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How the Bank Tightening Cycle is Affecting Mortgages and Brokers

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The media’s scrutiny of the banking industry’s poor behaviour lately has prompted a knee-jerk response from them to prove they are implementing significant changes to bank lending standards and practices, motivating brokers to acclimate.

UBS Australia says that the royal commission will most likely increase the bank’s due diligence and curb customers’ borrowing latitude. In fact, they have begun a roll out for the process for calculating living expenses for loan applicants. An example of this is Westpac’s increase in the number of living expense categories from 6 to 13 as of April. They also started requesting more detailed banking data from potential borrowers to evaluate their income and expenditures.

Already, brokers are noticing the slowing of loan application response from banks as they perform exponentially detailed evaluations of applicants’ living expenses, documents, and other transactions, ensuring every piece is in place for new as well as existing loans. Australian brokers feel they are going over the top with their scrutiny of loan applications.

According to Smartline’s Sam Ghoreyshi, a recent client with an income of $700,000 per year applied for a mortgage and the bank assessor was insistent upon a $100 deduction that came off her monthly pay as a taxi credit. He said, “This is something that never would have happened in the recent past.” This isn’t the only instance of over-assessing mortgage loans.

Another over-the-top example of assessors making loans more difficult: They wanted one of Mr. Ghoreyshi’s clients who had reimbursed their mother for some groceries she had bought for them to verify this expense. The assigned assessor wanted them to verify whether this expense was an ongoing commitment.

Sam commented, “If you have your heart set on buying a property that you might not be able to afford now, it almost comes back as the broker’s fault, whereas it’s not.”

Brokers like Ghoreyshi who are diligent about keeping their clients updated regarding living expenses are adapting to ensure they can help avoid some of the scrutiny of the assessors for their clients. In other words, brokers are now having to pay close attention to the tiniest of details before they send a loan application up to the assessors.

Property valuations are also on the chopping block, possibly resulting from the royal commission, regarding top-up loans, some new purchases, and those that are coming up short on refinances.

Mr. Ghoreyshi said, “The banks are either mandating a more conservative approach to the valuers, or the valuers are obviously a lot more careful to make sure they’re not overvaluing anything right now.” He says he has seen clients’ property valuations come in short from between $20,000 ad $200,000 of their property’s estimated worth or half the price they paid for it. This has a significant impact on the LVR calculation.

This could result in the bank lending less money or pushing clients into LMI dominion, raising their costs. It has already caused challenges for customers to make their purchases as they don’t have the extra funds to come up with the difference.

While most clients understand how the lending market is changing after their brokers explain what’s happening, they aren’t all understanding with their brokers. It isn’t the broker’s fault. It’s honestly about the calculations that the banks are putting these loan applications through. The positive side of this is that the loans banks do allow will be viable and of higher quality.

It would be a good practice for brokers to reach out to their clients regarding these changes and how it might affect them. Being proactive will help your clients avoid issues with their loans. Ghoreyshi believes that these things happen in cycles and that this industry happens to be in a tightening cycle for now.

First Choice Mortgage Brokers are a Sydney Mortgage Broker operating under the Australian Credit Licence Number: 382370

Consumers aren’t Lacking Confidence in the Broker Channel

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The latest figures from the MFAA’s quarterly market survey shows that brokers are still holding onto their stronghold over the home loan market in spite of heightened scrutiny from the media, royal commission, and other queries.

The market survey reveals that brokers originated 55.3 per cent of new residential loans in the March 2018 quarter, which is the highest share reported for any March quarter. It’s also up by 1.7 per cent from the December 2017 quarter.

Even though it was still lower than the record set in the September 2018 quarter (55.7 per cent), the CEO of the MFAA, Mike Felton recognises this as a data win for the mortgage broker industry.

This is especially positive in the aftermath of the Productivity Commission report released over the last quarter on 7 February and the start of the royal commission on 13 March.

In an interview, Felton said, “The consumer does not have a confidence deficit in the broker channel. We’ve seen that in the height of this the last three months it has continued to grow.”

He stated, “If consumers only see the negative in what is occurring in a channel, that confidence can at times be questioned. We believe that this data will demonstrate to the broker and to the broker’s customers that the channel is very sound.”

