Which lenders are offering brokers and customers the service, products and support they actually need?
THE AUSTRALIAN non-bank lending sector holds an incredibly small share of the total mortgage market.
However, it remains critically important for a number of reasons.
Non- banks add competition to a home loan market heavily dominated by the big four banks. They also cover a wide range of alternative options for Australian borrowers, from non-conforming and specialist lending to short-term finance and business funding.
While the non-banks offer brokers and their clients flexible solutions, it’s a two-way street. These lenders rely heavily on brokers to source clients and write new business.
Given the diversified nature of this space – in which multiple lenders operate in a number of niche segments – for the purposes of this report, The Adviser has broken down the non-bank market into the following areas:
The Adviser’s Third-Party Lending Report – Non-Banks has ranked lenders in each category based on comprehensive feedback from almost 800 brokers across Australia. Each non-bank lender was assessed on its products, service and commission. The final ranking of each category is provided in this report.
THE NON-BANK lending sector continues to play an important role in the lending market, providing access to unique products, increasing choice and driving competition.
Non-banks have an unrivalled ability to be flexible, and create product offerings that stand out on a broker’s lender panel.
This Third-Party Lending Report affirms that non-bank lenders are performing strongly, and are committed to innovating their offering and enhancing both the broker and customer experience – providing alternatives to the majors.
A number of recent mortgage manager consolidations have been positive for growth, allowing smaller, successful companies to harness the benefits of being part of a larger group with greater scale and broader strategy. The entry of a number of building societies to the third-party sector is also creating new opportunities, broadening the range of consumer options.
As Australia’s leading wholesale funder, Advantedge supports the non-bank sector through a competitive, tailored offering as well as a proactive voice in the industry to promote the strengths of non-bank lenders. We provide a flexible funding platform to non-banks that they can refine to suit their own business strategy.
Advantedge is proud to bring you The Adviser’s Third Party Lending Report on non-bank lenders, and I hope you gain valuable insights into this dynamic sector.
General manager of distribution, Advantedge Financial Services
THE CONSOLIDATION of mortgage managers in the non-bank sector has been playing out for some time and continued in 2015.
The past 12 months have seen plenty of examples of this. In March last year, Australian First Mortgage (AFM) announced that it had been folded into Queensland-based non-bank lender National Mortgage Company (NMC) in a move that saw the new combined entity grow its loan book to more than $4 billion.
AFM managing director Tanya White says the deal will see the combined group write $1 billion per year in new business and generate annual revenue of more than $30 million.
"The merger complements both of our existing operations and will provide our brokers and their customers with higher levels of service and support,” she says.
“It will combine NMC’s backoffice capabilities with AFM’s broker distribution platform and robust branding to build scale and growth.
“In addition, coupling AFM’s national footprint and deep aggregator network with NMC’s operational infrastructure will put the merged entity amongst the largest non-bank lenders in the country, where it can access increased funding lines at very competitive pricing.”
Meanwhile, one of the most publicised acquisitions – and further evidence of a consolidating non-bank sector – was Yellow Brick Road’s purchase of Resi Mortgage Corporation for $36 million.
The deal was announced in mid- 2014 and YBR has since rebranded a number of Resi stores. YBR chairman Mark Bouris says the deal offered a “complementary business model in mortgage origination and management” and “significant opportunities for growth” of YBR products through the Resi network.
Importantly, Mr Bouris highlighted that the acquisition was another important milestone in YBR’s strategy to become “a leader in the non bank sector”.
Consolidation has also been evident in other pockets of the sector, such as the highly competitive SME lending market.
Scottish Pacific finalised its acquisition of Bibby Financial Services on 31 December 2015, with the combined business now employing almost 300 staff, handling approximately $10 billion of annual sales and providing some $700 million of funding to clients.
Scottish Pacific CEO Peter Langham says he expects the deal will enable the group to offer an even wider range of products, services and solutions to brokers’ clients.
“Scottish Pacific and Bibby have built our success on working closely with brokers and other referrers, as well as understanding and supporting their clients’ businesses,” he says.
Asked why the group decided to complete the acquisition, Mr Langham explains that Bibby has a number of business products and services that Scottish Pacific did not have expertise in, “so it complements what we’re already doing”.
“We already had a very strong offering as a working capital lender for SMEs, and now we can provide an even more comprehensive funding alternative for small businesses looking to grow, whether domestically or overseas,” he says.
“Customers have still got access to the facilities they’ve always had – we’re now just a much bigger organisation.”
Mr Langham adds that Scottish Pacific’s focus in 2016 will be on continuing to provide the products and level of service that it has historically provided, investing in business improvement ideas, and researching other ways to satisfy the demands of SME borrowers.
