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Peter and Diane Maghazey – Earlwood NSW

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Dear Sharon

We have always wanted to express our gratitude for your time and assistance in helping us to obtain the loan for our next investment property.

It was a very trying time for all of us and although the stress was a little overwhelming at times, your professionalism and perseverance on our behalf was very much appreciated.

Many thanks and all the best for Christmas and the New Year.

Peter and Diane Maghazey
Earlwood NSW


Dear Anna

Although a little late, we would like to thank you for your help in assisting us with our new investment property.

We appreciate it was a trying time for all, but as always, we very much appreciate your professionalism and personal touch.

We wish you and the Team continued success.

Best Regards
Peter and Diane Maghazey
Earlwood NSW

Jeni Bitsanis – Hillside Vic

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To the team at First Choice Mortgage Brokers, thank you for the efficient settlement of the refinancing of my property.

Everyone that I dealt with was a pleasure, customer service, attention to detail and backup was second to none.

I really appreciate everyone ‘s efforts

Thank you

Jeni Bitsanis

Hillside Vic

Quality Service and Value Continues to Prompt Robust Growth in Broker Market Share

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According to the quarterly data reported on market share, consumers are choosing to go to mortgage brokers in record numbers, which shows they have confidence and a special trust in the broker sector.

Comparator, a CoreLogic business, released new data regarding a consistently solid growth in market share. Mortgage brokers settled 53.9 per cent of all new residential mortgage loans within the June 2018 quarter, in comparison to the 51.5 per cent during the June 2017 quarter.

The 2018 quarter for June was likewise the most robust June quarter ever documented, in what is usually a seasonally lower quarter for the mortgage broker market share.

Mike Felton, Mortgage & Finance Association of Australia (MFAA) CEO declared that this data was additional proof of the positive effect in service and value that mortgage brokers bring to their customers.

Mr Felton said, “This result is a triumph for our members, whose exemplary work for their customers has risen above the current scrutiny and media attention. Mortgage brokers settled $495 million in residential home loans in the quarter, which is the largest dollar value recorded for the broker channel for the seasonally-low June quarter since data collection commenced in 2012.”

He added, “The 2.4 percentage point increase on the same quarter in 2017 is also the biggest increase between like quarters since December 2014 and is made even more significant by the fact that the quarter coincided with the Royal Commission hearings.”

“This result is a testament to the remarkable work of brokers and their commitment to quality service. According to a recent report by DAE (Deloitte Access Economics), mortgage brokers on average have 13.8 years’ industry experience. This expertise underpins the trust and confidence that consumers have in their broker, and the value that expertise is delivering,” stated the MFAA CEO.

Comparator is responsible for compiling the quarterly broker statistics for the Mortgage & Finance Association of Australia. They do so by calculating the value of loans settled by 18 of the chief aggregators and mortgage brokers as a percentage of ABS Housing Finance Commitments. The MFAA then publishes these stats every quarter.

Borrower Fixed Rate Demand Increased by 6% in September

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Current internal data from Mortgage Choice shows that the borrower demand for fixed rates rose in September, accompanying the out-of-cycle interest rate hikes from conventional banks.

The data show an increase of 6 per cent, from 18 to 24 per cent in the month of September. That is the highest it has been since December of 2017.

This research discovered that according to a state-by-state basis, home loan borrowers in Queensland preferred a fixed rate mortgage of 26.4 per cent over other options. That is a bit higher than borrowers from NSW at 26.2 per cent, South Australia at 23.8 per cent, Western Australia at 19.3 per cent, and Victoria at 16.6 per cent.

Susan Mitchell, CEO of Mortgage Choice, said that this shift in the borrower demand for fixed rates is induced from the current out-of-cycle interest rate changes. She said, “September’s data is unsurprising when you consider the recent rate hikes to variable rate home loan products announced by three of the big four major banks. This would no doubt be encouraging more borrowers to fix”.