All the while, complaints regarding brokers have been moving downward. In the years 2016 and 2017, brokers made up 91 per cent of CIO members and accounted for only around 6 per cent of the agency’s complaints. Mortgage broker complaints at the FOS were equally inconsequential with less than 1 per cent of complaints to this office between 2013 and 2017.

Additionally, between 2010 and 2017, the ASIC investigated 140 broker incidents, of which only 15 resulted in conviction.

Mike Felton says he understands the frustration of brokers regarding the negative reporting to the public that affects the industry’s credibility. Especially since what they do doesn’t resemble what’s being reported in the media.

Felton expressed, “Consumers are telling you of the value they see in the mortgage broker channel and the outcomes that are being produced. Why would it be growing right in the height of the storm when the industry is being portrayed at its most negative, why would it continue to grow?”

The MFAA is already sending out this data campaign to the mainstream media, regulators, and to the government authorities and will keep advocating for mortgage brokers, according to Felton.

The MFAA also plans to post their research data findings on its website so brokers can choose to distribute the information to their clients.

The MFAA CEO said, “We believe from the data we have, like every industry, there will be wrongdoing, but it’s not at the core of our industry and there’s a great deal of incentive for brokers to behave appropriately given that their business models are based on relationships and positive outcomes.”

First Choice Mortgage Brokers are a Sydney Mortgage Broker operating under the Australian Credit Licence Number: 382370

The MFAA is Challenging Negative Broker Rhetoric

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The broker industry has been wildly scrutinised over the past year regarding the lack of positive consumer outcomes. The MFAA is determined to refute this rhetoric with an abundance of proof that brokers are energising competition.

The Mortgage & Finance Association of Australia (MFAA) has garnered information from several sources that they will use to challenge the negative rhetoric about brokers.

The broker industry has come under fire from the Productivity Commission, the royal commission, a few consumer groups, and the media as they try to paint brokers in a negative light.

The Productivity Commission has been seeking potential recommendations for reform in the sector and the royal commission questions the potential of possible conflicts of interest and broker renumeration.

The association recently introduced a data package that contains evidence to rebut the negative reports and allegations to regulatory agencies and the appropriate government departments.

They also emphasised the ASIC’s review of broker renumeration that failed to include how the upfront and trail commission adversely impact consumers.

Mike Felton, MFAA CEO, explained to The Advisor, “Scrutiny of our industry is relevant and proper. We are a systematically important industry and you would expect scrutiny of such an industry. We do, however, say that the public debate and the rhetoric that you get is very different to where ASIC landed, to the data, and to the industry we know and understand.”

Mr. Felton continued by stating, “There has been criticism of the industry and we think that comes from some with entrenched interest that would have something to gain from a reationalisation of a broker channel and also from those who are misinformed.

“Brokers know and understand the industry and the outcomes that they are delivering week and week out for their customers. So, to be presented with a very different picture, that creates great concern and frustration because they don’t recognise it as their industry. That is not their brokering industry.”

“When there are two mismatching pictures being painted, it creates a lot of cognitive dissonance. You have a lot of stress as a result of this mismatch between what you know is true of the industry and what is being said about the industry elsewhere.”

“If the brokering industry were systemically broken, you would have complaints and arrears going up and you wouldn’t have consumer support of the channel, or competition Increasing. You would have a very different picture to the one that emerges. So, we would argue very strongly that poor consumer outcomes are not a core for our industry. And this data shows that.” Felton added.

Research Data Pack Findings

The MFAA put together statistics from a variety of sources, including the ASIC’s broker renumeration review, MFAA data, royal commission data, and figures from the Financial Ombudsman Service (FOS) and the Credit and Investments Ombudsman (CIO).

It contains spectrum of tables and graphs that show, amongst other discovery, that:

Over 50 per cent of residential mortgages are started with brokers.

The number of FOS and CIO complaints have dropped as the broker numbers rise.

There has been a decline of 78 per cent over the past 10 years in MFAA complaints against brokers.

Brokers are enhancing competition by bringing more loans to lenders external from the big four and away from major banks.

The aggregator information shows brokers secure a Net Promoter Score of +70.

Brokers are not persuaded by commissions, as evidenced by Smartline’s royal commission submission.

