The disappearing one-trick-pony broker

The next couple of years are set to be a testing time for the mortgage broking industry, but this presents an opportunity for a new era of diversification to emerge

THERE ARE not many brokers out there now who are unaware that the direction of the property market may put a crimp on their business in the coming months. True, places like Adelaide and Perth appear resilient, while Brisbane has the 2032 Olympics preparation to support growth in Queensland. And where prices are falling, brokers are starting to see more first home buyers eyeing the prospect of an easier entry. But refinancing and the FHB market are unlikely to be able to replace the easy money of the pandemic years, and more brokers are realising that being a one-trick pony may not be the wisest strategy.

Opportunities are ripening in sectors like commercial lending as they get a boost from the lifting of pandemic restrictions. There are a range of other types of lending that brokers with a limited repertoire might also consider – from motor to SMSF, personal loans to business finance. “Opening the door to additional products like specialist lending, personal loans or commercial loans will create a business with a point of difference that can service the ever-changing needs of clients,” says Saoud. “Not only will they create clients for life, but by expanding their scope of work and cross-selling products, they will have more opportunities to engage with different types of clients.”

Those who have made the move to diversify often prove successful. “We’re seeing many brokers achieving great results when diversification is included in their overall growth strategy,” says Mohnacheff. Commercial lending and insurance are among common areas that mortgage brokers branch into. “Diversifying into different sectors or markets not only helps brokers provide their clients with a broader suite of solutions but also enables them to future-proof their businesses. It’s a way to ensure they remain sustainable and continue to grow, regardless of market forces or economic conditions.” Mohnacheff says there is demand among customers for a one-stop shop with a range of lending needs. When it comes to other types of lending, customers would much rather deal with someone they know who helped them with a residential loan – and cross-marketing takes care of itself to a certain extent.

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Non-banks want to support brokers as they gain the basic know-how to make non-residential lending a more significant income stream. “Along with having the right education and accreditation, brokers need to build their confidence when branching out into new areas,” says Mohnacheff. “One way to do this is by aligning yourself with people who have the right knowledge and experience to help you make a smooth transition.”

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Training builds confidence Many non-banks offer training and workshopping of deals to help brokers come to grips with new areas in their quest to diversify. “There are no minimum education, experience or volume requirements to take part in our hands-on training and accreditation sessions,” says Vala. “Our entire focus is to quickly equip brokers to expand their networks into areas such as commercial and SMSF lending, including how best to structure deals.” Brokers who don’t have all the answers shouldn’t try to ‘wing it’ when dealing with a client in an unfamiliar area. “SMEs typically have more sophisticated needs around products and services, ranging from transactions, lending and cash flow management to equipment purchases, insurances and superannuation, to name a few,” says Saoud. “This is not a time for brokers to be stumbling through solutions. In an environment of increasing rates and a lot of uncertainty, this is the time when brokers need to be well informed, well rounded and educated to provide clients with support, guidance and solutions.” If an unknown quantity arises in the transaction, the best thing to do is be up front and say you will follow up after getting some advice from the lender, which will often have dedicated relationship managers to assist brokers. “What’s important is to come back to the client with a considered and meaningful response,” says Vala.

As a leading Australian non-bank lender, Liberty offers innovative solutions at competitive prices to support customers with greater choice. Over the past 25 years, this free-thinking approach to loan solutions has seen more than 600,000 customers get finance across a wide range of home, car, personal and business loans, as well as SMSF lending and insurance products. Liberty remains the only non-bank lender with an investment-grade credit rating offering custom and prime solutions to help more people get finance.

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“For many borrowers, the ability to have all their lending needs met by one trusted adviser can be a powerful drawcard,” he says. “More people will be looking for a single source to meet all their finance needs, which creates an opportunity for brokers to broaden their services.” Saoud agrees. “Clever brokers as business owners know that the best returns come from repeat customers," he says. "Equally as fruitful is the opportunity to offer these customers multiple services and products through broadening your range of products and solutions.”

Since 2006, leading property lending specialist Thinktank has provided over $5bn of commercial, residential and SMSF lending solutions, which have enabled thousands of borrowers to achieve their goals of acquisition, refinance and equity release. As an independent lender, Thinktank has also established a respected track record in capital markets, having issued over $2.5bn in AAA-rated bonds to Australian and global institutional investors to date. It has also recently introduced two mortgage-secured investment fund options for Australian wholesale and sophisticated investors.

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“The more products a broker can deliver, the greater chance they will have of retaining existing clients and opening new opportunities”

Peter Vala, Thinktank

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“Brokers who have been solely focused on residential lending can be left vulnerable by changes in the market,” says Barry Saoud, general manager mortgages and commercial lending at Pepper Money. “Gone are the days when brokers were programmed to only deliver the lowest rate possible for just one asset type or mortgage,” he says. One antidote to the broadening residential funk is diversification. “If the housing market continues to cool, brokers may need other loan products to help them continue growing their business,” says Liberty group sales manager John Mohnacheff. Call it the post-pandemic pivot, or pivot redux for short.

“We’re seeing many brokers achieving great results when diversification is included in their overall growth strategy”

JOHN MOHNACHEFF, LIBERTY

Barry Saoud

Pepper Money

John Mohnacheff

Liberty

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John Mohnacheff is Liberty's ebullient and charismatic group sales manager. With over 30 years of insurance, banking and finance experience, he is committed to improving the sales habits and disciplines of the entire group sales team. Before joining Liberty, Mohnacheff held executive roles at Westpac and Bank of Melbourne. He has a Bachelor of Business and a Marketing Master’s from the University of New England, and a Postgraduate Diploma in Organisational Behaviour from the University of NSW.

