Broker

Brokers help boost bank’s mortgage book by $2bn

By Reporter•Friday, 10 Feb 2017•7 minute read

An increasing number of brokers and aligned advisers have helped deliver a 13 per cent increase in loan growth for AMP Bank.

According to the full-year financial results for AMP Bank, residential mortgages were up nearly $2 billion on the financial year 2015, rising to $16.53 billion from $14.63 billion.

The bank said that this was “loan growth delivered by increasing numbers of both brokers and aligned advisers”. No specific numbers on broker growth were released, however performance from this channel was particularly strong in new business.

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The report reads: “Residential mortgage competition, particularly in the owner-occupied market, remained intense. Within this environment, AMP Bank delivered residential mortgage book growth of [$1.9 billion] in FY16 to [$16.5 billion]... driven by strong growth in owner-occupied lending. Growth in investment property lending has increased over FY16 since AMP Bank recommenced activities in this area of the market.

“Above system loan growth was delivered through both the broker and AMP aligned adviser channels. Sales through the AMP aligned channel in FY16 were up 24 per cent on FY15. However, its portion of AMP Bank's mortgage new business fell to 22 per cent from 24 per cent in FY15 due to strong growth in the mortgage broker channel.”

Overall, there was strong uplift in operating profit for AMP Bank (from $104 million to $120 million) largely driven by the mortgage growth.

The bank has said that it will continue to “grow through the broker network”.

Responding to a question asked by The Adviser relating to the bank’s broker plans, Craig Meller, CEO and managing director of AMP, said: “We're expecting to have continued strong growth in the broker channel. The amount of mortgages that are originated through the broker channel would be more than half of the mortgages originated by AMP bank and we have very strong relationships across the industry and expect very good growth there.”

AMP may “adjust approach” to investor refinancing

When asked by The Adviser whether the bank had any plans to cease accepting new mortgage refinancing applications from investors — as Commonwealth Bank and Bankwest have recently done — Mr Meller hinted that it could follow suit.

The AMP CEO said: “We made some moves a week or so ago and if you look at the background to those actions the macroprudential regulations that are being placed upon the industry are essentially putting a speed limit on the amount of growth on investor loans for the banking industry as a whole can achieve.

“When large players take action to slow their book, unless AMP bank takes action accordingly it could blow our business up with very significant increases in volumes so as we see the market environment changing so we'll be adjusting our approach in response to what we're seeing in the marketplace more generally.”

The financial report reveals that owner-occupied loans made up 74 per cent of the mortgage portfolio at 31 December 2016, while investment property loans were 26 per cent.

It concluded: “Management continues to target total lending growth at or above system, subject to regulatory growth caps, return on equity hurdles and funding availability.”

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Spartacus Friday, 10 February 2017

Good news for AMP growth.

Later half of article again confirms how damaging and dangerous APRA's response to investor lending is to the Australian economy. Imagine bureaucrats killing off competition so blatantly in one of our countries most important industries. No need to imagine, APRA is doing it. There is about a dozen smarter ways to ease investor demand than the approach APRA has taken. The government needs to urgently employ someone at APRA that has half a brain.

1
- OzBoy Friday, 10 February 2017
  
  Hey Spartacus, always love your comments but thought I might run this past you, if APRA are killing the investment space why has investment property lending increased especially in the last 12-18 months after APRA's intervention? I agree that there are other ways to do this but I am not sure what they have done is "killing off" the investment space as you say. Interested to hear more about this.
  
  0
  - Spartacus Friday, 10 February 2017
    
    Enjoy your posts also OzBoy.
    
    I never said APRA was killing off the investment space, I said they were killing off competition. Much easier to talk about this complex matter than type about it, but I’ll attempt it.
    
    Firstly I’m all for small government, good clear legislation enforceable with a tough cop and a big stick, but otherwise governments and bureaucrats staying out of the way & only intervening when absolutely necessary. From my years of observations, government and bureaucratic meddling usually has damaging unforeseen consequences and can be quite ineffective as they rarely understand markets they regulate.
    
    Now to APRA, before they intervened, I could rattle off what rate I could get you from most lenders I deal with. Investor lending or Owner Occupied or Combo Invest/Own Occ, Interest Only or P & I, 90% or 80% LVR. Essentially many lenders had 1, 2 or 3 variable rates for all combinations of the above categories (with some cheaper rates for higher volumes). After APRA/ASIC interventions the last few years I’m now going cross eyed looking at interest rate tables with literally dozens of different rates for each lender product (e.g NAB broker Homeplus & peak performance weekly rate flyer has 109 different interest rates on it – what a bloody joke). Killing the damn comparison rate legislation forced on us by moronic bureaucrats would kill half of these rates immediately.
    
    APRA directing banks not to have their year on year investment lending increase by more than 10% means lenders have to engage in uncompetitive behaviour in a hot investor purchasing property market to stay under the 110% limit from last year.
    
