While current industry sentiment suggests non-banks are struggling, findings of listed player, Homeloans Ltd's latest broker survey indicates the balance may have started to shift, AB investigates...
While current industry sentiment suggests non-banks are struggling, findings of listed player, Homeloans Ltd's latest broker survey indicates the balance may have started to shift, AB investigates...
After the full assault of the sub prime crisis hit the Australian mortgage market, the industry saw a dramatic fall of non-bank lenders set the market share pendulum swinging towards the Big Four. However, several bank rate rises and commission cuts have sparked rumours of the beginnings of a counter-movement.
Will history repeat itself?
Echoing a familiarly coined sentiment, managing director of Beat Home Loans, John Mohnacheff, reminds brokers that the non bank lending sector was the catalyst that began the transformation of mortgage lending.
"[Non bank lending] profoundly and positively affected the way we conduct our mortgage business to this day," he says.
"This sector continued to support, invest and train [the broker] channel, and was the product and pricing innovator...all the while battling the banks. This sector built real broker BDMs, creative innovative products and commission structures."
Reflecting back on this history Mohnacheff claims that non bank lenders will have a persistent and continued presence in the mortgage space.
"To survive, non bank lenders have always had to do things better, cheaper, faster than the banks, and I'm confident that we will continue to do so," he says.
Riding on sentiment
Much of the perceivable future for the non bank sector is dependant on how these lenders are viewed by its most influential distribution channel, mortgage brokers.
In order to gage whether change was beginning to flourish within the industry, Homeloans Ltd conducted a survey to gage the sentiments of the broker channel in regards to non bank lenders.
And, certainly, if the results provide any indication, non bank lenders may well experience some gravitational pull. According to Homeloans Ltd managing director, Brian Jones, the survey found that brokers still value the service and product quality proposition that non-bank lenders as a whole offer.
The attraction
Arguably the most important information revealed in the survey, highlighted that brokers held an ongoing confidence in the non-bank sector and its value proposition.
While banks still claim a cost advantage, Jones says the survey found that brokers recognised and valued the service advantage which non-banks held over banks.
The survey found that while 16% of survey respondents saw rates as an important factor when choosing a lender, 19% valued product features and 19% claimed that BDM support was important - two very important service components offered by non-bank lenders that banks have difficulties matching.
"The results from our survey, as well as anecdotal evidence from our brokers, demonstrate that broker sentiment is swinging back to the non-bank sector," Jones says.
"While we don't always win on price, there are plenty of reasons why many brokers prefer to deal with non-banks."
From the product range to broker services and communications, Jones says non-banks offer brokers an important alternative to the banks.
"Particularly noticeable in the findings of our survey was the value that brokers place on service and product flexibility - areas where non-banks are strides ahead," he claims.
Product placement
From lo-doc loans to no-deposit loans, non-bank lenders have driven innovation in the mortgage market and development of a new generation of home loan products. Results from Homeloans' broker survey confirm that brokers particularly value the variety and strength non-bank products bring to their businesses.
SFE Loans mortgage planner, Sarah Eifermann, agreed with the findings saying non-bank lenders played an important part in providing clients with a wider range of products and credit policy.
"Spreading loans around a larger portfolio is a very good business decision for brokers. It means that your whole portfolio of applications won't be affected if a major is running behind on service times, or change policy or drop commissions. It makes sense to know what else is available for your clients than just the products of the four major lenders."
Robert Trewin, managing director of Robert Trewin Mortgage Broking in Bairnsdale Victoria and Gerard Hansen, principal of Auspak Financial Services in Sydney, agree with Eifermann, emphasising that having access to varied products enables them to meet not just the needs of more customers, but also the needs of more unique customers.
"Non-bank product ranges are generally a lot wider than the banks' and are especially good for catering to niche clients' needs," Trewin explains.
"For those customers for whom their circumstances are unusual or difficult, non-banks will take the time to determine if they have a product to suit," Hansen adds.
At your service
"When it comes to providing good service, non-bank lenders are at the forefront, hands down," says Jones.
"Try as they may, banks just don't seem to consistently deliver a good standard of broker services."
