The road to Brokersville

These three governing bodies populate the headlines of both Mortgage Business and The Adviser far more than they once did.

It has been interesting to watch and report on major regulatory changes – and the industry’s response to them – as they’ve unfolded.

We first heard whispers of home loan price differentiation as early as October last year, well before APRA made any real decision on macro-prudential measures. Back then, it was still all speculation – nobody really knew what was going to happen, if anything.

But here we are in the thick of it. The lending landscape looks a lot different now.

In an effort to keep brokers abreast of the changes and what they mean for you and your clients, The Adviser partnered with NAB Broker and Advantedge in August for a national roadshow.

‘Knowledge is everything: making sense of industry changes’ was an initiative that rolled out across the country from 18 to 26 August. Introducing the event in Sydney on 24 August in front of almost 800 brokers, I felt it was important to emphasise what a significant opportunity it was for us to support the third-party channel.

The Australian mortgage industry has been through a huge amount of change in the last few months.

The Adviser, NAB Broker and Advantedge saw the events as a critical time to provide knowledge and expertise to support brokers.

The popularity of the events was clear when we had to relocate Sydney’s venue to accommodate the demand, while the events in Adelaide, Melbourne and Perth sold out.

Each of the 90-minute sessions provided insight into the Australian housing market and the economy more broadly, helping brokers understand the drivers behind changing lending policies.

Yet the key message was what these changes mean for you and your customers, and what else you can expect from the changing landscape in the near future.

Speaking at the event was a panel of well-known industry figures, including NAB’s executive general manager of broker partnerships, Anthony Waldron; NAB Broker general manager, Steve Kane; and general manager of Advantedge, Brett Halliwell.

In addition to outlining what has already happened from a regulatory standpoint, the discussion covered further changes set to affect the lending market in 2016.

First to speak was Mr Waldron, who listed the potential changes that could be implemented if the current regulatory requirements fail to curb investor credit growth.

“It is important to remember what the government and regulators could still do if they don’t get the slowing in the market that they would like,” Mr Waldron said.

“There is a number of other measures they could look to. From removing negative gearing to increasing deposit requirements for investment lending, adjusting capital gains tax and foreign buyer policy.”

Mr Waldron noted the new foreign investment rules that were announced a week earlier by Federal Treasurer Joe Hockey.

Mr Kane said “massive changes” in the Australian mortgage market mean brokers need to take special care with the loans they write, particularly for foreign property investors.

While the event focused on the regulatory changes around investor caps, bank capital and risk weights, Mr Kane took the opportunity to remind brokers that foreign investment is also a critical issue.

“It is very important that you understand – particularly in the Sydney market, where you’ve got rapidly increasing investment lending and rapidly increasing property prices – that if you’re dealing in those markets, particularly around foreign investment, that you understand the rules and regulations,” he said.

“It is important because as the person involved in the transaction, it just doesn’t go to the bank or to the customer, it will come to you as well if you haven’t adhered to the rules and regulations that have already been in place, particularly around foreign investment and investing by foreign nationals.”

Mr Halliwell gave a comprehensive overview of the three main areas that are influencing the price of property finance: capital requirements, risk weights and investor caps.

He advised brokers to expect to see yet more changes as banks adjust to increased regulation around investor lending.

“The key thing to remember is that there will be ongoing changes within this, because it is an absolute requirement that all banks meet that 10 per cent investor cap,” Mr Halliwell said. “While we have seen price changes and we have seen other changes occur, what we won’t see is a new equilibrium form.”

Mr Halliwell added that if investor lending continues to grow, the banks may be forced to adjust to even tougher regulatory requirements.

“That will lead to another equilibrium, and potentially another equilibrium after that,” he said.

“So I think we can expect to see more ongoing changes in the market going forward in relation to investment caps.”

A lively Q&A discussion followed. As you will see from the questions we’ve included here, the market changes have already created new complexities for brokers.

But these complexities have also created new opportunities for brokers to engage with their clients and educate them on how and why the regulatory changes have resulted in new pricing and policy.

As Mr Kane pointed out: “It’s not about mortgages. It’s about satisfying the financial needs of the Australian public.

“You’ve got a fantastic opportunity in front of you. With every cloud comes a silver lining.

“You are in a unique position. You have a wealth of information at your fingertips that you can now use in a very positive way to help your customers with these changes. It is a great opportunity to start talking in more depth with your customers,” he added.

NAB provided those who attended the events with a handy guide to help brokers talk through the changes with their clients, explaining what has happened, what the banking regulations are and how the lenders have responded.

The group also provided a letter for brokers to send to their clients giving a simple explanation of the changes that have occurred.

ROADSHOW Q & A WITH ANTHONY WALDRON

Q. The issues of heightened investor activity are largely isolated to Sydney and Melbourne, but these changes will affect all markets in Australia. Why are these changes not postcode driven?

We’ve got to remember that there are three changes here, but the capital requirements piece and the APG 223 piece are going to be across the board. That is having a major impact, particularly around serviceability.

Many people that banks would have serviced quite comfortably two or three months ago, with these changes, they won’t service now. That responsible lending piece is all about good lending. In terms of the investor caps and taking into consideration the different risk levels of different areas, areas, banks already do some postcode-specific work, and you are probably more likely to see that over time.

Anthony Waldron, executive general manager, growth partnerships NAB Broker

ROADSHOW Q & A WITH STEVE KANE

Q. Why did NAB decide to get out of SMSF lending? Do you intend to get back into that space in the future?

We review all of our products in the marketplace over time, continuously. We looked at a few things in the area of risk around that market. Banks set their own risk appetite individually; each bank has its own risk appetite.

We are still in the corporate investment area for SMSF, but we thought that, for our risk appetite, SMSF investment for individuals was not where the bank wished to be acquiring assets. It was simply a matter of matching our risk management strategy and risk appetite in relation to lending.

Q: We have seen a trend among first home buyers entering the market as investors and then switching later to owner-occupiers. Given recent pricing and policy changes, is there any work being done to determine whether those initial investors are now owner-occupiers?

That is a phenomenon that we have seen over the last 18 months to two years. We are seeing first home buyers making a life style choice of where they want to live, but still investing in the property market.

The reality is we don’t follow the lifecycle of the customer in that way and I think this is once again a perfect opportunity for brokers to know their customers and understand that, if they started out with an investment loan and it is in fact now an owner-occupied loan, this would be the perfect time to be making that change, because there is obviously benefit to the customer. But we don’t track these trends because we don’t get that information.

It would be more likely that you as brokers would have that information and you have the relationship, and we respect your relationship with your clients. It is a perfect opportunity for you to be communicating with your clients.

Steve Kane, general manager, broker distribution NAB Broker