Proposed Changes for Mortgage Broking
The proposed changes would see you paying fee for service for our advice on debt and fulfilment of mortgages.
We certainly welcome anything that makes the banking system better, and self-interest aside, we do not see this model working for a number of reasons. It may save the lender from paying us a commission on your loan, but as an industry we currently defray so much of the work that would have to be otherwise done by the financier.
This is in our view is that a point that is not clearly understood by the market.
So even with the commission that is currently paid to us by the lender, this ultimately keeps the ultimate cost lower as the work we do would otherwise be done by the bank directly, at their expense.
60% of customers that choose a mortgage broker agree and this generates competition. We want to see this as a viable option for people moving forward, and to allow smaller banks to continue to survive in our market.
Impact of the Royal Commission and our Service to you
The changes proposed are being phased in over the coming years, so for now, our service to you does not change.
Over a period of 20 years, we have built considerable experience and have supported in excess of $2 Billion in lending for our customers.
This will continue, and we are working with the industry closely to stay abreast of how we can best support our customers in the future.
Your Voice is Valuable
The industry has been very vocal around the impact of some of the recommendations, specifically around the reduction in competition, the potential increased costs to you and the ability of businesses like ours to sustain in the long term.
Our industry and compliance governing body, the MFAA, has coordinated a campaign so the facts around the broking industry are understood.
We would be grateful for your support. If you review and click on this link and provide your details it will go to your local MP for support of the mortgage broking industry:
www.brokerbehindyou.com.au
Please contact us with any queries in the interim.
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4 February 2019
Plenty of headlines with the release of the final Royal Commission Report, and it is pleasing that this is now released.
The report provided recommendations across the broad areas of consumer lending, financial advice, insurance and Regional Australia. There has been so much media on its content so I won't summarise it all again.
The report was written in plain english, and the 76 recommendations were direct and clear to comprehend.
For people that have been impacted unfairly by the banking industry, hopefully this brings a sense of justice of sorts and many will also be entitled to some form of financial compensation which is a good thing.
In the long term it should help in changing behaviour inside organisations large and small, and this is where a direct and dispassionate approach can really cut through.
However, beyond the people that have been affected by poor financial advice, I am not convinced that when all the politcial grandstanding is done, there will be better outcomes for all people. Especially those that rely on the support and access to good intermediaries for support in making decisions.
In fact, blanket changes to rules for mortgage brokers, insurance advisers and some financial planners don't seem to have thought through what is actually is the best for people that rely on good advice.
The market certainly agrees - with all major bank shares rising today, where listed finance broking groups such as Australian Finance Group and Mortgage Choice decimated.
It is also a reminder for individuals and business to take charge of building better financial literacy. So everyone should use the Royal Commission for an audit of their own financial circumstances.
So make sure you have a plan. Even if you think your investments or superannuation are not significant, if you project any growth and future contributions out to retirement it probably will be. A plan need not be complicated, though think about it in your own terms and let someone else help you from there.
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Crunching Credit
The report also touched on a raft of banking issues including the roles of intermediaries such as MCP. Whilst respecting much of the outcomes in the report, some of the lending curbs in recent years mean that credit conditions ironically are very tight at present.
So it does remain a fine line to maintain responsible accessibility to appropriate financing. The limitations on interest only borrowing is a positive example of this, which now commands a premium in interest rate and more stringent credit assessment.
However some SME's in particular, are being driven to less optimal and expensive credit providers which has been an unintended consequence of tightening credit conditions.
One of the challenges, like investment above, is actually getting borrowers interested in some of the additional data and verification processes required. Most households for example, have no accurate measure of their living expenses which has been a focus for regulation.
This is a good thing for improving financial literacy and it is great that this is now part of the discussion with individuals and small business alike.
December 2018
After 68 hearing days, 134 witnesses and 10,000 submissions, the Royal Commission ("RC") came to a close last week. There has been a mix of focus areas, largely it centred around culture and its correlation to good and bad decision making.
The commission's objective was to look at “causes of misconduct and conduct falling below community standards and expectations by financial services entities (including culture, governance, remuneration and risk management practices)".
The responses by CBA, Westpac, ANZ, NAB, Macquarie, APRA, ASIC, AMP, Bendigo & Adelaide Bank in the final and seventh round were mixed and, accordingly to the commission, will provide some bearing into the final report.
Judging by the precision of the progress so far, we will expect that the final report to be completed right on time by 1 February 2019.
The RC recommendations and discussion points will stay at the forefront after its release, with a federal election expected in May 2019.
A likely new Federal Government may elect to expand the scope or timing of the process. Whatever the outcome it will be a delicate process to get the right balance in the financial services industry.
On that note - and please forgive any self-interest here, Momentum Intelligence are conducting a survey that gathers the experience of people accessing finance, specifically as it relates to finance brokers. The survey is anonymous and responses will only be viewed in aggregate.
https://www.research.net/r/BorrowerExperienceSurvey
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Plenty of headlines with the release of the interim Royal Commission Report.
The report summarised the public hearings across the broad areas of consumer lending, financial advice, SME lending and Regional Australia. Some of the systemic challenges and failures in financial services industry were highlighted.
There were a range of issues raised including regulation, remuneration, structure, dispute resolution and other key findings. The interim report focused on the problems, with the final report likely to deliver some recommendations for change.
One of the encouraging insights was that increasing regulation of itself was not an answer. Alternatively, better enforcement of the existing laws may represent be a better investment in the long run.
