Sentiment survey - Q1 2009 report

Following five consecutive rate reductions, the RBA decided to leave rates unchanged in March employing a ‘wait and see’ policy. Since our last survey, unemployment is on an upward trend although Australia is faring better than other developed countries – for now.

The federal government’s market stimulus via its increased First Home Owners Grant (FHOG) has gained traction, with the first home buyer segment now accounting for a quarter of all loans written – clearly now a key target market for brokers.

But while the first home buyer market remains robust, some survey respondents voiced concerns over the sustainability of this apparent boom.

The chief concern is that the government is artificially inflating the market at the expense of a slowdown after June 30 if it chooses not to extend the FHOG, and that some first time buyers may suffer once rates head north again.

Still, brokers are generally upbeat about their growth prospects for the coming quarter despite the worsening economic outlook. Overall sentiment towards the health of our property market is positive, with property sales tipped to pick up in the period ahead. An increasing number of brokers also believe the market will represent good value for buyers in the next quarter.

The Mortgage Business Index, which reflects four key indicators in the quarterly Mortgage Business Sentiment Survey, also jumped to 41.4 – up from 37.0 in the Q4 2008 Index.

The Index represents the views of brokers who participated in the survey – a total of 84.9 per cent of the 656 respondents.

The 11.4 per cent rise in the Index reveals an underlying confidence amongst brokers that the business outlook has improved. This appears to correlate with the sharp fall in interest rates and the surge in activity at the lower end of the property market.

Interestingly, this sentiment may also be reflected in the drop in the number of respondents who say they plan to leave the industry over the coming quarter. The Q4 2008 survey revealed that 7.6 per cent of respondents intended to exit the industry compared to just 4.1 per cent registered in this quarter.

But while optimism has improved the industry remains deeply concerned about the overall economic outlook.

More respondents now feel that the government is failing to effectively manage the economy (47.7 per cent compared to last quarter’s 40.4 per cent, for example).

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PROPERTY COMMENTARY

The industry remains generally confident that the property market will perform well next quarter – although lower priced segments are widely tipped as the most robust, with high end property expected to continue its price slide.

“Property activity at the bottom end of the market will be competitive while investors and first home buyers compete for similar products. The top end will decline and the middle will remain static. Good buying opportunities exist in the established marketplace as a few more people become mortgage stressed due to loss of income and fear.” Doug Bannister, Wealth Finance Strategies

“It’s undeniable that sentiment is as low as it has been in many years. The positives for the mortgage industry are that the basic fundamentals of the Australian property market remain strong. Low interest rates, housing shortages… excellent rental yields, low to negative inflation in housing prices and aggressive FHOG policy are all good reasons to be hopeful of a speedy return to the market.” Chris Devlin, PLAN Australia

DATA WRAP: THE PROPERTY MARKET

Property sales over the coming quarter will:

This quarter Change from last quarter

Increase 51.8% Up by 9.3%

Remain the same 37.5% Up by 3.3%

Decrease 10.7% Down by 12.6%

Residential property prices over the coming quarter will:

This quarter Change from last quarter

Remain static 63.1% Up by 6.2%

Fall 23.5% Down by 8.8%

Rise 13.4% Up by 2.6%

Do you believe the property market over the next quarter will represent good value to buyers?

This quarter Change from last quarter

Yes 87.7% Up by 3.2%

Don’t know 6.6% Up by 0.4%

No 5.7% Down by 3.6%

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BROKER BUSINESS ISSUES COMMENTARY

The industry remains collectively more upbeat this quarter, a result of aggressive government fiscal initiatives to buoy the economy as well as increased first home buyer activity. But there are still some root issues that are causing concern, including slow lender turnaround times and overall poor broker servicing levels compared to the bank branches.

“We need to remain positive and look at ways to attract business from both new and existing clients. It means we need to work harder and smarter. We need to use the other lenders apart from the Big Four, so that the industry remains competitive and we can put the pressure back on the banks not to reduce commissions again.”Craig White, Loans Actually

“Brokers and introducers need to be more mindful of the quality of applications that they are submitting. I believe that if we can achieve a higher level of overall professionalism and actually show both lenders and the general public alike that we are worth the money as an overall industry, then perhaps our value will be maintained." Tim Jenkins, Better Property & Finance Solutions

DATA WRAP: BUSINESS ISSUES

Do you think current commission levels are sustainable?

