A big four bank almost overhauled its broker remuneration model so that the cost of mortgage broking services would be transferred to the customer, the royal commission heard. Here’s how to prevent that from happening.
The Royal Commission recently revealed that back in 2017 the Commonwealth Bank planned to replace commissions paid to mortgage brokers with a flat fee, but baulked at the last minute.
CBA’s CEO Matt Comyn told the royal commission that CBA believed the most attractive model was one where “customers would pay a broker”.
The move would have saved CBA $197 million over five years if everyone in the market moved with them.
However, without regulator intervention to drive an industry wide move to this model, CBA feared they’d be left hung out to dry by the other big three banks.
“We came to a view that nobody will follow and we will suffer material degradation in volume,” Comyn said.
Not only would this model be a major disadvantage to consumers going forward, it would reduce a new broker’s revenue on an average loan to about a third of what it currently is.
Basically, the only real winner would have been the big banks.
Not the customers. Not the mortgage brokers.
Some interesting stats
Here are some interesting statistics from Deloitte Access Economics that may explain why CBA was looking to limit the growth in the mortgage broking market:
– Over the past three decades brokers have contributed to the fall in net interest margin for banks of over 3% points. This saves you $300,000 on a $500,000 30-year home loan (based on an interest rate fall from 7% to 4% pa).
– 27.9% of residential loans are arranged through lenders other than the big four banks and their affiliates, providing competition and more choice for consumers.
– On average, mortgage brokers have 34 lenders on their panel and use 10. It’s this additional choice that adds competition in the market. The only winners from less competition are the big banks.
– 56% of residential loans were settled by mortgage brokers in the September quarter in 2017. This is up from 44% since 2012.
– 70% of a broker’s business comes directly or indirectly from existing customers, demonstrating high levels of customer satisfaction.
– 9 out of 10 customers are satisfied with the services provided by mortgage brokers.
It’s still a live issue
Basically, the only reason CBA didn’t pull the trigger on the move was because it was worried that if it did, the other lenders wouldn’t join them. Instead, they’d swoop in and steal their business.
However, if the regulator enforced a flat fee model, then all the lenders would have to get onboard.
That’s exactly what could happen if it becomes a royal commission recommendation, which is a possibility considering the extensive line of questioning from the royal commission’s counsel assisting, Rowena Orr.
How can you help?
The best way is to contact your local MP to let them know you’re happy with the mortgage broking service we’re currently providing.
By letting your local Federal Member of Parliament know this you can help prevent the cost of our future services being transferred from the bank over to you – and you’ll also be showing your support for us.
Seven in 10 Australian mortgage holders have not stress tested their home loan. But don’t stress, it’s much easier to do than you think.
Deloitte Access Economics’ latest report makes for pretty interesting reading.
It turns out the average Australian has a “wide-ranging hesitancy to make any sort of change” when it comes to their mortgages and other financial products.
“Why is it that educated consumers who know they’re not getting the best deal on many of their household products are so unwilling to take action to improve their household finances?” asks a surprised Deloitte.
Interesting mortgage stats
It turns out that 41% of Australians with a mortgage don’t check for interest rate changes because they either have no interest, don’t know what the RBA cash rate is, or do not see its relevance.
Even more interesting is that 68% of people say they have never stress tested their home loan.
“This is a particular worry,” says Deloitte.
“Recent estimates show that a 0.5% increase from current interest rates would cause mortgage stress to jump from one in four mortgaged households to one in three.”
Worse still, a 2% increase would throw half of all mortgaged households into stress.
Now, that might sound like a big increase, but don’t forget that it wasn’t so long ago that interest rates were at that level. In fact, it was only six years ago in June 2012.
So how do you stress test a home loan?
Calculate how much extra a 0.5%, 1% and 2% increase on your mortgage would cost you each month and whether your budget can allow for it.
If you’d run into trouble, give us a call and we can work through some risk mitigation options with you, which could include locking in a home loan rate.
Why don’t people care about getting a better deal?
Interestingly, 1 in 3 people know there are better deals out there, while 1 in 5 don’t bother to check for a better deal.
It turns out there are three key reasons people don’t change to a home loan that would see them better off financially, with the first being decision making paralysis.
“Too often, many consumers get stuck before making a choice – and then they do nothing,” explains Deloitte.