Ms Mitchel continued, “History has shown that when the majors lift their rates, smaller lenders are quick to offer competitive pricing on their own products in order to attract borrowers in search of a better deal. However, we have seen limited market movement due to a combination of factors such as the regulatory environment and increasing wholesale funding costs, which would no doubt be affecting smaller lenders. Institutions across the country have become more selective about the customers they lend to, vying for borrowers in a healthy financial position. Indeed, lenders are seeking high-quality borrowers who present low risk.”

She motivated borrowers to evaluate their current home loans due to the mortgage market’s recent changes. “This highlights the need for borrowers to review their current home loan and financial situation with the help of a qualified mortgage professional and financial advisor to ensure they are best placed to secure a competitive deal when they choose to switch to loan providers,” declared the CEO.

When was the last time you reviewed your home loan? This may be a good time to consider Ms Mitchell’s advice.

The Big Four Stand to Profit from Trail Commission Removal

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Ending the trail commission payments to brokers would boost the profits for the big four banks by 1.8 per cent, according to the Roadmap to Branchtopia report by Morgan Stanley Research.

This data was established via an analysis of information that was garnered from the major banks’ FY17 (full-year 2017) financials and from Mortgage Choice. The data stated that on average, 18 basis points are paid to mortgage brokers by the trail commission.

Westpac would benefit the most, if trail is removed at 2.2 per cent, closely followed by ANZ and Commonwealth Bank at 1.9 per cent, and finally, NAB at 1.3 per cent.

Branch Costs Vs Commission Costs

Another discovery of this research pointed out the impact that the trail commission payments and upfront basis points (on average 66 basis points) have on the total costs acquired by the four major banks.

The Morgan Stanley report shows that the broker commission payments include around 4.6 per cent of Commonwealth Bank’s overall costs. Westpac’s make up about 4 per cent, ANZ’s 3.1 per cent, and NAB’s at 2.5 per cent.

On the other hand, this research unveiled that the costs accumulated from mortgage broker commission payments are less than one-third of the costs related to operating branch networks.

Only about 12.5 per cent of the acquired cost by the big four banks is related to their operating branches across Australia.

The report notated that $1.36 billion (15 per cent) of Westpac’s total costs is related to their branch operations. CBA follows closely behind at $1.43 billion (14 per cent), NAB is at $868 million (11 per cent), and finally ANZ at $855 million (11 per cent).

The report follows calls from the PC (Productivity Commission) for proof about comparable costs of doling out home loans via the broker channel against the costs acquired via the propriety channel.

The Productivity Commission’s draft report noted that is wasn’t able to garner enough proof from lenders and third-party channels while researching and preparing the report.

Nonetheless, Peter White, the executive director of the FBAA (Finance Brokers Association of Australia), has suggested that the expense of using brokers was about half the expense of using the propriety channel.

During one of the FBAA’s public hearings, Mr. White said, “The use of brokers evolved from a clear recognition that the value proposition of using a broker was more attractive than branches and staff.”

He continued, “The proliferation of brokers has occurred because of the benefit derived by product issuers from an expanding broker network, and, implicitly, product issuers know that a broker distribution model is cheaper and, more effective than staff and branches, which is why it continues to thrive.”

Additionally, July’s report by Deloitte Access Economics (DAE), The Value of Mortgage Broking, it was notated that although “transaction costs are higher in the broker channel due to commission payments”, and “processing costs are similar for both brokering and banks’ direct channels”, lenders can offer “significant savings” through third-party channels.

This same report declared that the allocation of mortgages via branch networks produces higher base and overhead costs, which it asserted make up 40 to 60 per cent of these lenders’ operating costs.

According to DAE, third-party sectors consume a substantial financial burden related to compliance costs, which features information provided by Connective, the mortgage aggregator.

The report read, “The costs associated with staff compliance and training costs can be significant on a per-loan basis. Aggregators train and mentor their mortgage brokers and enforce compliance”.

For instance, Connective spent nearly $3 million on educational affairs for mortgage brokers in 2017. That is above their business structuring planning and mentoring services.

