Thriving under pressure

Mortgage brokers have gone from strength to strength in 2022 – doom-mongers’ shrill warnings of impending disaster have been put to bed for the year, but what lies ahead?

IT'S BEEN A YEAR of transition for financial institutions and the brokers who work with them. As 2022 draws to a close, the rear-view mirror reveals a few more potholes than many had anticipated, but the million-dollar question is what lies ahead? The consensus among a range of financial institutions is that the Australian economy is resilient and 2023 will most likely see a soft landing for the economy. “While borrowers will need to adapt their repayments in the short term, many have a positive medium-term outlook and are still putting plans in place to reach their goals,” says John Mohnacheff, group sales manager at non-bank Liberty.

Institutions expect an increasing amount of refinancing work for brokers, but if rates get too high, then problems may arise.

One change over the last year that dovetails with a less certain outlook for the residential market is brokers’ diversification into alternative revenue streams. “The typical finance broking business is evolving from being a largely monoline operation – where brokers focus solely on residential mortgages or commercial mortgages or asset finance – to offering a more diversified, holistic suite of financial products and services for their clients,” says Bannister. MFAA data shows the value of commercial loans settled by mortgage brokers also reached a new high of $16.0bn for the six-month period to March 2022, up a massive 55.6% year-on-year. A record number of brokers are now engaging in commercial lending, in addition to at least one other line. This is a shift that is still in process, and non-banks in particular are on a drive to support brokers looking to branch out. “The time is ripe for brokers to upskill, diversify and propel their businesses forward to help new clients,” says Mohnacheff. “We’re seeing many brokers achieving great results when diversification is part of their overall growth strategy, and we expect this to continue in 2023.”

Any increase in financial strain on borrowers, or need for more funding options, will only make brokers’ jobs more important. “With successive interest rate rises, brokers are playing a critical role with customers, helping them navigate what their options are, if that comes to purchasing a home, upgrading or refinancing,” says MFAA CEO Anja Pannek. MFAA statistics clearly show an increasing reliance on mortgage broker advice as the stakes rise. According to the 14th edition of the association's Industry Intelligence Service report, mortgage brokers’ share of the market was a record 69.5% of all residential home loans facilitated in the March 2022 quarter, underscoring the diminishing role of direct dealings with banks in the loan process.

This sentiment is broadly felt across all parts of the lending industry, among non-banks and banks alike. “Customer engagement is absolutely key – ensuring you are talking to your customers about their options, especially those who will seek out your guidance as they transition from fixed to variable rates,” says NAB’s Waugh. “Just 12 months ago, 40% of NAB home lending came to us from brokers. That has now jumped to 44.2%.” The commitment to help brokers expand their businesses is clear. “We’ve made significant investments in the end-to-end lending process, and we’re making great progress, but we know we can do better. We’re aiming for broker-originated applications to receive unconditional approval within the hour,” says Waugh.

OnDeck Australia is a leading online lender that focuses on Australia’s small business community. As OnDeck only provides small business loans, it is an expert in an area that has been underserved by the banking sector for too long. Importantly, OnDeck offers a skilled and experienced team, each of whom have been hand-selected for their understanding of the needs of small enterprises.

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OnDeck also hopes the diversification trend will continue. “There is no doubt brokers have enjoyed a great year in 2022, but this shouldn’t undermine the value of diversifying into other revenue opportunities, especially as the residential property market cools,” says Poolman. “The key thing is for brokers to realise the breadth of opportunity that small business lending offers.”

Established in 1980, the MFAA represents over 14,000 members and contributes to a healthy, competitive mortgage and finance industry through advocacy, education and business-building support. Our finance brokers operate within a professional Code of Practice that supports the alignment of the retail mortgage market with investor and consumer trust and confidence. Together with its members, the MFAA works with the industry, regulators and government to help its members match consumers with mortgage or financing outcomes that meet their individual financial objectives.

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“[DTI] ratios will remain in the spotlight, and all lenders will need to balance competitive offers with business sustainability”

Phil Waugh, NAB

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And yet there are certain segments of the market that need to pay close attention to the economic headwinds. Refinancing loans will become a major trend in 2023 as borrowers come off fixed rates. A record number of borrowers locked in fixed rates when they were at lower levels. Government data shows demand for fixed rate loans peaked in July 2021 at 46%, compared with pre-pandemic levels of 20–30%. Analysis shows that the bulk of these loans will remain fixed until mid to late 2023.