Another big reason is people “hate feeling dumb”.
“Consumers also hesitate when they fear or worry about the possibility of making a bad decision. This, coupled with the fact that people tend to avoid what makes them nervous,” adds Deloitte.
The final key reason is that people simply put it off.
“Outcomes set in the distant future typically lack a sense of urgency in contrast with everyday needs, making it easy to defer decision making to a tomorrow that never arrives,” says Deloitte.
How can you overcome these barriers?
Well, here’s the good news. We can help you overcome all three.
For decision making paralysis we can come up with a shortlist of options, reducing the choices you need to make.
Worried about feeling dumb? I bet you we’d feel pretty dumb if we did your job for a day too. But we make it our business to help educate you and bring you up to speed in this market.
And how can you overcome avoidance? Simple. Give us a quick call today and we’ll get the ball rolling for you. You’ll be surprised how little time and effort it takes.
By Dave Fleming : 18 December, 2018
We thought we’d have a little fun this week and look at how much it costs the average Aussie family to own a pet. After all, two in three households have one and very few budget for them!
Let’s be honest, owning a pet goes hand-in-hand with the great Australian dream of property ownership.
So let’s be clear here: we’re definitely not making a case against pet ownership. However as Christmas time usually coincides with a spike in pet purchases, it’s a good time to look at the monthly cost factor.
Because if you’ve decided to take on the responsibility of welcoming a pet into your household, then it’s something you oughta plan for and do right!
Basically, you’re looking at an average of $123 a month for food, vet care, health products, grooming and boarding.
To avoid any vet bill blow outs, it might also be worth considering pet insurance, which will cost an extra $293 per year. Or $25 per month.
And while we’re at it, here’s a fun fact: the number one thing that dogs eat that makes them sick is underwear! So be sure to keep them out of reach!
It’s also worth noting that the above figures don’t factor in upfront costs, which can range from $1000-$5000 to purchase a select breed, or $300-$500 to adopt an RSPCA dog.
If you’re more of a cat person, like 29% of Australian households, expect to pay $1,029 per year. That’s about $86 a month.
Pet insurance is slightly cheaper for cats, coming in at $20 a month, but then again – cats probably aren’t underwear connoisseurs!
It costs between $100 and $300 to adopt a cat from the RSPCA – depending on their age – while a select breed will cost you between $1,000 and $2,500, and sometimes even more.
Bird and fish
If you’re looking to ease yourself into pet ownership, welcoming a bird or fish into the fold is a much cheaper option.
It costs just $115 per year on average to own a bird, while fish are even cheaper at $50 per year.
As you can see, purchasing a pet is unlikely to cost you an arm or a leg (so long as they have adequate play toys!).
However, you can minimise the impact it has on your bottom line by including the monthly amount in your family budget, and protecting against vet cost blow-outs with pet insurance.
If you’d like to know more about budgeting, get in touch. We’d be happy to help out.
By Dave Fleming : 18 December, 2018
Most of us roll our eyes when we start seeing shopping centres spruik Christmas merchandise in November. While it’s important not to get caught up in the festivities too early, now’s actually a great time to start prepping to ensure your budget doesn’t blow out over the silly season.
The best bit? By following some of the below tips, you can turn the retailers’ early mind games against them and save money instead!
1. Buy food ahead of time
Christmas time tends to lead to a lot of socialising. Even if you aren’t the one catering, requests to bring a plate can add up over time.
Make a point of keeping an eye out for food and drinks specials ahead of time and buy items like boxes of chocolates, long life snacks and drinks when they are on special. That will make it much easier to stretch the food budget over Christmas.
2. Opt for Secret Santas
For people who have a large family or friendship circle, Christmas can lead to a long list of presents to buy. Many people prefer not to get extra clutter for their kids, so suggest a Secret Santa arrangement instead of buying for every person.
This way you can put more thought into each gift as well as not creating more stress.
3. Homemade wrapping paper
If the end of term results in your kids bringing home sheets of artwork, why not recycle these and use them for wrapping paper for the extended family?
Not only does this mean that the kids get to see their artwork being passed on to loved ones, but it also saves you money on buying wrapping paper that will be in the bin by Christmas morning.
