Dream makers
23 Aug 2007

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As home buyers are faced with an increasingly intricate maze of home loans, the guiding role of broker takes on a new relevance. Domini Stuart reports that there is still room to move in the mortgage market.

Applying for a mortgage used to be a Sunday suit affair - an appointment with a forbidding bank manager followed by a prolonged, nail-biting wait to see whether you were considered worthy of the only loan on offer.

Today you have literally hundreds of loans to choose from and talking to your bank manager is just one of many options. The bank will come to your home. You can visit a branch in a shopping centre at the weekend. You can write a loan through a call centre and never meet anyone at all. Or you can enlist the help of a mortgage broker.

Mortgage brokers help clients to identify their needs, then to find and secure the most appropriate mortgage from a range of lenders. They represent clients in negotiations with lenders and arrange all of the paperwork.

"You need to be highly motivated, be able to work on your own and have the 'fire in your belly' to make the business a success."

Since making their first appearance in the market in the late 1988s. mortgage brokers have also helped to change the nature of borrowing in Australia.

"Their level of acceptance has grown particularly quickly over the past five to six years," says Warren O'Rourke, national manager for corporate affairs at Mortgage Choice. "A JP Morgan FUjitsu report released late last year showed that 37 per cent of Australian mortgages are settled through a broker."

Is mortgage broking right for you? If you're thinking of investing in a mortgage broking franchise, this is what the experts have to say. Luke Sheales, Mortgage House of Australia "It is important to look at all your options and compare the pros and cons of each. Business partner agreements differ, as do the costs and benefits of aligning yourself with a particular brand. Take your time to ensure that the products, marketing and strategic plans of your preferred franchise or brand partner will give you the best platform to forge a successful bUSiness." Wayne Ormond, the Refund Group 'With any franchise you need to ask 'What am I getting for the money, and does the franChise offer me support in bUilding my business?' Most importantly, in an increasingly competitive market you need to look for 'uniqueness' that will help you attract more business. Adrian McFedries, DC Strategy "You have to decide which group can provide the support and leadership you're looking for, and what products you think you can go out and sell." Warren O'Rourke, Mortgage Choice "You don't need to have a banking or finance background it's much more important to be strong in interpersonal skills and committed to providing the best levels of service possible. You can teach someone about the mortgage industry but you can't teach them how to be a great customer service exponent. You need to be highly motivated, be able to work on your own and have the 'fire in your belly' to make the business a success. Mortgage broking is about satisfying customer needs, fulfilling their dreams of owning a home and sending them home happy. Without getting too misty eyed and romantic, if it's right for you, you will enjoy a great deal of personal satisfaction."

Experts are predicting that this will eventually rise to around 45 per cent, though a figure of 65 per cent in the UK suggests this may be erring on the side of caution.

"Consumers are faced with a huge number of loans - we have 29 different lenders on our panel offering a total of 385 options," O'Rourke continues. "So much choice can be very confusing, and that's where mortgage brokers really come into their own.

"As industry regulation continues, borrowers will be even more inclined to deal with a broker who can find them the best deal or offer a range of products. But, in order to survive, every mortgage provider needs to ensure that they stand out from the crowd."

"Some people just don't have time to do research. Others don't know where to start. A study we completed about 18 months ago showed that 55 per cent of first time and subsequent home buyers have little or no knowledge of the mortgage system, or of real estate in general. When our brokers ask questions like 'What do you want from your loan? What do you want it to do for you? What are your goals?' the reply is often 'What do you mean?'. Most people will say they want to pay off their loan as soon as possible but haven't thought about how they're going to do that. A good broker will go through all of the scenarios in order to find the best loan for each client from their panel. That's not necessarily the cheapest; in the long run, a more flexible loan might save them more money."

"We're seeing a number of groups that have become reasonably significant - they might have 50 or 60 agents or franchisees or licensees writing mortgages under one brand," he says. "We know from our own experience that there are people looking to acquire the funds under management of some of these groups and bundle them together. That's just a sign of a maturing market; as time progresses, you'd expect to see good performers continuing on while things get tough for the fringe performers and people who are not that great at what they do."

That doesn't necessarily mean opportunities are disappearing. "People don't have the same mortgage for 30 years or so any more," he continues. "They tend to refinance on a fairly regular basis and, every time they do, it's a chance for somebody to pick up a relationship."

Competition isn't restricted to other mortgage brokers. Banks are still Australia's leading mortgage providers, and their response to the phenomenon of mortgage broking has varied.

"In the initial phase they had to shift their mindset from 'No, it won't work' to 'It's a reality of the current market'," says McFedries. "certainty the growth of Aussie Home Loans turned the heads of many of the banks and made them realise that they had two alternatives - either work with brokers or try to turn their backs on them. Some banks did decide not to provide product through broker channels while others have embraced the opportunity. ANZ, for instance, have won awards for the support and service they provide to brokers. At the same time, they were the first of the big four banks to introduce a mobile home lending franchise with Mortgage Solutions."

"As the main mortgage providers, it is natural that the banks are always reviewing their business strategies," he says.

A changing market
Recently, the media has been focusing on affordability and the fear that soaring house prices are forcing first-time home buyers out of the market. With first-time home buyers accounting for at least 17 per cent of the total market affordability is undoubtedly a major issue, but Sheales doesn't believe that poses a threat to mortgage brokers.

"Despite movements in house prices, people still need homes and will continue to purchase homes," he says. "These movements have simply caused a shift in the locality, type and size of home that our clients purchase."

"Lenders are responding with new products which still make it possible to own a home even, in some cases, without a deposit," says Wayne Ormond, Executive Chairman and Founder of Refund Group. "The increase in property values has also meant an increase in the real earning of mortgage brokers and real estate agents as they are remunerated on a per cent of the loan or property."

What of the futuree?
"When the major eastern seaboard property boom peaked in 2003, it was considered to be the best we would see for the mortgage industry," says Warren O'Rourke. "What is interesting to me is that the level of demand for home loans nationally has remained stable, with any decline in the New South Wales market being offset by other states like Western Australia and Queensland.

"At the moment, the market in Queensland is very strong thanks to the resources boom and interstate immigration. Victoria is showing good and stable growth, and a major mine project is expected to boost the demand for housing in South Australia. The boom in Western Australia is not really showing signs of abating and we're hearing all the right noises about New South Wales coming out of its slumber. They're all different markets in different stages of their life cycles but I believe all of them offer good opportunities for mortgage broking."

"There will always be a place for mortgage brokers within our industry," says Luke Sheales. "With the aggregators and funders all fighting for market share, brokers are in the privileged position of being able to pick and choose between them. As industry regulation continues, borrowers will be even more inclined to deal with a broker who can find them the best deal or offer a range of products. But, in order to survive, every mortgage provider needs to ensure that they stand out from the crowd."

By Domini Stuart
Franchising Magazine, July/August 2007
 

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