According to Mike Felton, “The Productivity Commission has asked for data and we believe this adds to the body of data. The evidence shows that: the industry has; doubled in size; satisfaction is up with phenomenal Net Promote Score of +70; despite broker number s growing strongly, and brokers making up 91 per cent of CIO members, they only made up 6 per cent of complaints.

And for the FOS, less than 1 per cent of complaints between 2013 and 2017 were about brokers That is an amazing accolade for the industry, it is phenomenal.”

Felton continued, “So, there is a great satisfaction and you have these external reviews which show there are no systemic issues and then you look at arrears and compliance and it is even more stark that there are no major problems.”

“Couple all this data with the values that brokers offer – from choice to convenience to personalised service, relationship continuity and upacking complexity – and we would certainly argue that the broker proposition is a very different proposition than a branch.”

He also added, “We can see that there is no correlation whatsoever to the picture that has been painted in the public domain. And I think this data will achieve a greater degree of awareness based on actual data and relevant facts relating to the amazing outcomes that our industry is producing.”

Mike Felton believes that the brokering industry will keep driving good consumer outcomes and stated that the Combined Industry Forum is working to continually improve the industry.

The MFFA reported that its members will soon be able to download the research data package from its website for brokers to distribute to customers if they so desire.

“We have a massive business collectivity, in the form of the mortgage brokering industry, and we need to do everything that is right to ensure that has longevity.” Said the MFAA CEO. “We will include this message in our ongoing narrative and advocacy going forward because it is very compelling message.”

As this data is analysed and reported, mortgage holders should be able to request the information from their brokers in the coming days.

First Choice Mortgage Brokers are a Sydney Mortgage Broker operating under the Australian Credit Licence Number: 382370

Who is Out There Helping Consumers if Mortgage Brokers Aren’t?

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AFG’s CEO points out that “broader consideration” is required on any type of wholesale changes to broker remuneration to protect the industry, maintain competition, and boost the longevity of this sector.

Home buyers look to mortgage brokers to help them find the best loans and solutions to fit their financial needs. According to AFG’s CEO, David Bailey, radical changes to broker remuneration would hurt all mortgage holders. This includes flat fees or fees for service models.

The CEO explained to delegates that even though the broker industry needs “additional regulatory oversight”, there is no need for massive changes to broker remuneration.

Mr. Bailey told the Adviser, “I think there should be a broader consideration of what changes to a broker remuneration model would to the broking industry, and the impact it may ultimately have on consumers should a remuneration model be introduced which makes it sub-economic for brokers to exist. The only outcome for that would be a reduction in broker numbers and ultimately the consumer would be worse off.”

He explained, “Brokers bring competition and choice to the marketplace. They also bring clarity around a very difficult market to understand. If they are not there helping the consumer, who is?” That’s true. Where would home buyers and investors turn to get the best mortgage solutions without brokers?

Boosted Bank Power Would Lead to Less Competition

Competition is one of those elements of life that makes the world go around, which is especially true in the broking industry. If the now viable broking industry were to disappear, the four big banks would have power and control once again. There would be no competition, therefore no choices for buyers, sellers, or investors.

This kind of change would turn things upside down, impacting the entire marketplace competition, which would lead to worsened outcomes for consumers and likely ridiculously high interest rates compared to current rates. That’s how the lack of competition would affect the Australian housing market. This problem would affect any housing market.

ANZ’s CEO, Shayne Elliott says that there are conflicts of interest and a lack of good incentive schemes in the broking industry that requires whole-industry reform as a resolution. Mr. Elliott says that ANZ does not have an official position regarding this topic, but that he would certainly support the idea if industry stakeholders proposed such a move.

Elliott said, “The market itself will not resolve the issues around the potential conflicts or poor incentive structures, so we need to sit down as an industry with our regulators and come to a conclusion. If that means flat fees, that’s fine. We have no particular opinion on that.”

Mr. Bailey disagrees with the idea of flat fees because of the issues that concept causes. Consequently, the Combined Industry Forum is currently reviewing the flat-fee model.

Bailey said, “ASIC has spent a significant amount of time looking at the broker remuneration model and came out and said that brokers provide consumers with good outcomes and the model is not broken., it just needs some tweaks. That is what the Combined Industry Forum is doing. It is considering those recommendations by ASIC. So, any calls of completely overhauling the broker remuneration model do a fly a little bit in the face of a significant body of work by the main regulator.”

