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Post-pandemic conditions could impact home lending this year in three key ways, Wave Money has predicted.
Tumultuous times during the past few years through the pandemic has affected sundry avenues of societal and financial life, with its impact – positive and negative – still to shape us in 2023.
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In terms of mortgage broking and lending, Australian non-bank lender Wave Money managing director and founder John Flavell has proffered three predications as to how the industry could be hit.
Prior to Wave Money, Mr Flavell held various senior executive roles in the financial services and residential mortgage industry, including CEO Mortgage Choice, executive general manager Wealth Advice NAB, general manager NAB Broker, national manager franchise and retail for Aussie Home Loans and state manager for RAMS in Victoria.
Debunking the ‘Fintech Fallacy’
Following the impact of sweeping regulatory changes and the COVID-19 pandemic, the digitisation of the home loan experience has understandably ramped up, Mr Flavell explained. Nevertheless, the increased use of computers to make credit decisions based on large pools of historical data has resulted in many borrowers finding it impossible to have their home loan needs met, he added.
“The reliance on tech-based decisioning engines has taken the human knowledge, insight, and nuance out of the credit decision process,” he warned.
“Each borrower’s situation and requirements are unique, particularly self-employed borrowers.
“Brokers have the experience and expertise to navigate the complexity of the lending environment and ensure the borrower gets the solution that is in their best interest, and this is driving the record growth in the share of home loans settled through brokers (currently more than 70 per cent),” he explained.
Additionally, critical to a broker’s ability to deliver great outcomes to their clients is the lender-partner relationship and the ability to “speak to the people” in the decisioning process that can deliver appropriate outcomes “based on expertise and customer insight”.
Flavell explained: “Efficiency through automation, electronic lodgement, verification, electronic documents, signatures, loan settlements, electronic identification verification and valuation ordering all deliver greater speed and efficiency in the mortgage process, but they do not replace the knowledge, expertise and understanding provided by brokers and their relationships and access to their lender partners.”
“Brokers should be able to pick up the phone and have a conversation their lending specialists at any time in the process.
“It works incredibly well and cuts out so much wasted time and energy and most importantly it gets the right outcome,” he said.
The maturing of fixed rate loans
With more than $400b of fixed rates loans maturing over the calendar year, a large number of households will be facing into a significant drain on their cashflow as they move from interest rates that were set at or under 2 per cent to rates that will most likely be more like 6 per cent, Flavell outlined.
There will be a significant proportion of borrowers looking to move to interest only payments in order to ease the cashflow burden, he said.
“Many lenders will lack the willingness to allow borrowers to move from principal and interest (P&I) to interest only (IO) payments (particularly the case for owner occupiers),” Flavell stated.
“This, coupled with higher interest rates, repayment buffering on additional facilities and loan servicing hurdles limited by debt-to-income (DTI) calculations, will make it increasingly difficult for these borrowers to gain much needed cashflow relief.
“Brokers will look to lenders, such as Wave Money, in order to assist their borrowers,” he said.
The future of ‘normal’ work
Demographers and employers waiting for a return to ‘pre-COVID Normal’ in the way we work will be waiting for a long time, he said.
The pandemic had a significant impact on the way we work; where, when and how we work; and there is “no sign of things returning” to the way they were pre-pandemic, he added.
“The shift to working remotely from home or a location other than an office will continue to an accelerating shift to working for oneself, to contract work, to multiple part-time jobs, contracts, and side-hustles,” he explained.
“An increasing pool of self-employed borrowers will want to access equity in their home to accelerate the growth of their businesses.
“Brokers and borrowers will need lenders that understand the ‘future of work’ and have lending policies that cater for the ‘new way of working’,” Mr Flavell stated.
Lenders who are willing to assist self-employed borrowers gain access to the equity in their homes, and who understand that accounting for all the income self-employed borrowers generate, might need to be done in a different and efficient manner, he summarised.
[Related: The Word: What trends do brokers expect to see in 2023?]
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