Is your client an Emu, Phoenix, or Falcon?

For brokers, however, we expect it to be the ‘Year of the Bird’ with three dominant client profiles prevailing: The Emu, the Phoenix, and the Falcon.

Hot off the tails of a challenging year, 2024 will continue to be tough for many borrowers – especially those with high levels of debt.

While the ‘ice’ is holding, we anticipate it will remain fragile and largely dictated by RBA rate decisions and its ‘clawback’ time. The RBA effectively transferred billions of dollars to Australian home owners through the next-to-nothing cash rate to perpetuate an artificial buoyancy through COVID-19.

Post-COVID-19, this excessive pump-priming led to an overheated economy, escalating inflation, and inevitable interest rate rises.

While the bullish frequency of rises isn’t predicted to continue, it would be naive to presume that they come off quickly.

Understandably, borrowers remain acutely sensitive to inflation, compounded by exhausted savings. Consumer confidence will also be stretched as the true impact of mortgage stress is increasingly realised.

In this disruptive environment, many borrowers crave ‘safe’ to offset turbulence. However, 'safe’ can quickly convert to denial and avoidance – which is the perfect segue to introduce you to the ‘Emu.’

The Emu

An Emu client may be a personal or business borrower who is far more content with their ‘head in the sand’ than addressing an uncomfortable reality. Rather than confronting debt, they hope the state of ignorant bliss will prevail as they ride out the storm. Consequently, Emus often have mounting debt (think of piles of unopened bills building up on the kitchen table).

Despite their escalated exposure, however, Emus often turn a blind eye to the imminent crisis, including withstanding any substantial change to personal or business spending patterns.

We urge brokers to actively seek out Emus before they fall off the cliff . You can do this via a financial health check to assess whether there are ways to consolidate the borrower’s debt and review areas that can be addressed to help reduce exposure.

Getting on top of tax debt is critical, too, as the ATO is openly cracking down on ‘bankrolling’ borrowers (which may result in a payment plan). This should ideally be done in conjunction with the borrower’s accountant – especially if tax debt is an issue.

The Phoenix

For more savvy borrowers, debt is under the spotlight in lieu of the ‘set and forget’ mentality. In contrast to their Emu counterparts, a Phoenix borrower hits challenges head-on and is motivated to rise to the opportunity versus being deterred by the obstacles presented.

Moreso, Phoenix borrowers see obstacles as opportunities to reassess current practices to be leaner, more efficient, and more profitable.

Phoenixes have most likely already trimmed the fat in their personal or business structures. For business borrowers, a sustained focus on efficiencies and profitability often equates to receptiveness to alternative facilities that help support cash flow management. This mindset has a ripple effect beyond refinancing or debt consolidation, to include the assessment of ancillary areas of finance such as insurance and SMSF (in particular, business SMSF investments are on the rise).

Again, brokers are urged to have regular check-ins, ideally in conjunction with the borrower’s accountant.

In addition, there’s a reason diversification is so overused: it’s essential to minimise borrower exposure, deepen borrower relationships, and future-proof your brokerage.

We strongly encourage brokers to prioritise becoming familiar with the various commercial finance facilities available to help businesses secure capital to support growth and relieve cash flow constraints. This includes becoming versed in a broad range of alternative finance solutions and different funding sources.

On this note, the availability of domestic and offshore credit sources will continue to be affected this year. This will have a ripple effect on rates, products, and lenders’ appetite for varying credit profiles.

We also anticipate private lending will continue to flourish in the wake of tightening credit parameters from traditional and non-bank lenders.

The Falcon

Onto our last group: the Falcons. Falcons are eternal opportunists who thrive in a disruptive market. Make no mistake, there will be a row of Falcons on the fence, keeping a close eye on, and ready to swoop in on businesses in a state of impending liquidation.

Similarly, Falcons are true entrepreneurs and are renowned for identifying alternative business ventures, practices, and niches that emerge in shifting markets.

Falcon ventures can be great, though they equally can be shaky.

We urge brokers to do thorough due diligence on Falcon borrowers to ensure that the deal’s feasibility stacks up, as lenders are not fans of having money staying lent and are very cautious in the current environment.

Nevertheless, no matter which client species dominates your aviary this year, my advice for 2024 is to be prudent, realistic, proactive. And remember: a sum is greater than its parts; it’s never been more critical to collaborate with fellow brokers, lenders, and industry associates and lean on the strength of our community versus flying solo.

Nick Young is a results-driven specialist who has more than 20 years’ experience in the mortgage broking industry and now heads Trail Homes: Australia’s most established and longest-serving trail book purchaser.