ASIC & CIF

The AFG CEO believes that the Combined Industry Forum (CIF), which represents the whole industry, has been charged with taking the ASIC recommendation under consideration, is the appropriate forum for this issue. He feels they will be able to come up with the most viable models, taking into consideration all the options and how the recommendations impact the industry as a whole.

He said, “I think the CIF has been charged with looking at the alternatives, and AFG will engage continually with the CIF to ensure the best possible outcome, at the end of the day, for the consumer.”

“The irony of all this is banks reward customers for larger loan sizes and give discounts…I don’t think that’s been addressed yet,” he said at the Macquarie event. “Brokers wouldn’t account for 55 per cent of flow if customers weren’t getting a good outcome,” he explained.

Brokers Should Keep Doing Their Jobs as Usual

Mr. Bailey feels that for now, brokers need to continue doing what they do by serving the consumer to ensure they get the best solutions for mortgages. What is best for the consumer is the primary focus, so there is no need for brokers to back off what they are doing now to be helpful.

It is important to note that there are numerous ongoing reviews and commissions to be finalised related to broker remuneration. According to Bankwest, they are “implementing changes to its commission model for their brokers and adopting recommendations of the CIF which will be effective as of 1 July 2018.

First Choice Mortgage Brokers are a Sydney Mortgage Broker operating under the Australian Credit Licence Number: 382370

Australia’s Mortgages – More Affordable Now Compared to 30 Years Ago

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It might surprise you to learn that Australia’s mortgages are more affordable now as compared to mortgage affordability in 1990. This data comes from a current analysis by the Property Investment Professionals of Australia, or PIPA. However, there are still some who will argue that there is an absence of affordable property.

Peter Koulizos, PIPA chairman, says, “Many commentators use just two indicators to measure housing affordability – income and house prices.” While he believes these two indicators are good measures for predicting housing costs, it is imperative to include mortgage repayments when analysing mortgage affordability.

PIPA uses an analytical method that considers the average size of a home loan, the principal and interest on the payments, the standard variable rate, and the yearly average wage from 1990 to the present.

Income & Repayments

The PIPA analysis reports that in 2018, a person requires 40 per cent of the average salary to make their home loan repayments. 48 per cent of the average yearly salary was needed in 1990 to make mortgage payments.

“Home loans are as affordable now as they were in 2010 and actually more affordable than 28 years ago,” claims Koulizos. He noticed how interest rates play a primary regarding affordability along with the present low rate climate, which is keeping property prices within accessible reach for Australians.

Introductory Deposit Challenge

In 1995, home loan interest rates were at 17 per cent, the average income earner would have spent 35 per cent of their income to repay their mortgage. Mr. Koulizos associates the affordability improvement between 1990 and 1995 to the substantially lower interest rates offered in 1995. He discovered that a majority of promising first-time home buyers appear stumped by the introductory deposit.

The PIPA chairman acknowledges that saving for the initial deposit can be challenging. He is aware that most first-time buyers try unique strategies like “reinvesting and buying in more affordable locations, as well as buying with family and friends to get a foot on the real estate ladder”.

Koulizos recommends that buyers need to be sure they rely on qualified, professional property investment experts for reliable and viable advice in an effort to get the best finance options available to them. He says, “Shop around and use a reputable mortgage broker and professional property investment advisor.”

Common sense dictates that you carefully choose a mortgage professional before you buy or invest in property in Australia. It is the only way to feel confident that you are getting the most from your investment and securing your financial future.

First Choice Mortgage Brokers are a Sydney Mortgage Broker operating under the Australian Credit Licence Number: 382370

The Current Population Growth Spurs a Need for 215,000 More Homes

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The most recent Housing Industry Association (HIA) report suggests that if Australia’s population continues its current growth spurt at 1.6 per cent per year, and if household incomes remain sluggish, building an average of about 215,123 houses per year until 2050 would be required to meet the supply and demand.

In other words, if Australia’s population stays on its current population growth course, it will not be able to strike a balance between supply and demand over the next 32 years. The HIA Housing Australia’s Future 2018 report asserts that this poses a “major problem for policymakers” since the existing supply of accessible building blocks in the nation are inadequate to support this kind of growth. Inevitably, it will cause a significant rise in property costs and the cost of building new houses.