    So what have banks done? Intentionally become less competitive & fatten investor margins considerably by lifting variable rates on all investor loans (essentially sending the lending market back to the 1980’s with higher rates for investors). Once one major lender did this all the other lenders in the market were more or less forced to follow. If they didn’t they would be swamped with investor loans and quickly exceed their own 110% limits. APRA failed to realise lenders would implement the 110% directive with an eye to maximising profits.
    
    Now Bankwest and CBA have stopped all investor refinancing dead. I’d guess these 2 lenders account for about 20% of the market place. Perhaps 20% of this 20% market share is investor refinancing (roughly equivalent to ING pulling out of the market entirely).
    
    You will know that most people with a variable investment loan older than 2 years will be paying rates in the range of 4.4%-5% due to banks fattening margins in response to regulator meddling. As a consequence, there are bucket-loads of investors paying uncompetitive rates and shopping around for a better deal. But they can’t now go to Bankwest or CBA.
    
    This demand isn’t going to evaporate. These customers are going to look to other lenders who will quickly find that the additional investor refi demand is going to swamp them or push them over their 110% APRA imposed limits. It won’t take long before other banks are forced into stopping investor refinancing and/or lifting investor rates even further to discourage refinancing (either action is inherently anti-competitive).
    
    Once this demand tornado swirls through the market over the next 2-3 months, investor variable rates will be higher and fewer lenders will be offering investor refinancing and no lender will be particularly pushing or striving for new investor loans. However investor demand will be only marginally dampened if property prices are still rising. At that point banks will have to go through another raft of anti-competitive actions to trying to stay under their 110% year on year investor limit. This is a vicious cycle unnaturally caused by APRA with little impact on actual investor demand. Bottom line, almost every investor in the country is paying more for their loan now thanks to APRA and investor demand is still pumping (because investors are seeing value in residential property).
    
    And what if say AMP, ING or Suncorp decided they wanted to make a strategic expansion of their Australian market share and move from being a second tier lender into the 5th pillar of Australian banking. They would have to do this with one hand tied behind their back due to the 110% year on year volume limits imposed by APRA on investor lending, then strategically be forced into an unnatural balance of Owner Occupied and Investor loans.
    
    Not sure how well I am explaining myself but APRA’s 110% year on year investor limit isn’t really doing much to dampen investor demand, it is just forcing banks to act in a very uncompetitive manner (eg. lifting investor rates, deciding not to refinance investor loans and in some instances not do any investor lending at all).
    
    Rant over, Spartacus out.
    
    2
    - OzBoy Saturday, 11 February 2017
      
      Ok well that was fun, made a pot of coffee and settled in. Yep can see where you are heading here but I would point out a couple of things...if I may!? Referring to BW and CBA as 2 separate entities (for this particular story) I don't think is relevant. I could be wrong but I think APRA's limiting on investment loans runs across the "whole book" not each individual branded book. Citing AMP we saw them pull out and then several months later they came back and came back hard with a cheap rate bought some business and now have adjusted their rate to start making some money. This is the practice that I detest and something AMP are renowned for. I agree with your last paragraph but have to say this is lending and the landscape is in a state of constant change. Spartacus you have been around as long as I have and I am sure you remember all the "mortgage reduction" programs in the mid to late 90's where LOC's were the flavour of the month...can't remember the last time I set up or recommended an LOC for a client, then it was 100% offset account but now basic home loans with internet access can achieve the same result without the cost. Securitisation market came, went, came back again and is sort of back..sort of.
      
      So I think there will always be changes and I really hope lenders keep doing this, it makes it difficult for their own staff to keep up, let alone a customer trying to decipher it all themselves and therefore makes a brokers proposition even more enticing. Also I think lenders are using the new rules for their own gain....I know imagine that!</sarcasm>. The RBA came out earlier this week advising that the lender argument that their cost of funds is increasing is something they find hard to believe when their own modelling shows cost of funds has decreased. Haven't used CBA since they brought in their rule that you have to place x amount of loans with them, explain this situation to every client and it assists in showing clients where my focus is...any broker been there before me who has put CBA up is shot down on the spot as the client is left wondering did they recommend them because they suit the client or did they recommend them because that broker needs to keep their own figures up..CONFLICT OF INTEREST, besides that's not my business model, cient first.
      
      Well that coffee fired me up, OzBoy drops mike!
      
      2
      - Spartacus Monday, 13 February 2017
        
        Spartacus dives full length to his right and catches dropped mike before it hits the ground.
        
        Agree with your comments Oz.
        
        Just don't want red shirt wearing un-elected bureaucrats unnaturally driving bank innovation with socialist trade limiting rules, like saying to a bank in a developed western economy, sorry but you are not allowed to compete and drive competition in banking to grow your market share.
        
        There are much more effective and less Starlinist ways for governments and regulators to combine to soften impact of high investor demand.
        
        0

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Brokers help boost bank’s mortgage book by $2bn

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