Broker Share of Major Bank Flows Rising

It’s also worth noting that Morgan Stanley’s research uncovered that the share of broker-centric home loans processed by the big four banks has increased, currently exhibiting 47 per cent of the home loan flows.

The rise is attributed to growing complications within the mortgage market, according to the research from the AFG (Australian Finance Group).

As the report published, “We think this growth has been in response to rising mortgage product complexity and consumer preferences. For example, AFG reported that the number of its mortgage products rose (by approximately) 135 per cent from 1,450 in 2015 to over 3,400 in 2017” Differentiating pricing and tighter lending standards are additional drivers.”

Based on its analysis, Morgan Stanley reported that ANZ turned out to be the most dependent upon the broker channel, since 51 per cent of its figures started by brokers in 2H17, and CBA followed with 46 per cent, Westpac 43 per cent, and NAB 34 per cent.

Morgan Stanley stated that the CBA is the only one of the four major banks that has reduced its broker flows, adding that broker-initiated home loans fell from 45 per cent in FY17 to 40 per cent in FY18.

Experts Predict Further Housing Downturn Due to Home Loan Rate Hikes

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According to CoreLogic’ analyst Cameron Kusher, the latest rash of out-of-cycle interest rate hikes being imposed on owner-occupier homes loans could further reduce the demand for property and bring down the value of property prices.

His comments came after interest rate hikes on owner-occupier home loans by 15-16 basis points were announced by Commonwealth Bank CBA and ANZ. Mr. Kusher says it will not only affect residential owners, but also investors. Additionally, these issues are apt to drive large-scale regulations and tougher credit restrictions.

Westpac also increased their rates by 14 basis points due to what they call a “sustained rise in wholesale funding costs.”

It seems these major banks gave in to funding pressures after several months of altered pricing from smaller lenders, with NAB the only one of the big four banks to forgo the same rate hikes.

Mr. Kusher commented, “From a housing market perspective, the timing of the announcement of higher interest rates is an interesting one.  After many years of strong value growth, Sydney and Melbourne housing is now well embedded in a downturn.”

He continued, “Tighter credit conditions, higher mortgage rates for investors and interest-only borrowers and reduced affordability have already led to the falls of 5.6 per cent from the peak in Sydney and 3.5 per cent from their peak Melbourne. This has occurred so far without higher interest rates or owner-occupiers paying off principal and interest; however, that is about to change.”

The timing seems to be interesting, according to Cameron, since it comes at the same time of the “spring selling season”. Usually lenders reduce their rates in the spring to boost borrower interest, but the rise in expenses have left them no other choice but to increase their interest rates as well.

The higher mortgage rates have been slowly driving away investors over the past year. Though the significant mortgage rate interest increases that have been announced are relatively small, the likelihood that higher mortgage rates will affect the housing market sentiment.

The decline of the housing markets of Melbourne, Sydney, Perth, and Darwin may be amplified.

“Overall this move seems likely to lead to a continuation of the currently weak housing market conditions over the coming months and may weaken the market further,” said Cameron Kusher.

Lenders are doing what they can to maintain profitability in the face of the lower mortgage volumes.

Are Major Banks Creating an Anti-Competitive Behavior Environment?

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The mortgage lending industry is being challenged by the majors in various ways. They started by making accusations against mortgage brokers, changing the rules, and now by creating an environment of anti-competitive behavior.

The mortgage industry has responded with their own comments and accusations toward the majors regarding the recent interest rate hikes that are out of cycle. They have even accused one major bank of bait-and-switch tactics.

Westpac, Commonwealth Bank CBA and ANZ lifted their variable owner-occupier loan rates by 14, 15, and 16 points, which resulted in being critiqued for that change.

The ANZ was accused of bait-and-switch tactics by HashChing COO Siobhan Hayden after they increased their rates only five weeks after claiming they would be making reductions in home loan rates. She said she is “surprised” at this action due to the current culture of “scrutiny from the Royal Commission into Misconduct in the Banking Superannuation and Financial Services Industry,” according to The Adviser.