If Australia’s income growth escalates to the current 30-year average of 3.1 per cent (above the average of 0.7 per cent in the previous three years leading up to December 2017), and the population keeps growing at its current pace, the HIA estimates that building 232,489 houses would be necessary to adapt to the growth and the ageing population.

According to the HIA, the number of houses to be built increases to 249,855 when you combine the current population growth with the prospective growth rate of 5 per cent, which is just a bit lower than the 5.1 average that occurred during Australia’s biggest boom over a decade ago.

On the other hand, if wages keep floating at the current trajectory and the population growth decreases to a yearly average of 1.3 per cent, the number of houses to be built would be 167,041 until 2050. A one per cent population increase per year would require 131,371 houses per year over the same time frame of 32 years.

The HIA reports that if the income growth goes up by 3.1 per cent and the yearly population growth rate falls to 1.3 per cent, 184,407 houses would be required to meet this growth expectation up to 2050. A one per cent population growth would spur the need for 148,737 dwellings each year to balance that trajectory’s supply and demand.

High income growth of 5 per cent each year and an average population increase of 1.3 per cent would create the need for 201,773 houses each year until 2050, which decreases to 166,103 if you assume only a one per cent population boost per year.

Current Supply and Demand Ratio at Closest Balance in Over 10 Years

The HIA report says that the rapid property price increases is likely caused by the continuing supply and demand imbalance that has been going on since between 2002 and 2003, which resulted in Australia’s current housing affordability crisis.

The residential housing industry stated that 2017 and 2018 (so far) are at the closest to a supply and demand balance in about 15 years at the national level. New constructions across Australia came to more than 217,000 in 2017.

The HIA report emphasised, “We recognise that the extraordinary volume of new commencements has ensured that, for the first time since 2003, the number of dwelling commencements in Australia is effectively fulfilling the needs of Australia’s growing population.”

Consequently, this state of balance is not steady across the country, with property markets in the Northern Territory and Western Australia that experienced substantial construction reductions in recent years because of local economic issues.

An analysis of a Digital Finance Analytics (DFA) Household Survey by finder.com.au asserted that around 51,500 borrowers may be at risk of defaulting on their home loans and mortgages over the coming year. Thirty per cent of Australians are currently experiencing mortgage stress.

DFA principal, Martin North says that “at risk” borrowers were ultimately higher in mining regions across Western Australia and Queensland. That major mortgage stress could occur around the nation.

Martin North asserts, “There are more people currently at risk in Western Australia and in Queensland, which is an outfall from the mining downturn, but we’re also seeing a significant rise in severe stress in Western Sydney, on the outskirts of Melbourne and around Brisbane.”

Mr. North stated, “Defaults over the next two years are not necessarily going to be centred in the West or in Queensland, but we’re going to see some more significant risks in and around the main urban centres in Brisbane and Melbourne.”

The DFA principal attributes the higher risk of mortgage defaults to the slow wage growth, high mortgage repayment costs for those who obtained loans before the stricter loan policies were enacted, and high pressures of the cost of living.

First Choice Mortgage Brokers are a Sydney Mortgage Broker operating under the Australian Credit Licence Number: 382370

How Stricter Lending Policies Helped Reduce Australian Household Debt

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The Reserve Bank governor, Philip Lowe recently said that the stricter lending policies have helped reduce household debt at his address to the Australia-Israel Chamber of Commerce. He also stated that even with household debt continuing to climb, the tighter credit practices have helped relieve such risks.

Philip Lowe said, “A serious escalation of trade tensions would put the health of the global economy at risk and damage the Australian economy. We also have a lot riding on the Chinese authorities successfully managing the build-up of risk in their financial system. Domestically, the high level of household debt remains a source of vulnerability, although the risks in this area are no longer building, following the strengthening of lending standards.”

The RBA chief says he “does not see a strong case for a near-term adjustment to monetary policy, but that “it’s more likely that the next move in the cash rate will be up.” He did warn that an interest rate hike could shock some Australians, since the last increase occurred over seven years ago.

He believes that when interest rates are increasing, it is a sign of a strengthening economy and income growth.