"Generally in terms of service, the offering is always going to be better than that of the major banks because we run a smaller operation," explains associate director of Australian First Mortgage (AFM), Michael Maiorano.
Being able to liaise with his BDM is really important, Trewin says, because it means a lot of time can be saved on putting up loans that won't be processed. He says he can run a loan scenario by his BDM and get an indication immediately of whether it would be successful before submitting.
In fact, as the numbers from the survey indicate, brokers really value the knowledge and advice their BDMs are able to provide.
"I will not put a deal with a lender if the BDM can't be bothered returning my phone calls or emails. It's just rude," says Eifermann adding that generally non-bank BDMs are generally better than those of major banks.
Hansen agrees and attributes the good service he gets from non-bank BDMs to the fact that they aren't spread too thin - something he says the banks struggle to match.
"Non-bank BDMs are more likely to provide good service because they aren't looking after as many clients as their bank counterparts," he says.
It's all part of the process
Another service aspect which seems to rate better within the non-bank lending space is speed and turnaround.
"Broker feedback tells me our settlements and loan tracking services are highly valued because of their speed and the ease with which brokers can find out how their loan is going," Jones says.
Trewin confirms the belief saying that overall, the process is usually a lot smoother with non-banks than banks.
"The settlements process is much simpler with the non-banks. When it comes to the banks, you don't generally get to speak to the person in charge of the loan - it's a much more cumbersome process," he says.
According to Jones, the fact that employees actually know who the brokers are and speak to them personally is really important - pointing out that this is one of the key differentiating factors between banks and non-banks.
"Banks tend to rely on their websites too much during these processes, and brokers find this impersonal and frustrating," he says.
Pepper Homeloan's head of marketing and product, Ed Thian agrees stating that in being committed to the broker channel, Pepper (and presumably other non-bank lenders) concentrate energies on providing solutions designed for brokers.
"Our raison d'ˆtre is to provide competitive solutions in those areas of the mortgage market that traditional lenders don't operate in or that are not particularly well serviced by them," he says.
What does the future hold?
In what is now a rapidly changing lending landscape, Brian Jones believes the momentum will swing back towards non-banks.
"Last year we went through considerable unfounded media negativity around non-bank lending and there's no doubt that it affected the sector," he says.
"But half way through 2008 a different story is emerging: the banks are increasingly in the spotlight. The tone towards the broker channel has changed overnight."
Jones believes feedback for the survey confirms demand for non-bank lenders will re-emerge strong, with the value proposition they offer valued highly by the third-party channel, and even mores so in the 'new' world order.
"During the current market conditions, it's never been more important for brokers to choose a lender they can depend on," he says.
However other industry professionals, while retaining faith in the sector, remain less optimistic.
"I believe it will be some time before we see a significant swing to non-bank lenders, but it will come. Once the gravity of commission changes, aggregator consolidation and legislation is felt, I'm confident that this sector will be a viable alternative," claims Mohnacheff.
While Thian and Maiorano claim that brokers are starting to look towards the sector again, it's too early to quantify the movement.
"Since probably the beginning of the year we've started to see a bit more of a level playing field given that banks have also moved their rates independently of the reserve bank and, the biggest thing for us, is the banks cutting commissions to brokers. We're certainly starting to see brokers coming back to us now," says Maiorano adding that this gravitation was likely to be somewhat measured.
"I think that the non-bank sector will regain some market share, certainly not where we were 12 months ago, but I think, as generally everyone believes, there's not going to be as many non-bank lenders left in the market. We're in a shrinking mortgage environment, so the players [non-bank, bank, credit unions, aggregators] who are left standing are going to be the serious players with well established businesses," he says.
Thian agrees stating that while non banks continue to face considerable challenges as a result of the credit crunch, the long term future growth prospects, especially for niche participants are excellent.
Three reasons for choosing a lender's products
19% - product features
19% - BDM support
16% - interest rates
Source: Homeloans Ltd survey
Broker's view: The overall Homeloans experience
46%: Very good
27%: Good
12%: Outstanding
10%: Satisfactory
Source: Homeloans Ltd survey