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Barry Saoud joined Pepper Money in July 2021 as general manager, mortgages and commercial lending and is responsible for its strategic direction and operating performance across product, credit and settlements sales functions for Australia and New Zealand mortgages, commercial loans, personal loans and direct sales. With over two decades’ experience in financial services, Saoud has worked in numerous areas across legal, company secretary, sales and product management roles with the likes of Aussie Home Loans, GE Capital, HSBC and Norton Rose Fulbright. Saoud is a passionate leader with proven ability to grow businesses and exceed targets through innovative strategy and effective execution.

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Peter Vala has extensive experience in residential, commercial and development finance. He specialises in strategic implementation, leads the Thinktank relationship manager team, and works closely with brokers and aggregators.

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But when the roof didn’t come crashing down in 2020 thanks to oodles of ultra-low-interest central bank credit being funnelled into residential property, some of that impetus stalled. Now that the economy is cooling for real, brokers are revisiting their dreams of diversification shelved during the go-go years. “When the economy contracts, borrowers often become selective and restricted in their choices, requiring brokers to offer a wider range of offerings to retain existing clients to generate a similar number of opportunities each year and attract new business,” says Vala. Moves to diversify, either by new players or those looking to add a minor income stream, are set to accelerate in 2022.

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Source: MFAA

Apr–Sept 2017

2,932

23.5%

Year-on-year change

Number of mortgage brokers also writing commercial loans

“Gone are the days when brokers were programmed to only deliver the lowest rate possible for just one asset type or mortgage”

BARRY SAOUD, PEPPER MONEY

Construction

3,617

3,670

4,539

5,266

Apr–Sept 2018

Apr–Sept 2019

Apr–Sept 2020

Apr–Sept 2021

23.4%

1.5%

23.7%

16%

17.3%

21.2%

22.1%

27.5%

28.8%

Ongoing economic uncertainty is forcing borrowers to consider their financial position, says Peter Vala, general manager partnerships and distribution at Thinktank. “The result is likely to see many borrowers expanding their investments beyond residential property, opening new opportunities for brokers to diversify their offering and shore up their income streams,” he says. An acceleration phase ahead Diversification is not a new phenomenon, with the pandemic itself having prompted a number of brokers to think about de-risking their strategy. Historical data shows that branching out into other areas is a trend that has slowly grown over the last five years, with the proportion of mortgage brokers in Australia also writing commercial loans increasing from just over 17% in late 2017 to nearly 29% in late 2021.

Non-banks can answer any questions brokers might have and provide advice tailored to individual business goals so they can feel comfortable and confident when advising on a new product or market. “We’re here to support you navigate the process – you don’t have to go it alone,” says Mohnacheff. Brokers need to have the right mindset to take the initial steps, but the benefits can be large in terms of building a sustainable business. “Whilst diversifying may require further education for staff or changes to their existing processes, evolving their mindset and providing a flexible and holistic service comes with an enormous pay-off and opportunity to grow,” says Saoud. He calls it playing the “long game”. “Providing a holistic service to a customer is a broker’s best defence against an evolving market coupled with rising interest rates, especially in a highly competitive industry such as ours,” he says. “Products or services that enhance their own business’s service, efficiency or product range can add value to the customer experience and customer retention.” Non-banks are modifying their offerings in this area as the industry enters a testing time. Thinktank now offers commercial LVRs of up to 80% for full-doc and mid-doc loans up to $4m over 30-year terms, as well as residential and SMSF options. Vala says Thinktank is also currently considering some additional unique SMSF solutions it hopes to launch in the last quarter of 2022.

Value of new loan commitments for business finance by sector

$1.96bn

Source: ABS

5 4 3 2 1 0

$2.00bn

$1.73bn

$2.41bn

$2.14bn

$2.15bn

$2.16bn

$1.49bn

$2.32bn

$4.24bn

$1.90bn

$2.41bn

$2.21bn

Proportion of total broker population

Purchase of property

Source: ABS

$5.49bn

$4.78bn

$6.63bn

$7.98bn

$6.19bn

$6.02bn

$7.11bn

$6.75bn

$6.88bn

$7.70bn

$7.54bn

$6.36bn

$6.06bn

8 7 6 5 4 3 2 1 0

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As clients change and explore alternative ways of continuing to do business in a tougher economic environment, brokers will naturally want to follow their lead and provide the best service they can rather than see a deal walk down the road to a rival with a broader range of lending options available. “It really comes down to having the necessary flexibility to meet a client’s varying needs. The more products a broker can deliver, the greater chance they will have of retaining existing clients and opening new opportunities,” says Vala.

Pepper Money is one of Australia and New Zealand’s leading non-bank lenders. Established in 2000, Pepper Money first launched as a specialist residential home loan lender in Australia with a focus on providing innovative home loan solutions to customers who were being underserved by traditional lenders. Today, Pepper Money has a broad product offering of residential home loans, personal loans, asset finance, novated leases and commercial real estate loans across Australia and New Zealand.

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Pepper Money

Barry Saoud

Liberty

John Mohnacheff

Peter Vala

Thinktank

Peter Vala

“The more products a broker can deliver, the greater chance they will have of retaining existing clients and opening new opportunities”

Peter Vala, Thinktank

Peter Vala

Thinktank

Peter Vala

“We’re seeing many brokers achieving great results when diversification is included in their overall growth strategy”

JOHN MOHNACHEFF, LIBERTY

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