Mr. Lowe concentrated on the “dispersion in house prices” happening across Australia, which was the primary focus of the address. “The picture is pretty clear: the dispersion in housing prices is currently larger than it has been in a very long time,” he said, “This mostly reflects the big run-up in housing prices in Sydney and Melbourne at a time when price growth in the rest of the country has been subdued.”

The RBA head further notes that there is an increase in inter-state migration, which has been driven by the high property prices across the eastern seaboard. “When prices increase a lot on one area, relative to another, some people relocate to where prices are lower, especially if jobs are available,” said Mr. Lowe.

It’s worth noting, as Mr. Lowe did, that inter-state migration did occur between the late 1990s and early 2000s when several people moved from New South Wales to Queensland after the substantial housing price increases across Sydney.

He advised that “It’s too early to tell whether the same type of adjustment will happen this time, but the number of people moving from New South Wales, where housing prices are highest, to Queensland (and, to a lesser extent, Victoria) has begun to pick up.”

While speaking in Perth, RBA governor Lowe mentioned the lower amounts of property investment in Western Australia. The RBA head clarified, “One area, though, that does remain weak in investment in dwellings, with the level of activity here in the west standing in contrast to the high level of dwelling investment in the eastern states.”

Realestate.com Queensland news, reports that Australians need to be aware of the inevitability of an interest rate hike after being accustomed to the historically low rates in place now, which reiterates the RBA governor’s address.

Have the stricter debt lending standards affected your household?

First Choice Mortgage Brokers are a Sydney Mortgage Broker operating under the Australian Credit Licence Number: 382370

Tips for How Brokers Can Find Opportunities in the SME Sector

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The SME is set to grow in the coming months. The March SME Growth Index shows there are extensive opportunities for brokers in this sector. Therefore, mortgage brokers who are earnestly seeking working capital alternatives can expand their offerings to this sector across Australia.

The SME Growth Index Survey Findings

  1. 90 per cent of over 1,200 SME respondents said cash flow had an overall negative impact on their revenue in 2017 even though two-thirds responded that their cash flow had improved when compared to 12 months ago.
  2. There is a continual, consistent trend that SMEs are moving away from bank lending for funding their endeavors.

24 per cent of SME owners who plan on expanding in the next 6 months say they intend to fund their growth via their primary banking institution, while 22 per cent will use other alternatives instead of banks.

SMEs Alternative Funding

The top five alternative funding choices of SME owners include:

  • 77% Debtor Finance at 77 per cent
  • 23% Merchant Cash Advances
  • 10% P2P Lending
  • 9% Crowd Funding
  • 5% Other Online Lending Options

Mortgage Brokers Can Broaden Their Offerings

These SME Growth Index survey results show the open opportunity for brokers to broaden their product range, which will expand their range of products for every client.

A good place to start with new clients is to focus on the best solution for them that don’t include conventional bank lending and options that are not connected to real estate security. Their real estate assets can be utilized through other financial products.

The good news is that because of working capital solutions like debtor and trade finance, asset finance and progress claim finance, mortgage brokers aren’t required to be a specialist to offer them. They simply need to recognise which options are suited to each client.

Identifying the Opportunities

Brokers can identify such opportunities through asking the right questions about clients’ businesses. That is the start to identifying what source of finance will match their needs.

Mortgage brokers may encounter clients who have experienced substantial growth in a short time frame, or those who have obtained several new sales and they feel overwhelmed by worry over how they will afford filling these orders.

Brokers will also find opportunities for SMEs with seasonal challenges, those seeking mergers and acquisitions or management buyouts, or those seeking to boost business succession strategies.

One question is all it takes for a mortgage broker to grab these opportunities: “Is your business growth being set back by your lack of working capital alternatives?”

Be sure to bring all their options to the table, even if your client is there only to ask about an overdraft or loan. They may not be aware of better alternatives for working capital available to them.

Finally, make sure your clients are informed about the cost of a lost opportunity. SME funding alternatives are more attractive to SME business owners once they realize the opportunity cost, the ability to grow as quickly as their business does, and the speed of being approved they offer.

Speak with various alternative lenders to get a feel for their stability in good and bad times and which ones can/will work with your clients for the best outcome. You will also learn how they see your role as a broker in the process. Determine if they consider you just a referrer or a viable partner in the process.

