, the issues playing out on a macro-global level are causing concerns and are what will present challenges.
WHERE DO THE GREATEST BUSINESS OPPORTUNITIES FOR BROKERS LIE IN THE MONTHS AHEAD, AND WHICH MARKET SEGMENTS ARE LIKELY TO BE MOST ACTIVE?
With expectations of further rates cuts, refinancing will continue to provide opportunities. I am hopeful that further cuts may also start to stimulate the first homebuyer segments. The investor segment should open up opportunities in some markets, due to a combination of solid yields and continuing uncertainty in share markets. However, this will require sentiment to improve.
Two key opportunities, driven by a buoyant rental market with lower house prices, and heightened consumer interest in self-managed super fund home loans for investment purposes, may see a big return of property investors to the market. First home buyers looking at entering this market will also see this as a key opportunity – with the proviso that substantial savings for a deposit have been made over the past year.
I think that we can expect modest system growth, but which segments of the market will outperform will be dependent on what is happening at a legislative and state-by-state level regarding government grants and stamp duty exemptions. Brokers, in particular, represent around 40 per cent of all new mortgage lending so the biggest opportunity for the broker market is the 60 per cent of residential mortgage lending that is being arranged directly with lenders. I think that brokers who can offer well-considered guidance and advice to their customers in an environment with so much uncertainty are well positioned to take some of that 60 per cent.
Refinancing will still be strong this year given there has been so much emphasis at the moment placed on price when it comes to mortgage products. I think this will change though; while right now there is a focus on rates, I think over time this will shift more towards how professional lenders can actually help people reach goals. People are not going to be making any money on their superannuation or in the share market anytime soon, and will instead look at making it on the property market. In order to do so they will want the right advice to do that. To take advantage of this it is important for individual brokers, broker groups and lending professionals to continue to market themselves and look for new opportunities to do so, whether it be through online, via social media or traditional marketing. There are also opportunities for brokers to diversify and create some stable relationships with other organisations that can provide other services to their borrowers, such as property accounting or financial planning services.
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