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As challenges mount amid rising interest rates and stiffer competition from a growing pool of mortgage brokers, brokers have been urged to diversify to retain clients.
Speaking to The Adviser ahead of her session at the SME Broker Bootcamp, Deena Janes, director of Your Client Matters, said mortgage brokers are facing increasing headwinds due to a cooler property market and many borrowers being locked in fixed interest rate products.
Indeed, according to Reserve Bank of Australia deputy governor Michele Bullock, the extremely low interest rates on offer on fixed rate products through 2020 and 2021 resulted in the share of housing credit on fixed mortgage rates spiking from 20 per cent at the beginning of 2020 to a peak of nearly 40 per cent in early 2022.
The majority of currently outstanding fixed rate loans are due to roll off within the next two years, with the greatest share due to expire in the second half of 2023, she said at the ESA (Queensland) Business Lunch in Brisbane earlier this year.
Ms Janes argued that as a result, the number of clients brokers who could assist with refinancing could shrink.
“Those borrowers will all come out of their fixed-rate terms at the same time so until then, brokers either need to find more people to sell more loans to in a small space or they will need to target first home buyers (FHB),” she said.
“This is because existing homebuyers aren’t going to buy another property and move right now because they’re monitoring interest rates and property prices. So, brokers have to target FHBs that have to move.”
Aside from this, mortgage brokers are increasingly facing stiffer competition from their peers, with their population growing from 16,490 in October 2020 to 18,285 in September 2021, according to data from the Mortgage & Finance Association of Australia (MFAA).
“There’s a lot more mortgage brokers in the industry so a broker’s competitor is not necessarily the banks now. It’s their industry peers,” Ms Janes said.
Diversify to retain clients
To combat these challenges, she recommended that mortgage brokers should diversify and offer services like equipment finance to grow their value proposition and to receive their remuneration quickly and in lump sums, which could assist with their cash flow.
“There aren’t many true asset finance brokers out there, especially when you compare it to the number of mortgage brokers. Asset finance brokers have thousands of clients on their list because they’re doing lots of vehicle finance,” she said.
“Moreover, you’ve got the danger of losing clients to other brokers who are doing both residential loans and asset finance, or business finance. The more things you’ve got to sell to someone and the more business you do with them, the better your longevity.”
Ms Janes will present a session at the SME Broker Bootcamp in November about how brokers could generate new leads beyond their database and become an informer of lending options available to small-to-medium enterprises (SME).
Before expanding their database, however, brokers could expand into equipment finance by leveraging their existing database and initiating conversations with home buyers about their intentions to purchase a vehicle, Ms Janes suggested.
“Normally, when people buy a new home, it’s very common that they buy a new car within six to 12 months,” she observed.
“So, brokers should be looking out for that when they’re servicing homebuyer clients. If you help your clients with car financing, they’ll tell their friends who are planning to buy a car.”
Once they have decided to diversify, communicating to their client base about the availability of additional services is critical for brokers.
In unison with this, Ms Janes concluded that producing informative and educational content around the chosen area of diversification and sending it to existing clients could establish brokers as an expert in the field.
“If you’re starting out in a new area of broking but you’ve already got content that educates your clients, it becomes easier because they will see you as an expert in this field,” she said.
To hear more from Deena Janes about how you can leverage your broking advice to scale new leads beyond your database and grow your client base, come along to the SME Broker Bootcamp.
It will be held on Thursday, 17 November in Brisbane; Tuesday, 22 November in Sydney, and Thursday, 24 November in Melbourne.
To register for the event for free, click here.
For more information, including agenda and speakers, click here.
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