The time will come when your SME clients will thank you for opening their eyes to better funding options that broaden their range of working capital.

First Choice Mortgage Brokers are a Sydney Mortgage Broker operating under the Australian Credit Licence Number: 382370

A Non-Major Bank Rises Interest Rates

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According to Australian Broker News, Suncorp, a non-major bank has announced that it will hike its interest rates on all variable loans for home and small business lending as of 28 March.

With small businesses experiencing some drawbacks in revenue over the past year, how does Suncorp explain this boost in interest rates?

The Break Down of Interest Rate Hikes

  • 05% p.s. for Variable Owner Occupier Principal & Interest rates
  • 08% p.a. for Variable Investor Principal & Interest rates
  • 12% p.a. for Variable Interest Only rates
  • 15% p.a. for Variable Small Business rates
  • 25% p.a. for Access Equity (Line of Credit) rates

David Carter, Suncorp’s CEO, explained that the decision to increase interest rates was related to the rising costs of funding and the costs associated with regulatory changes. They have also factored in the outlook for US rates.

Suncorp’s CEO said in a statement, “As a result, we have seen the key base cost of funding, being the three-month Bank Bill Swap Rate (BBSW), rise approximately 0.2%. This increase results in higher interest costs to our wholesale funding as well as our retail funding portfolio, such as term deposits.

Suncorp says the “vast majority” of its account holders will keep paying rates below the headline because of the various benefits and features of the product offerings.

Carter stated, “It remains our priority to offer a range of competitive products and services to all of our customers. The higher interest costs will benefit our deposit customers, with Suncorp offering attractive rates across term deposit and at call portfolios, including our new Growth Saver product that rewards regular savers with a 2.6% bonus interest rate.”

Mortgage brokers can use this information to bring in more business for residential and commercial clients seeking refuge from bank lending. Alternative lending options are garnering more attention and have more benefits for many clients.

First Choice Mortgage Brokers are a Sydney Mortgage Broker operating under the Australian Credit Licence Number: 382370

27 Per Cent Profit Loss has Genworth Looking Offshore

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Genworth Mortgage Insurance Australia Limited, a Lenders Mortgage Insurance (LMI) provider, recently reported their 2017 financial results, which showed they experienced a loss of 26.7 per cent.

These financial results have been substantially affected in recent years by APRA’s macro-prudential actions, which have caused tighter credit and a large reduction in high-LVR mortgage originations.

Earlier last year, Genworth Mortgage Insurance Australia Limited implemented a critical strategy to redefine its core business model and position the company as a major provider of customer-centric capital and risk-management solutions.

CEO Georgette Nicholas said, “I am pleased to report that we have made significant progress in implementing initiatives pursuant to this program of work. The company’s Strategic Program of Work is designed to address evolving lender and consumer expectations (resulting from technological and regulatory change) by leveraging Genworth’s existing core competencies in managing mortgage credit default risk.”

Georgette continued, “As part of this work program, a number of initiatives have been identified that focus on improving the company’s underwriting efficiency, enhancing its product offerings and, where appropriate, leveraging its data and mortgage partnerships along the mortgage value chain.”

One of these initiatives is related to the establishment of their offshore insurance presence in Bermuda. This will allow Genworth to structure bespoke its risk-management solutions to cover LVR (low and high loan-to-value ratios).

Ms Nicholas said, “By leveraging its strong relationships in the global reinsurance market, Genworth has created a consortium and entered into an agreement with a customer to utilise the new structure to manage mortgage default risk. This bespoke solution is a complementary risk management tool to traditional LMI cover.”

During the second half of 2017, Genworth concentrated work on the creation and application of risk-management solutions for borrower-paid LMI within the under 80 per cent LVR portion on a micro market basis.

Georgette Nicholas commented, “Both these initiatives demonstrate our ability as an organisation to tailor products and solutions for customers that address their evolving capital and risk management needs in a dynamic market environment.”

She concluded, “They also demonstrate our ability to leverage our extensive local experience, global expertise and strong relationships within international risk and capital markets to offer customers a greater depth and breadth of tailored risk and capital management tools that complement our traditional LMI offering.”

First Choice Mortgage Brokers are a Sydney Mortgage Broker operating under the Australian Credit Licence Number: 382370