“We anticipate steady demand for refinancing activity to enable the consolidation of debts”

Cory Bannister, La Trobe Financial

John Mohnacheff

Liberty

Phil Waugh

National Australia Bank

Industry Experts

Phil Waugh was appointed executive for broker distribution in June 2021. Prior to joining NAB, he was head of private wealth north at Westpac, where he managed a 200-strong team as well as the bank’s COVID-19 response for business customers. He also led St. George Bank’s Auto Finance Division and was previously head of asset finance at Commonwealth Bank, when he worked across corporate financial services and small and medium enterprises within CommBank’s Business Bank and Regional & Agribusiness businesses. Waugh also played for the NSW Waratahs and the Australian Wallabies.

National Australia Bank

Phil Waugh

John Mohnacheff is Liberty’s knowledgeable 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 degree, a Master's in Marketing from the University of New England, and a Postgraduate Diploma in Organisational Behaviour from the University of NSW.

Liberty

John Mohnacheff

Phil Waugh

National Australia Bank

John Mohnacheff

Liberty

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Due to the rising cost of living and affordability challenges, debt-to-income ratios remain a focal point for banks. “[DTI] ratios will remain in the spotlight, and all lenders will need to balance competitive offers with business sustainability,” says Waugh. NAB will be prioritising DTI ratios that are less than six times income. For business customers, the playbook is more nuanced. “As OnDeck’s interest rates are bespoke to each small business customer, there is no single standard rate that captures the impact of RBA rate hikes,” says Poolman.

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Liberty

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National Australia Bank

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Anja Pannek

MFAA

Anja Pannek is CEO of the Mortgage & Finance Association of Australia. An experienced leader in financial services with over 20 years’ experience in the sector, Pannek has a proven track record of leading successful businesses within the third party channel, including aggregator businesses and mortgage distribution for major financial services firms. She was previously CEO of PLAN Australia, as well as CFO of NAB’s Personal Banking division for several years, and has also held leadership roles at Loan Market Group, Advantedge Financial Services and Challenger Limited.

MFAA

Anja Pannek

Source: ABS

2-year trend in external refinancing

“Rates will not rise forever, and in the meantime the lending market is in good shape to meet the needs of borrowers looking for alternative solutions”

John Mohnacheff, Liberty

“We anticipate steady demand for refinancing activity to enable the consolidation of debts,” says Cory Bannister, chief lending officer at La Trobe Financial. “With interest rates likely to increase further, however, there's an increased risk that some borrowers may not be able to refinance as serviceability hurdles continue to increase.”

“The challenges in recent times have highlighted the value brokers bring to consumers,” says Pannek. But keeping abreast of a quickly changing market is key to continued success. “Customers will need relationships with trusted experts to help them navigate their options in the new year and beyond,” says Mohnacheff. “By regularly communicating with existing clients to check in and prompt them to get in touch if their financial situation changes, brokers can position themselves front of mind for lending needs and support.”

Market share of new residential home loans settled by brokers

Source: MFAA Industry Intelligence Service 14th Edition report

55.8

54.9

55.3

52.1

57.0

60.1

59.4

57.5

59.0

66.9

66.5

69.5

Research by OnDeck found that 60% of small businesses surveyed would consider using a broker for their future financing needs, and 86% would return to their broker for support with organising finance in the future. “[These] findings are a big pat on the back for Australia’s brokers, who are obviously delivering real value to the nation’s small businesses,” says Poolman.

As one of Australia’s leading credit asset managers specialising in asset management and credit, La Trobe Financial is committed to making a positive impact on its community. With seven decades of proven credit management behind it, La Trobe Financial has funded over $36bn of investment for more than 229,000 customers. Its investors include large global institutions, Australia’s major banks, family offices, fund managers and 55,000 everyday investors in its award-winning credit fund. La Trobe Financial is driven by one cause – to place “others before self” and make a positive impact by helping people create wealth with specialist and investment solutions.

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Liberty

John Mohnacheff

National Australia Bank

Phil Waugh

Anja Pannek

MFAA

Anja Pannek

MFAA

Anja Pannek

Apr- Jun 19

Cameron Poolman

OnDeck

Cory Bannister

La Trobe Financial

Cameron Poolman has served as OnDeck Australia's CEO since the company's launch to the Australian market in November 2015. Prior to joining OnDeck, he was founder and CEO of GraysOnline, one of Australia's largest e-commerce groups focused on small businesses, from 2000 to 2014. He holds a Bachelor of Engineering (Mechanical) degree from the University of Sydney and a Master of Business (Marketing) from the University of Technology, Sydney.

