If there was one word to describe the year that was 2016, perhaps the most apt would be: tumultuous. From debate over the need and demand for tracker rate mortgages, to speculation of how low the cash rate really could go, and the role of broker associations, the year has been anything but quiet.
But, more than a year on from APRA’s investor lending crackdown, the broker market is as strong as ever – with more than 53 per cent of home loans now being written through the third-party channel.
According to Mortgage Choice’s Robert Trewin, the “upheaval” generated by APRA’s lending changes have resulted in “a lot of education” not only for his clients, but also within the business.
“The uncertainty in my opinion has bolstered my business,” Mr Trewin says, adding, “In fact, we have had 60 per cent growth over the past 12 months, and [are] spending a lot more time with our clients discussing their monthly living costs and documenting this”.
The market has been a changeable one over the past 12 months. Advantedge’s general manager, Brett Halliwell, outlines that the wholesale funding that banks see from the capital markets “has been somewhat more volatile than usual and particularly [at] the short end of the curve, so the bank bill swap rate, up for about three months, swapped around in value a bit”.
He adds that “equally important” has been the equity side of the balance sheet, with regulators being more focused on how much capital the banks have to put aside against all of their different assets, including mortgages.
“We're seeing lower risk rates, therefore the higher capital requirements for mortgages and that had a flow-on effect on lowering the return on equity that banks earned on mortgages,” he explains.
“So, put all of that together and there's been a level of higher funding costs with lower return on equity.”
On top of all this, the year was peppered with talks of an apartment oversupply (in some cities) and the potential bursting of the ‘housing bubble’, while the schism in the national property market widened – with house prices in Sydney and Melbourne reaching record highs, while mining states, such as Western Australia and Queensland saw lending volumes and house prices fall.
But, for most in the industry, the real highlight of 2016 was ASIC’s review into broker remuneration [the findings of which had not yet been revealed at time of writing].
According to Stephen Moore, CEO of Choice Aggregation Services, the ASIC review was inevitable, as “with the growth that we're seeing in the industry, it does come with increased oversight”.
However, despite some concerns that the review could recommend the end of trail commissions in favour of a fee for service, Mr Moore says that he believes the review will “likely end in a positive”.
He says: “If it all goes to plan, we believe that it would just reinforce what a fantastic role that brokers play on behalf of the customers, and it will reinforce what a hardcore industry the broker industry is.”
Others in the NAB group agree, with Steve Kane, general manager for broker at NAB, adding: “Understanding and working with regulatory change will only help to enhance the position of the broker.”
PLAN Australia CEO Anja Pannek suggests that the regulatory changes, growing lender restrictions and “industry complexities” in 2016 have ensured that “brokers continue to play an important role in the marketplace”, adding that she expects this trend to continue next year.
But for Advantedge’s Mr Halliwell, one of the most interesting aspects of the many reviews undertaken during 2016 was the level of crossover that seemed to happen (for example, both ASIC and ABA reviewing broker remuneration). He explains: “We had APRA very active, which is very appropriate in their role of protecting the stability of the banking system, but we also saw an increased presence from ASIC and their remit is effectively about protecting consumer interests and making sure the consumers are protected.
“I guess the interesting thing for me was seeing APRA doing its thing for banking stability and ASIC doing similar things. I think the convergence of what APRA, the RBA and ASIC are doing is probably not coincidental. I think they're working relatively closely together, which in some ways is probably positive for the industry.”
It seems that, despite the increased oversight, the scrutiny of the third-party channel in 2016 has been a blessing in disguise, as it provides brokers, mortgage companies and industry associations an opportunity to engage with the regulators and educate them further on the value proposition of the broking industry. Both the MFAA and FBAA met with members of government last year over the broker remuneration reviews, with each stating that they drove home the benefits of the mortgage broking industry.
The way they approached the topic was one of the other hot topics of 2016, with some brokers lamenting the lack of communication and detail from the MFAA, while others questioned whether the performance of the industry associations was up to scratch (see p. 30 for more).
Fintech is the future
Although the two industry associations seem at loggerheads with each other in most cases (for example, whether a merged CIO and FOS would be a good or bad thing for brokers), the one area they do agree is on the value of fintech.
At a fintech meetup in Sydney last year, the FBAA’s Peter White said that, “for the home loan market — the tech space is our future and that’s where it will head”, while the MFAA’s former interim CEO Chris McRostie said that “brokers still do need to adapt and integrate better the various evolving digital technologies to continue to provide a personal service in a digital world”.
Stephen Moore agrees that the rise of new lenders, including “fintechs looking to explore opportunities in the broker market” is a “great endorsement of the industry”.
He says: “It’s a good reminder for us that we should always look to improve, to take our business to the next level, to embrace technology in our business. If you don't there's always a risk that you get left behind. It's a good reminder for all of us to continue to push the boundaries on improving quality to customers.
“As the spotlight in the industry continues, so does our focus on providing not only high-quality businesses, but most importantly, high-quality customer experiences. We're, all of us, having to continue to lift the bar in that space. That includes better use of technology. That includes embracing digital and social media as part of business.”
He concludes: “The industry's still certainly undergoing pretty significant change. What that means for brokers is the need to ensure that we do stay resilient to the change that's happening around us.”
However, despite the rise of technology, the need for face-to-face interaction is still king.
NAB’s Mr Kane states: “While customers are continuing to use digital channels as an information source, face-to-face interaction was still the most important factor for customers in finding the right mortgage [in 2016].
“I have no doubt that the broker channel is the growth path of the future.”
Ms Pannek agrees, adding: “Despite the rise of technology, personal customer relationships remain at the heart of the broker proposition. Brokers who can successfully leverage technology to support these relationships and the development of their client base are excelling…
“We believe the broker proposition will continue to be an important one, with brokers supporting home buyers and investors to navigate the complex marketplace.”