He also hinted that an ASX listing may be on the cards.
Two of the biggest non-bank lenders in the market, Pepper and Homeloans, have been highly active in the third-party channel over the past 12 months.
Both ASX-listed institutions achieved top rankings in this year’s report: brokers ranked Pepper as the nation’s best specialist lender, while Homeloans took the top spot in the mortgage manager category.
Pepper has set itself apart from the rest of the non-bank sector, with its IPO in July 2015 drawing attention to the group’s broader reach.
Pepper, which operates in a number of international markets outside Australia including the UK, South Korea, Spain and Hong Kong, is fast becoming an important source of funding, and is rapidly taking a greater share of broker originated home loans.
While Pepper was once considered a non-conforming lender, the group now operates in the prime space, has added a popular asset finance offering and is soon to launch a new customer facing brand, Pepper Money, which will no doubt lift its visibility among Australian borrowers.
Meanwhile, Homeloans has been busy launching a range of new innovative products, such as its near-prime Homeloans Envizion product earlier this year and its Homeloans Accelerate Red Construction product in December 2015.
The listed lender has been operating for 30 years and last year acquired Queensland-based mortgage manager Barnes Home Loans.
The acquisition saw Homeloans grow its loan book by $500 million.
The big banks and non-majors are traditionally regarded as the biggest threats to the non-banks. However, in recent months the mutuals have been gaining a decent amount of market share.
The mutual sector is not unlike the non-bank sector in that multiple lenders operate in a small segment of the mortgage market.
Australia’s building societies and credit unions are essentially self-funded and have clearly seen the upside of dialling up their use of mortgage brokers over the past 12 months.
The mutuals have been targeted in their approach, going after certain product areas such as fixed-rate mortgages.
While they pose a potential threat to the non-banks, anecdotal evidence suggests that strong service levels, greater flexibility, access to credit departments and a well-established reliance on brokers mean non-banks still have a competitive edge.
Mutual lenders may choose to ramp up their broker distribution intermittently, but the fact that most non-banks have no branch network and therefore rely exclusively on the third-party channel suggests that they have a much stronger relationship with the broker market.
APRA’s decision to slow investor lending by the ADIs has led to an increasing number of these types of loans being channelled to the non-banks.
The 10 per cent growth speed limit imposed on banks’ investor loan books – as well as higher capital requirements – has led to more rigid policies and higher rates from the banks.
The non-banks have used this to draw more attention to their flexibility and, at times, sharper pricing.
Liberty Financial has been actively pursuing the space over the past 12 months. The lender told The Adviser it is “well positioned to offer high-performance investment loan products” – both in terms of rate and flexibility of lending criteria.
“If you’ve got a client who wants to invest in property and has an existing portfolio, you’ll need to look beyond the banks, to lenders like Liberty that have a more free-thinking approach to how to treat existing investment debt,” Liberty Network Services managing director Brendan O’Donnell says.
“If every dollar counts – then it may be time to put other lenders in front of your customers.
“Knowing your options as a broker will always improve your outlook, but finding a partner that’s just as determined to embrace change and forge ahead in the industry is even more important in times like these.”
Smartmove co-founder and director Simon Orbell says his Sydney brokerage is already starting to use specialist lenders for investor loans.
Mr Orbell says the smaller players are able to take a unique and more nimble approach to serviceability and credit policies, enabling them to better create and target niche markets.
“We think that will only continue as lenders realign themselves and find out where those new niches fit,” he says.
With the third-party channel adapting to pricing and policy changes, Mr Orbell says specialist lending is something that most businesses should be looking at a little more closely.
“Not necessarily for the non-conforming deals but more the specialist piece for investors,” he says.
An overwhelming number of brokers commented on the lack of consumer awareness of the non-bank sector – which can obviously create some headaches and challenges.
One broker commented that “education of the general populace” about the non-bank offering was a priority.
“Most individuals are not aware of how many other lenders are out there and the fact that the non-banks look more at the individual than the big four,” they said.
“Their level of service and commitment to helping not only the brokers but the clients is fantastic. They are much more open and aware of the changing parameters of the economic arena and people’s needs within it.”
Another broker commented that non-bank lenders “have good products” but could improve in areas such as marketing to “help the general public understand who non-bank lenders are and how they can benefit customers”.
One broker suggested that the non-banks should “provide a professional quality brochure relating to their industry accolades and detailing the key points of difference of a non-bank, to boost credibility”.
These sentiments were echoed by another broker, who said the non-banks need to “advertise or educate clients of their true potential and strength in the industry”.