This quarter Change from last quarter

Yes 56.3% Up by 3.1%

No 36.9% Down by 2.2%

Don’t know 6.8% Down by 0.9%

What are your expectations for your loan volumes over the coming quarter compared with the previous quarter?

This quarter Change from last quarter

Increase 59.3% Up by 9.2 %

Remain the same 27.7% Up by 1%

Decrease 13.0% Down by 8.2%

Do you expect your business over the coming quarter to:

This quarter Change from last quarter

Grow 56.8% Up by 9%

Remain the same 32.8% Down by 2.3%

Decline 10.4% Down by 6.7%

Which sector do you expect to be most active over the coming quarter?

This quarter Change from last quarter

First home buyers 64.3% Up by 12.3%

Refinancing 19.7% Down by 10.4%

Investors 11.4% Down by 1.7%

Upsize/ downsize 4.6% Down by 0.2%

Where do you expect to source most business from over the coming quarter?

This quarter Change from last quarter

New clients 54.9% Up by 3.2%

Existing clients 45.1% Down by 3.2%

Over the coming quarter do you plan to:

This quarter Change from last quarter

Keep staffing levels the same 83.5% Up by 5.4%

Hire staff 11.3% Down by 1.0%

Cut staff 5.2% Down by 4.5%

Do you intend to spend more money marketing your business this coming quarter compared to the last?

This quarter Change from last quarter

No 54.7% Down by 1.2%

Yes 38.9% Up by 0.5%

Don’t know 6.4% Up by 0.7%

Do you expect you will recommend non-bank products to any clients over the coming quarter?

This quarter Change from last quarter

Yes 66.0% N/A

No 22.6% N/A

Don't know 11.4% N/A

Are you considering leaving the mortgage industry during the next quarter?

This quarter Change from last quarter

No 89.5% Up by 4.9%

Don’t know 6.4% Down by 1.4%

Yes 4.1% Down by 3.5%

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ECONOMIC COMMENTARY

With further gloom predicted the industry remains concerned as to how the economy will perform over the quarter ahead and the associated impact on broker business.

“I believe the RBA failed in their fiscal responsibility from late 2007 on. It was already apparent in November 2007 that rates need not rise, but they continued to push them up. Had they not, banks may have slowed lending earlier and imposed the controls we are now forced towards.” Tony Schelling, Mortgage Choice

“The federal government and RBA have created a bubble in the sub $500,000 property market, which is fueled by the [increased] FHOG and increased affordability. This has the capacity to have a longer term negative impact on entry level housing affordability." Brett Mansfield, ING DIRECT

DATA WRAP: THE ECONOMY

Is the federal government doing a good job of managing our economy?

This quarter Change from last quarter

No 47.7% Up by 7.3%

Yes 37.0% Down by 9.3%

Don’t know 15.3% Up by 2.0%

Is the RBA doing a good job of controlling inflation through its management of monetary policy?

This quarter Change from last quarter

Yes 67.8% Up by 7.6%

No 25.9% Down by 5.6%

Don’t know 6.3% Down by 2%

How do current economic conditions compare this quarter with the previous quarter?

This quarter Change from last quarter

Worse 44.8% Down by 15.9%

Same 28.2% Up by 9.3%

Better 27.0% Up by 6.6%

What impact will the current RBA interest rate have on demand for home loans over the coming quarter?

This quarter Change from last quarter

Positive 83.1% Up by 7.8%

None 15.1% Down by 7.2%

Negative 1.8% Down by 0.6%

What will happen to interest rates over the next quarter?

This quarter Change from last quarter

Decrease 80.1% Down by 17%

No change 18.1% Up by 16.1%

Increase 1.8% Up by 0.9%

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RESPONDENT DEMOGRAPHICS

Total survey respondents: 656

Years in industry (average): 12.1%

Industry sector: broker 84.9%; mortgage manager/ originator 5.8%; lender 4.1%; aggregator 2.1%; other 3.0%

Residential loans as percentage of revenue: 91-100 (54.7%); 81-90 (17.6%); 71-80 (7.8%); 61-70 (4.6%); other: (15.3%)

State breakdown: ACT 1.2%; NSW 29.9%; NT 0.8%; QLD (9.2%; SA 7.3%; TAS 1.7%; VIC 24.2%; WA 15.7%