Ms. Hayden commented, “It’s surprising that three of the major banks have increased interest rates in unison, despite being hauled over the coals in the recent banking royal commission. ANZ’s rate increase is particularly shocking, given it only just announced a rate reduction five weeks ago.”

She continued with, “During a period of clear upward pressure on wholesale funding costs, ANZ announced a 34-basis point reduction in owner-occupied lending for new customers only. Now, just over a month later, it has announced a 16-basis point increase to both residential and investor lending from 27 September. This seems like a classic bait-and-switch. Customer encouraged by ANZ’s rate reduction announcement on the 1st of August would rightfully now feel betrayed and manipulated by a ‘honeymoon rate’ seduction.”

The ANZ answered the accusation by saying they were only offering that rate reduction to new home loan customers and those discounted rates are still in place for eligible borrowers.

Ms. Hayden further accused that ANZ and other major banks of promoting “anti-competitive behavior” with such increases on borrowers.

COO added that the Commonwealth Bank reported an annual profit of $9.38 billion while “Australians are at risk of losing their homes” to higher repayment. These are the same people who cannot get bank approved for refinancing their home loans. “It’s an absolute shambles, and someone needs to take responsibility, “claimed Ms. Hayden.

She finished off by saying, “With NAB likely to follow suit, and smaller lenders such as Suncorp and Adelaide Bank already hiking up rates, too, there’s real concern that Westpac’s increase has trigged a landslide across the whole market. The anti-competitive behaviour of the big four is certainly something Scott Morrison should look into. It’s un-Australian.”

Sally Tindall chimed in with, “What this rate hike means is that the vast majority of variable rate home owners will now be shelling out more on their mortgage each month.” It’s not as if those payments aren’t already high enough.

Ms. Tindal also said, “NAB would do well to break free of tradition and find a different way to wear the additional expense.”

According to analyst Cameron Kusher from CoreLogic, these “out-of-cycle rate increases on owner-occupier mortgages” might put more pressure on the housing market, creating a decline in demand from property investors prompted by a large-scale closefisted regulation and stricter credit conditions.

Kusher said, “From a housing market perspective, the timing of the announcement of higher interest rates is an interesting one. After many years of strong value growth, Sydney and Melbourne housing is now well embedded in a downturn.”

Cameron commented, “Tighter credit conditions, higher mortgage rates for investors and interest-only borrowers and reduced affordability have already led to the falls of 5.6 per cent from the peak in Sydney and 3.5 per cent from their peak in Melbourne. This has occurred so far without higher interest rates for owner-occupiers paying off principal and interest; however, that is about the change.”

He also said the timing of these rate increases happened to be during the beginning of the “spring selling season”. Typically, lenders reduce their rates in the spring to encourage borrowers, but the rise in expenses leaves them no other option but to increase their rates.

The CoreLogic analyst claimed, “Higher mortgage rates have already driven a slowing of demand for investors over the past year. Although the magnitude of the mortgage rate increases announced is fairly small, it is likely that the higher mortgage rates will impact on housing market sentiment. It may end up further exacerbating the declines which are already occurring in Sydney, Melbourne, Perth, and Darwin and the slowing of value growth being experienced elsewhere.”

In conclusion, Mr. Kusher said that “Overall, this move seems likely to lead to a continuation of the currently weak housing market conditions over the coming months and may weaken the market further. From the lenders’ perspective, clearly they realise that the housing downturn is becoming entrenched and they are doing what they can to maintain profitability in the face of lower mortgage volumes.”

Mr. L Davison – Nowra NSW

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Hi Tony

I just wanted to thank you for all your help with my refinance.
If ever asked by anyone I will recommend you and your team in a ‘heartbeat’.
The ladies that assisted me throughout the process were amazing and could not find high enough praise for the highly professional support and reassurance they gave me, even when being slightly difficult, they remained supportive and available.
Thank you Tony and I look forward to conducting business with you and your amazing team again at some time in the future.
Take care, kind regards

Mr. L Davison.
Nowra NSW