However, according to Finance Made Easy director and Elite Business Writer Tony Bice, such sentiments are nothing new.
“I have heard these comments many times over many years,” Mr Bice says.
“It is the broker’s responsibility to educate their clients about the options available to them, and that includes the non-banks.”
Mr Bice, who was surveyed for the report, says approximately half of his home loan deals are written with non-bank lenders.
“I can’t remember the last time I wrote a vanilla deal where the client had their deposit, everything was squeaky clean and you could slot it into the CBA or Westpac,” he says.
“Those days are gone. Every deal you get these days is challenging, so the more non-bank offerings you have, the easier it’s going to be to get the right policy for your client.”
Many of the brokers surveyed for the report applauded the non- bank lenders for their personal service and fast turnaround times, something Mr Bice says is critically important.
“It is paramount to your business,” he says. “The client doesn’t see the lender as the one holding things up, they only see the broker.
“If I’m writing an application and I know I have non-bank lenders with turnaround times of two or three days, and I can have direct access to their credit teams, then I’m going to give them the loan every day of the week.”
Smartmove broker James Lutze was one of the 800 brokers surveyed for this year’s Third-Party Lending Report – Non-Banks. Here he shares his views on why an increasing number of his deals are going to the non-banks
How long have you been a mortgage broker?
I have been a mortgage adviser for two years and eight months, although I’ve been in the industry for four years.
What proportion of your deals would go to the non-banks?
Approximately five to 10 per cent, although this number is growing.
How have the non-banks been performing over the past 12 months in term of service, products, and support?
I think the non-bank sector has created more appeal for mortgage brokers to consider writing loans with them since the regulatory changes, which were mainly directed towards the investment lending space.
I’m sure a lot of the non-bank lenders would have seen an influx of business over the past 12 months as brokers look for alternative lenders to create solutions for their clients.
Their service proposition has come a long way and the products they offer are very competitive with the majors. Most non-bank lenders are now offering a wide product range with a suite of offset accounts, multiple loan splits, credit cards and ATM access. I think they will only get better as their volumes increase and they put systems in place to deal with the increased volume of applications.
Has the increased complexity in mortgage lending due to pricing and policy changes made any impact on your use of non-banks?
I have found that there is a real alternative with non-bank lenders in providing solutions with respect to their policy niches, serviceability requirements and aggressive pricing, especially in the fixed-rate space.
The spread is getting tighter each day from traditional banks as non-bank lenders adapt to the regulatory changes.
We have seen more aggressive pricing concessions across the board compared to six months ago as lenders look to get more market share.
Some lenders were not pricing investment loans although now most of the first- and second-tier lenders are offering very competitive concessions and their service proposition has become more attractive.
Do you think customers need to be more aware of alternative lending solutions from non-bank lenders?
Yes. It is our obligation as mortgage advisers to educate our clients about the changes in the lending space and make them feel confident and comfortable to trust the non-bank lenders.
Many brokers who responded to the survey said brand awareness was important to their customers when it came to going with a particular lender. Would you agree?
Absolutely. I think it comes down to educating the clients and building the relationship and trust so our clients are confident of our recommendation. The biggest risk for the mortgage broker is that the client has a bad experience with a particular lender. As long as the service proposition is there for the client and I am confident the lender will deliver a first-rate experience, I will happily throw their hat into the ring as an alternative lending solution.
What are the main benefits of using non-bank lenders?
For starters, sharing the love and keeping the big banks honest and competitive so as to not create an oligopoly. They provide an alternative lending solution where it may have otherwise been impossible. They usually have more competitive interest rates to compete with the bigger lenders, and they often provide a more boutique and personal level of service.
Pepper is a global company, with offices not only in Australia but also in parts of Asia and Europe. Brokers may be surprised to learn that the group has a global staff headcount of more than 1,400.
Pepper listed on the Australian Securities Exchange in July 2015 and launched the first ever direct-to-consumer advertising campaign in May 2015.
Also, Pepper teamed up with the St Kilda Football Club as its principal partner for the next three years and renewed its sponsorship of the Western Sydney Wanderers for a further three years.
“The aim of all of these initiatives is to boost our brand awareness and support our primary finance partners when introducing Pepper to their clients,” Pepper’s director of sales and distribution, Mario Rehayem, says.
“After all, over 90 per cent of Pepper loans are written by mortgage brokers,” he says. “Pepper is focused on providing brokers with the most innovative products, competitive rates and market-leading turnaround times. In addition, Pepper provides a range of tools to its broker network to help them explain how a specialist loan can help their client achieve their financial goals and find alternate paths to home ownership.”