4. Shift the focus
Rather than dwelling on social media posts of the perfect Christmas morning with matching pyjamas, shift your focus to the true meaning of Christmas: helping others who are less fortunate.
For instance, instead of getting new books for Christmas Eve story time you could choose books from the library and make a donation to charity that helps literacy in at-need communities.
5. Keep a track of your spending
With a large percentage of Australians overspending at Christmas (and feeling guilty about it), it’s important to keep a budget for Christmas and any associated events – like holidays – over that time.
By following a budget, and starting now, you can spread out your spending – $200 a week over five weeks is much better than $1000 in the week before Christmas.
6. A final few tips
– Create a list of who you need to buy for and brainstorm present ideas before you go shopping.
– Make your own gifts.
– Buy online when sales specials are on. This can help you avoid pressure from sales staff and impulse purchases.
– If hosting a Christmas day event, organise it early so attendees can help out with the food and drinks.
Want some extra help?
If you’re struggling with your budget and don’t know how you’re going to make the money stretch over Christmas, give us a call.
We’d love to help you come up with some strategies to ensure that you and your family get to make the most of the silly season ahead.
By Dave Fleming : 18 December, 2018
On the up and up. Keen to jump into a property hotspot?
With housing values falling across half of Australia’s capital cities over the past year – and the media well and truly letting us know all about it – it can be all too easy to forget many regions are doing well. Here’s where property prices have recently experienced healthy growth.
The good news is that almost half of Australia’s 88 sub-regions have experienced growth in housing values over the past twelve months, according to CoreLogic.
These sub-regions are more formally known as SA4 sub-regions, which have populations between 100,000 and 500,000 people.
“Half of these regions have recorded a higher rate of annual capital gain relative to their five year average rate of growth, suggesting some acceleration in market conditions,” says CoreLogic’s Tim Lawless.
“In fact, 35% of the SA4 sub-regions have recorded an improvement in their rate of capital gain over the past 12 months relative to their five year average rate of growth.”
So where’s hot?
Two words: regional areas.
In fact, 57% of all regional areas recorded a rise in dwelling values over the past twelve months, while only 39% of the capital city sub-regions recorded an increase.
Here’s a list of the top 10 healthiest growth markets, all of which outperformed their five-year average.
1. Geelong, Victoria, 11.8% growth
2. Hobart, Tasmania, 10.7% growth
3. South East, Tasmania, 9.9% growth
4. Launceston and North East, Tasmania, 9.3% growth
5. Ballarat, Victoria, 7.1% growth
6. Central West, NSW, 6.1% growth
7. Sunshine Coast, Queensland, 6.0% growth
8. South Australia Outback, SA, 5.8% growth
9. Latrobe – Gippsland, Victoria, 5.3% growth
10. Northern Territory Outback, NT, 5.3% growth
Why are regional markets healthier?
The ‘healthier’ conditions across regional markets can be attributed to a range of factors, says Lawless, including:
More sustainable growth conditions: “Most regional areas have seen relatively sedate housing market conditions compared with the heroic gains across Sydney and Melbourne. The more sustainable history of price growth has kept a lid on housing affordability and made these markets attractive to migrants,” says Lawless.
The ripple effect: “A ripple of demand has been emanating from the largest capitals towards the satellite cities where housing is generally more affordable and lifestyle factors can be appealing.”
Sea change: “Many coastal and lifestyle markets have benefited from a rise in buyer demand, either from those looking for a new residence, second home or investment option.”
Bounce back: “Many of the hard hit mining regions have now levelled out and are now showing some growth.”
Capital Cities that have Experienced Growth
There are some capital cities also doing well, says Lawless.
In Brisbane, seven of the nine SA4 sub-regions have seen a rise in values over the past year.
In Adelaide, three of the four SA4 sub-regions have recorded an annual gain.
Hobart is also experiencing significant growth (10.7%), as seen by its second place spot on the list.
“While conditions are broadly slowing, especially around Sydney and Melbourne, many areas of the country are benefitting from a history of more sustainable growth rates, improving demand and reasonably strong economic conditions,” says Lawless.
Interested in Finding Out More?
If you’re a first home buyer or an investor looking to purchase property in an area that’s recently experienced growth then get in touch.
We’d love to help you source a great home loan and help make your property ownership dream become a reality.