Back in the nineties, Mortgage Ezy founder Peter James was running a successful financial planning business across the east coast of Australia. They had recently introduced mortgage products, but customer dissatisfaction with what was on offer led him to an idea – and a new non-bank lender was born
Many non-banks exited the market during the GFC. How did the financial crisis impact Mortgage Ezy?
We never left the market. In fact, we are the only company that I can think of that didn’t retrench one single staff member during the GFC. Right throughout the financial crisis we were open for business and while we felt it very turbulent and difficult at times, we traded all the way through it. What we have done is take advantage of a changing landscape to get a foothold in the market.
How has the landscape changed?
The landscape is completely different to what it was before the financial crisis in the sense that, clearly, not only have the big four banks swallowed up their immediate banking competitors, but through various government initiatives – whether unintentional or not – banks have given free kick after free kick. It means the majors are really back to the position they were in 20 years ago: absolutely dominating the home loan market.
Has competition been stifled?
Competition has become vertically integrated as government initiatives and general market forces have meant a shift from meaningful competition with medium-sized banks and non-banks to really the big four dominating.
What place do non-banks have in the market now?
I think it is back to the future in a sense. Where we are is really back to where it all began. Twenty-five years ago there weren’t any competitors to the big four.
Then the likes of Aussie Home Loans and some of the others got involved and really put some curry to the banks. If you look at where margins were during that period compared to where they are now, we would be doing loans at 9 or 10 per cent again if those margins were maintained.
I believe that clearly is the strategy for the big four. They can hold their breath for a very long time and that initiative alone has wiped out a lot of competitors.
There have been aggregators that have herded up brokers and enticed them into certain banks, which has a huge effect on the broker market. There have been government initiatives and clearly a change of sentiment since the financial crisis. All of these things have meant that the banks have been delivered a position that they had 25 years ago.
However, back then it didn’t take very much because you have still got – and I think even more so now – that borrower discontent and that broker angst about putting all of their eggs in one basket and about dealing with the banks. I think they just need to be given an excuse not to.
So the non-banks today are in a crucial position. They have experience on their side – we know where the weakness in the banks’ offering is, we are closer to our customers, we are closer to our brokers, and we are extremely innovative and flexible as a sector.
Because of those factors, we are starting to win back meaningful market share again.
Starting as a planner and moving into mortgages, I suppose the convergence story is old news to you?
It is old news in the sense that I’ve done it in reverse, but in some ways that experience did me well for what is happening at the moment. I have seen a lot of people in the mortgage industry feeling that they have to be all things to all people. They have jumped on board with financial planning and they’ve jumped on board with commercial lending or leasing.
Unless you are passionate about what you are doing and have the resources to do it well, you may find that what actually happens is you are diluting your offering to such an extent that your core business suffers. What Mortgage Ezy has actively resisted is being all things to all people. We do mortgages – that’s all we do.
Non-banks have been known to champion the broker channel. Do you agree?
I disagree – the landscape has changed. What we have found now is a sense of desperation creep into the non-bank sector. When you’ve had massive decreases in market share, many of these longstanding non-bank lenders and mortgage managers have found their viability marginal to say the least.
You are seeing very large companies entering into the retail space. The cost to brokers is enormous. The cost to funders by actively competing with their brokers head-to-head means they will cannibalise their existing business. If ever they want to go back to brokers that may be very difficult in the future.
Are you talking about non-banks moving into online channels?
Are they creating a conflict?
It’s more than a conflict. It’s an absolute slap in the face for the brokers that they intend to still deal with.
This has been the problem all along with the banks – how do they manage channel conflict? But when you have non-banks in the market actively undercutting the brokers, then clearly the broker disenchantment that arises from that is logical.
We are finding non-banks entering into financial planning, we are finding they are competing actively in the retail space and we are finding they are trying to be all things to all people. My issue with that is: if I am involved in financial planning, what if my broker is? What if an aggregator offers financial planning? Doesn’t that mean I am now a competitor of my client? This is why we have resisted it.
We want to do mortgages well.
We feel it is a big challenge to do it really well and to come up with different ideas and do it differently. It is a big challenge in challenging times to compete with the might of the banks.
If we were involving ourselves in financial planning, or a retail offering, or selling property – all of which are being canvassed by brokers and non-banks alike – then we would be spreading our scarce resources into a myriad of different propositions and our core business would suffer.
What can we expect from Mortgage Ezy in 2015?
A back to basics offer; the three Rs:
Rates: while brokers are looking for an excuse to deal with Mortgage Ezy, unless we have market-leading rates, they are not going to be offering the best product for their client and that is paramount. So we have to be in the market with the cutting-edge on rates.
Remuneration: for brokers, this is integral for their survival let alone growth. Mortgage Ezy has always set the pace when it comes to rewarding brokers. We pay the very best commissions across the board and always have.
Responsiveness: when we use the word responsiveness it encompasses our entire service proposition, but the most important part of service is around speed of service, it’s around accuracy of service and it is about contact and communication. We have invested heavily over the past five to six years rewriting our IT platform. Unlike anyone else in the mortgage management space, ours is actually a home-grown system.
But nothing beats old-fashioned service. Our brokers can pick up the phone, send through a fax if they are not IT-savvy and expect the same level of service that they are used to from Mortgage Ezy.
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