OnDeck

Cameron Poolman

Cory Bannister is senior vice president and chief lending officer at La Trobe Financial. He has a rich understanding of both the loan origination process via the third party channel, as well as the approval and settlement of institutional and retail loans. Bannister’s portfolio management experience extends to the selection and allocation of assets for multiple wholesale mortgage portfolios in excess of $1bn. He has been responsible for the management, review, risk profiling and audit of wholesale asset pools, and has had conduct of the relationships with substantial wholesale and retail investors, with responsibility for overseeing related reporting.

La Trobe Financial

Cory Bannister

Sep-Dec 20

Jan-Apr 21

May-Aug 21

Sep-Dec 21

Jan-Apr 22

May-Aug 22

NAB Broker Distribution is dedicated to helping brokers deliver the best customer outcomes, supported by a national network of experienced BDMs and dedicated support through every stage of a customer’s home lending experience. As the bank behind brokers, NAB will continue to invest in the broker channel and uncover the next innovation to make things simpler and easier for its broker partners and customers.

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40%

60%

80%

100%

20%

Jul- Sep 19

Oct- Dec 19

Jan- Mar 20

Apr- Jun 20

Jul- Sep 20

Oct- Dec 20

Jan- Mar 21

Apr- Jun 21

Jul- Sep 21

Oct- Dec 21

Jan- Mar 22

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“The industry is well placed to support customers and continue to thrive into the future”

Anja Pannek, MFAA

Non-banks are also playing a growing role as mainstream banks batten the hatches on lending. “With the major banks continuing with their ‘simplification’ strategies, several segments of the lending landscape have been left with little support or credit availability at an important time for the Australian economy,” says Bannister. “Non-banks [are] stepping in to fill the void in the current environment." Both the market and the industry are at a turning point. While little can be done about the economy and interest rate cycles, envisaging what the industry might look like several years down the track is an exercise that will help brokers understand and grasp opportunities as they arise. “The opportunities for brokers are out there; the clients are out there,” says Pannek. “The industry is well placed to support customers and continue to thrive into the future.”

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 700,000 customers get financial 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 financial.

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“Rates will not rise forever, and in the meantime the lending market is in good shape to meet the needs of borrowers looking for alternative solutions,” he says. The relative optimism is also prevalent at National Australia Bank. “Property markets are responding quickly to changing economic conditions,” says Phil Waugh, NAB's executive for broker distribution. “Our report Market Megatrends 2022: Uncovering the Opportunities for Brokers forecasts a soft landing in the current downswing.” Likewise, independent research from non-bank OnDeck shows that 52% of Australia’s small businesses are feeling confident. This is particularly the case among small businesses in NSW, with a reading at 65%. The pandemic experience showed that Australian businesses can take hard knocks. “Many of our small business customers pivoted rapidly into alternative or supplementary revenue channels, thereby not only surviving the lean years but putting themselves in a strong position for growth once the economy reopened,” says OnDeck chief executive Cameron Poolman.

“The key thing is for brokers to realise the breadth of opportunity that small business lending offers”

Cameron Poolman, OnDeck

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Cameron Poolman

OnDeck

Cory Bannister

La Trobe Financial

Repayments are likely to double in some cases if rates are fixed at the lowest levels, and there is a group of borrowers who took out loans just before the rate-hiking cycle began in May and have not had time to build a savings buffer. The Reserve Bank's latest hike in October saw the rate hit 2.6%. These borrowers would have been stress tested at levels close to those of current interest rates, as part of their lenders' approval processes. The possibility of future mortgage stress is front of mind for many borrowers, with a recent survey by Aussie Home Loans showing that four in 10 borrowers only budgeted for a cash rate of 3% or less.

$15.19bn

Source: ABS

Total refinancing

Sep-Dec 20

Jan-Apr 21

May-Aug 21

Sep-Dec 21

Jan-Apr 22

May-Aug 22

$46.58

$52.88

$63.96

$64.70

$64.42

$72.07

Owner-occupier refinancing ($bn)

Investor refinancing ($bn)

OnDeck

Cameron Poolman

YEAR IN REVIEW:

“Our rates are very much determined on a case-by-case basis, which is good news for small businesses as they are not subsidising the rate paid by a higher-risk venture.”

Total refinancing ($bn)

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“Our rates are very much determined on a case-by-case basis, which is good news for small businesses as they are not subsidising the rate paid by a higher-risk venture.”

Source: MFAA Industry Intelligence Service 14th Edition report

55.8

54.9

55.3

52.1

57.0

60.1

59.4

57.5

59.0

66.9

66.5

69.5

Apr- Jun 19

Market share of new residential home loans settled by brokers

La Trobe Financial

Cory Bannister

Cameron Poolman

OnDeck

Cory Bannister

La Trobe Financial

OnDeck

Cameron Poolman

La Trobe Financial

Cory Bannister