As a leading non-bank lender, Pepper provides home loans that cater for credit impairment, debt consolidation, payout of ATO debts and the self-employed. The group also provides car loans and equipment finance.
AFM has been one of the leading mortgage managers in the Australian market for many years. Last year, AFM merged with NMC.
The group says its commercial offering has been simplified, making the lending process simpler and smoother for AFM’s broker partners.
“While we have not promoted our commercial program extensively over the past 12 months, we have pushed our offering through our business managers in all states,” AFM managing director Tanya White says.
“We have also streamlined the process for our brokers on all commercial enquiries so they need only complete our commercial loan enquiry form, which is a one-page summary of the deal and doesn’t require any customer signatures.
“This process allows us to quote for the loan via our extensive commercial lending program. With the expert guidance of our commercial manager, Noel Brown, we are making it very easy for the broker, from enquiry to settlement,” Ms White says.
“The NLG Leasing team were completely thrilled to win the best equipment, leasing and business finance category in the recent awards,” says Frank Crombie, director of aggregation services at NLG Leasing.
“This coincides with the company’s expansion, increase in product portfolio and focus on being the leading provider of asset and equipment finance in Australia,” he says.
NLG Leasing’s asset and equipment finance model has been designed directly to meet broker’s needs and requirements.
“This has included investing in a customised online platform, offering a complete back-end support system to streamline the loan process and aggressively extending our lender panel to ensure we retain a highly competitive product and service offering,” Mr Crombie says.
“Brokers are also increasingly recognising that asset finance is an easy transition and represents a ‘low-hanging’ alternate revenue stream,” he says.
“It ring-fences clients by creating deeper and ‘stickier’ relationships and provides a competitive advantage in a highly aggressive market.”
Asset and equipment finance continues to be a growth sector.
Scottish Pacific CEO Peter Langham says the team is “absolutely delighted” to be recognised by the broking community.
“Brokers are key introducers for us,” Mr Langham says. “Brokers and Scottish Pacific both service the SME market, a market which values personal and flexible services. Scottish Pacific strives to build close working relationships with introducers and to find increasing ways to assist their clients.
“So it’s pleasing to have this official endorsement by brokers voting us Best Cash Flow Lender for the third straight year.”
Mr Langham says the lender’s acquisition of Bibby’s Australian and New Zealand business consolidates Scottish Pacific’s position as the largest non-bank working capital provider to Australian and New Zealand SMEs, making it a serious alternative to the banks.
“Brokers are our key introducers and in terms of this relationship it will be business as usual,” he says.
“With our larger scale, and the integration of Bibby’s business lines into Scottish Pacific, we’ll be able to offer an even wider range of products, services and solutions.”
Homeloans celebrated its 30th anniversary last year and the ASX-listed lender has, in recent months, been expanding its BDM team and launching a number of innovative products.
Ray Hair, Homeloans’ general manager of national sales, says Homeloans is extremely pleased to receive this recognition from brokers and The Adviser.
“It is positive feedback – that our focus on the basics is working, and this won’t change,” Mr Hair says.
“Homeloans has focused on the overall experience for brokers and their customers,” he says. “Our experienced BDMs, local credit teams and committed customer service team have worked together closely to ensure our broker partners receive end-to-end service that promotes them in the eyes of their customers.”
Mr Hair points out that the group’s comprehensive prime, low-doc and specialty range of loans – which meet borrower needs with competitively priced products in a challenging market – is also an important component of its overall value proposition.
“Our significant growth in 2015 is founded on open and engaged relationships with brokers who have sought to diversify where they place business,” he says.
Assetline is a relatively new business, having operated in the Australian short-term lending space for less than five years.
Nick Raphaely, co-founder of Assetline, says one thing the non-bank lender worked hard at in 2015 was meeting a lot of brokers.
“We attended the MFAA conference for the first time,” Mr Raphaely says. “We saw the likes of Pepper and Bluestone but we didn’t see any other short-term lenders there.
“We also go to the FBAA conference. I suppose we have just made it our business to go out and meet as many brokers as we possibly could.”
Brokers are effectively where Assetline sources its deals, Mr Raphaely says, “so the more people who know who we are and what we do, the better chance we have of getting the deals”.
The group has also been ramping up its electronic marketing to brokers, he adds.
“We send out weekly or bi-weekly EDMs to our network,” he says. “These include case scenarios of how we have helped clients. So we have really been trying to educate our network, which has made a big impact.
“The most important thing for us is that brokers know to think of us when a short-term deal comes across their desk.”
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