Whilst many things that lead to poor consumer outcomes need addressing, there are also some good takeaways for individuals and business that serve as good reminders for better financial literacy.
Firstly, for investments & superannuation, get interested. Too often people have little or no awareness of their existing investment strategy, and usually with no idea of how much they actually have.
Get a Plan. Even if you think your investments or superannuation are not significant, if you project any growth and future contributions out to retirement it probably will be. A plan need not be complicated, though think about it in your own terms and let someone else help you from there.
Get Advice. Find the most financially literate person you know and ask them who to talk to.
Crunching Credit
The report also touched on a raft of banking issues including the roles of intermediaries such as MCP. Whilst respecting much of the outcomes in the report, some of the lending curbs in recent years mean that credit conditions ironically are very tight at present.
So it does remain a fine line to maintain responsible accessibility to appropriate financing. The limitations on interest only borrowing is a positive example of this, which now commands a premium in interest rate and more stringent credit assessment.
However some SME's in particular, are being driven to less optimal and expensive credit providers which has been an unintended consequence of tightening credit conditions.
One of the challenges, like investment above, is actually getting borrowers interested in some of the additional data and verification processes required. Most households for example, have no accurate measure of their living expenses which has been a focus for regulation.
This is a good thing for improving financial literacy and it is great that this is now part of the discussion with individuals and small business alike.
Technology will help heighten financial awareness and visibility for borrowers, lenders and regulators alike.
Some tangible innovations include Comprehensive Credit Reporting where your credit report will now include additional credit information than previously. This includes the type and date of the credit account opened, the size of credit limits and up to 24 months of repayment history. It will potentially enable credit providers to make more informed and timely decisions about new borrowers.
Digital verification of data is another emerging credit tool. It comes in varying guises, in essence it involves accessing bank accounts and allocating receipts and payments into categories.
In the U.S. it is now a key plank in assessing loan applications, as opposed to a reliance on financial statements/tax statements. It makes sense. The cashflow inside a lot of businesses and households is generally reflective of financial behaviour, as opposed to the tax driven nature of financial reports.
The opportunity of the increasing compliance requirement is to share data back to borrowers in a way that might help people make better financial decisions. To that end, MCP is inviting people that might be interested in participating in a pilot financial analysis case study.
To register your interest - send us an email to: bankstatements@mcpgroup.com.au
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Royal Commission Update - September 2018
Trust as we know doesn't come easily.
The fallout from the Royal Commission ("RC") across the financial services industry means there is a long road to repairing confidence. To recap, the RC's draft report is due next month, with the final report expected in February 2019.
This report will highlight many of the documented wrong doings and rightly so. There are also, as we see it, a lot of potential positives that include a greater awareness of banking matters in the community as a start.
As a finance broker, trust is a key requisite of our existence and more broadly the industry too that we are part of. So, amongst some negativity in banking, we do believe that there is an industry that is strong and robust.
The Industry
The data supporting the industry is strong. A recent report by Deloitte Access Economics, "The Value of Mortgage Broking" makes some key insights:
- Over 55% of mortgages were settled using a mortgage broker.
- More than 9 out of 10 customers were satisfied with the services they received.
- The sector has contributed to a 3% fall in Net Interest Margins over 30 years.
The report states, "Brokers provide lenders with another distribution channel beyond their branch networks, broadening customer reach, increasing market footprint, diversifying credit and portfolio risk and raising market awareness."
Most significantly though, lenders use mortgage brokers because many of their customers prefer to use them.
The Commission Debate
The mortgage industry broadly has commission at the heart of remuneration. This is based on an initial percentage of the loan amount plus a recurring or "trail" commission based on the ongoing balance. (Refer to our MCP Credit Guide to read more on this).
RC's Commissioner Hayne raised a valid question in terms of "who does the broker work for?" There is no doubting that brokers are a strong form of distribution for a range of banks and lenders. It is a model that makes commercial sense, especially in the context of the customer preference as above.
For lenders with a retail presence it costs around $1.5M for a bank to open a branch. From that point there are considerable fixed costs. Even beyond this, the complexity of finance currently means it can be a challenge to access the talent and skills that consumers need to make good decisions.
We believe the model delivers more choice and options for borrowers, and in our view we work for their interests.
The State of Play
A lack of trust comes at an uncertain time for many exposed to the property market. The last 20 years have delivered growth, though as we have been reporting we have seen a levelling off in recent months.
So whilst property values have increased over this period, so to has the size of the average home loan as CoreLogic data shows below.
The new paradigm is sustained low interest rates. So whilst the average home loan is up circa 40% over 5 years, the average loan repayment has not kept pace, meaning some have borrowed more than they would have ideally intended.
So, the reality for many recent home buyers is a larger loan, and hence the heightened commentary when banks start to increase their interest rates out of cycle.
Improving Financial Literacy
The RC outcomes are also a reminder for everyone to take charge of their financial well being. MCP, in its area of influence, has an objective to help build the financial literacy of the people and customers in our business.
The Government's & ASIC's launch of the National Financial Capability Strategy is an exciting example of this objective stretching more broadly.
According to ASIC, the strategy is designed to help Australians “better control their financial lives” by improving their skills in:
- Managing money on a day to day basis.
- Make better informed decisions.
- Plan for the future.
Federal Minister Kelly O'Dwyer stated: “We want all Australians to be in control of their financial lives. The Strategy guides action across the government, business, community, education and research sectors to support enhanced financial capabilities in individuals, families and communities.”
Building financial literacy should be encouraged, and demonstrates that good things can come from adversity.