Broker share could reach 73%: NAB

Noting that the consumers who had used a broker (or planned to do so) thought that the third party “offers a better deal than getting a loan directly with a lender, like a bank” (58 per cent), Mr Waldron told brokers that the industry reaction to the current consultation on the ASIC report could further boost the third-party share of the market by improving trust.

Mr Waldron said that there is an “opportunity” if “industry can react and get this right”.

He explained: “It’s the opportunity for more people to understand what brokers do, it’s the opportunity to build trust even further in what you do. And if we can do that then we won’t be talking about 53 or 54 per cent of mortgages going through the broker community, we will be talking about more like the numbers in the UK where it is already in the 72 or 73 per cent.”

Mr Waldron also told the delegates at the Sydney event not just to focus on the proposals and findings of the report, but to take time to read the first chapter of the report, which deals with the broker proposition.

He said: “The first chapter often gets forgotten in this process. Unfortunately, it is also the shortest chapter in the whole document and that very first chapter talks about one thing; the value that mortgage brokers have added to the mortgage market in Australia [and] the competition that has been added to the market because of what you do.

“[I]n bringing that competition to the market, actually understand that there has been an improvement in consumer outcomes because of it, because of that competition. Some lenders simply couldn’t be in the market f it wasn’t for the distribution you provide for their products. And that’s a really, really important chapter. But like most people, we tend to jump to the negative. We jump to just the findings and the proposals. So, I really implore you to also remember the first chapter that is in there.”

The general manager for broker partnerships also noted that Greg Medcraft, ASIC’s chairman, had previously told ABC that he believes “brokers deliver great consumer outcomes”, and that they “shouldn’t necessarily be blamed” for any potential mortgage stress.

Mr Waldron, along with NAB general manager for broker distribution Steve Kane and Brett Halliwell, general manager for Advantedge distribution, outlined the 13 findings and 6 proposals of the ASIC report for attendees, in a bid to provide further clarification on what they mean for brokers and their business.

The NAB panel said that the 15-month review process for ASIC’s report was a lengthy and thorough one, highlighting that the bank “stopped counting” how many hours it took to complete the data requests asked of them after it reached 10,000 hours (or more than six years of the average persons’ working life).

They also asked brokers to “remember there is another review going on” (the ABA’s Sedgwick Review), which the ASIC report referred to.

Suggesting that the report could come out “sometime late April”, Mr Waldron said it was important to take note of “because there is cross reference in the proposals between Sedgwick and ASIC review” and could therefore influence the final result.

There is “absolutely a place” for interest-only loans

Following the briefing, the panel took questions from the floor. A key theme being highlighted by brokers was the latest crackdown on interest-only (IO) loans.

One broker asked the panel about their thoughts on the place of IO loans in the market. The broker said: “When we recommend an IO loan, it is helping the customer for the long term, and I feel that we're doing what the Tax Office is telling us to do about how to help our customers. But, I have a feeling that what is happening [with] are all these penalties and speed limits coming in [through APRA] on IO loans is going to end up hurting people who are in that position.”

In response to this, Mr Halliwell commented that there was “absolutely a part for [IO loans] in the market already and all sorts of brokers recommend it for different circumstances”.

However, he added: “Greg Medcraft was on ABC radio and mentioned that we are in a point of time with record high property prices, particularly in Sydney, and record low interest rates and there will be a proportion of borrowers out there who, when interest rates do inevitably go up at some stage, may well be under pressure. He spoke about the 'double jeopardy' of there being some borrowers out there that can’t afford to pay their loan and will be forced to sell their property, potentially, in a declining market. So, that's double jeopardy.

“So, if I look at the regulators' role (i.e. APRA and ASIC both together), it's their role to be really ‘glass half empty’ a lot of the time, and while we are looking at the positives to the customer and why IO might make sense, there are negatives. And, when you look at the fact that we've had a really good run in Australia in economic conditions, that, at some stage, will turn.”

Mr Halliwell added that he thought there will be “increased regulatory pressure” on IO loans, and that banks will be required by regulators to provide more documentation on the reasoning for putting consumers in an interest-only loan.

“If we look at the standards of — maybe even three years’ time — we're going to look back and say we as an industry actually moved to much greater disclosure and awareness of the customer.

“So, I don’t think that the regulator is saying that [IO loans] are necessarily bad, they’re saying there is a place for it, there needs to be different standards for it. So i think that will play out over the coming months.”

[Related: ASIC: change standard commissions and move away from bonuses]