In August, The Adviser sat down with Loan Reducer founder and executive director Mark Ashenden, who explained the concept of the revolutionary new product that essentially provides borrowers with a lower home loan rate. The product has since hit the ground running and is already being used by Australian home owners. In this exclusive update, The Adviser reveals Mr Ashenden’s plans for the development of his innovation and how it could drive convergence between intermediaries.
Loan Reducer had only just come to market when we caught up with you a few months back. How have things progressed since then?
We have executed four licences and there are already three products that are in the market under our licence. We just recently added the fourth company. So we now have distribution partnerships with CSC Home Loans, Iden Group and Dream Street Home Loans and a South Australian non-bank lender. We are also in negotiations with half a dozen more. The reaction has been nothing short of sensational. We are trying to make sure we can control it as best we can.
What feedback have you received so far?
Our partners tell us that the beauty of the system is its simplicity. But it is the sum of all of our parts that has made it that simple.
Have you seen any interest from the major banks?
Some interest; [but] the bigger the company, the longer it takes to get through their processes.
How successful has Loan Reducer been with your existing partners?
The proof is in the pudding, as they say, and I am pleased to say that loans are now being written and loans are being settled. The volumes are in the tens of millions at this stage. We have proven the concept in the market – the method and the systems. With loans being settled, we have proven the process as well. However, there are still challenges.
What would you say is the biggest challenge you’re currently up against?
Copycats are by far our biggest risk. Other providers are offering imitations, but we trust the ATO ruling in particular along with patents and confidentiality agreements executed will provide suitable protection for both the end consumer and Loan Reducer. We are the only company who have that ATO product ruling, and consumer protection is only possible with products under license from Loan Reducer through accredited brokers. The product ruling was a sizable exercise, and the terms and conditions demand strict adherence and we continue to devote considerable energy to this demand. We are here to stay. We have a growing list of partners who are seeing the value of this product for their clients.
Loan Reducer works by providing a lower home loan rate by leveraging the investment interest rate against the lender’s desired total return on funds. How have recent pricing and policy changes to investment loans affected the success of Loan Reducer?
The changes have probably made the innovation more recognisable by drawing attention to the need to update “the plan” and reconsider the options. It certainly hasn’t done us any harm. If the regulatory bodies are compelling lenders to increase rates, why not use that to your advantage and get an even better rate on your owner-occupied loan?
If your clients have an investment loan, why wouldn’t they use the advantages that are possible with this product and get a discount on their home loan down closer to 2.5 per cent? In addition, if we remember that the purpose of Loan Reducer is to assist the borrower obtain home ownership sooner and grow net worth by increasing the equity in their home, our outcomes appear congruent with the recent changes.
Are you looking to bring this product to other intermediaries?
The accounting and financial planning sectors are slowly getting on board with it. They are starting to see that the product ruling is there, that we take the training and education seriously, we take the licensing seriously and now they are starting to jump on board.
A lot of accountants and planners have positively harangued me on the phone wanting to know about the development of this product and its journey. They want to know how we anticipated that the price of investment loans would go up, and why the product has a floor and a ceiling, and really how the idea was conceived. These are experienced professionals who have been in the market for years and are surprised that such a
simple innovation adds so much value. I think that is the beauty of the story.
Part of our presentation to the ATO was highlighting that this product is not for everybody – it’s not for every customer, it’s not for every lender and it’s not for every loan writer. I am told the accreditation process probably takes it closer to an advised product than not, but to make it right, we must do it right.
We have discussed this product at length with groups of accountants and groups of financial planners, and so have our licensed partners. They are sceptical at first, but they all come around when they realise the value this product adds to those mortgage holders with a broader investment strategy.
We have explored and dealt with every question so far, and there has been a lot. Accountants and planners are now seriously considering how they can use this product to provide advice to their clients.
Brokers, planners and accountants often work side by side and build referral partnerships to help grow each other’s businesses. Could Loan Reducer help facilitate that?
This innovation has the potential to drive convergence between accountants, planners and brokers because they all have a role to play. Any time an investment property is being discussed with a client, all three intermediaries have a role to play in that conversation.
It is potentially the glue to pull all those industries together. This product will help brokers, planners and accountants work together, which in turn helps build collaboration between all three.
Could Loan Reducer offer solutions beyond residential mortgages?
The answer is yes, and I’m glad you asked. When we put in our application for the product ruling, we recognised along with the ATO that other assets that are driving an assessable income could be used under this system. This is included in the ruling (ATO PR 2015-2) for those interested in a read.
The next wave of asset opportunity is probably in commercial. The groundwork is being done, the precedent is set with residential and we now just have to find capable and willing lender partners to extend it beyond residential.
Investment residential property is only a small part of the market. But Loan Reducer is an enabler across other asset classes such as industrial property, commercial property and share portfolios – any income-producing asset other than business-use assets. I expect that in the new year, that is the path we’ll be going down with our licensed partners.
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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