Mortgage brokers shopping around for their clients. Competition Index – March 2018

The release today of the AFG Competition Index shows the flow of business to lenders has once again been volatile, highlighting evidence that mortgage brokers are the only ones equipped to provide Australian borrowers with a complete picture of the many lending options available to them.

AFG General Manager Broker & Residential, Mark Hewitt explained the results: “The gap between the first placed major lender, Westpac at 14.21% of the market and third placed ANZ at 12.32%, is the closest it has been for some time.

“As AFG has stated many times, a consumer dealing directly with a lender has limited negotiating power or knowledge of the interest rates and lending criteria offered by competitors. This has been further validated by the findings of the interim ACCC Residential Mortgage Price Inquiry. The presence of the mortgage broking channel is one of the few drivers of competitive tension in the Australian lending market.

“Whilst the majors’ market share lifted a couple of percentage points across the quarter, rising from 62.51% in November 2017 to 64.03% at the end of February, three of the four majors went backwards.

“ANZ dropped from 14.93% in November 2017 to 12.32% at the close of the last quarter. CBA’s share of the market dropped from 14.99% to 13.63%, and their subsidiary Bankwest dropped from 3.74% to 3.35%.

NAB also recorded a drop, from 8.57% in November 2017 to finish the last quarter at 7.67% of the market.

“Only the Westpac group of brands, Westpac, St George, Bank of Melbourne and BankSA grew, with their market share lifting from 20.28% in November 2017 to 27.05% at the close of the last quarter,” he said.

“Interestingly, the Westpac group’s major gain came in the area of fixed rate loans with their share of that product type increasing from 23.63% to 44.24% of the market.

In a sign the majors are again open for business for investors, their share of that segment of the market has lifted from 64.82% in November 2017 to finish February at 66.78%.

The non-majors’ market share is now at 35.97%. “Amongst the non-majors AMP recorded an increase in market share and lifted from 2.27% to 4.62% and Homeloans recorded an increase from 0.14% to 0.33%. WA-based Keystsart, lifted from 0.18% to 0.26%.

Suncorp fell from 4.21% to 2.81% and Macquarie contracted from 4.66% to 4.26%. Bank of Queensland lost almost 50% of their share to finish February at 0.86% of the market.

The non-majors were once again favoured by First Home Buyers, with their market share in that category lifting from 31.31% to 33.38%.

How to cure the Christmas debt hangover

The festive season might be a distant memory but many of us will still be paying for it well into the future. According to the Australian Securities and Investment Commission (ASIC), more than a third of us put our Christmas gifts on plastic, racking up an average individual debt of $1,6661.

 

The Christmas splurge adds to our mounting household debt, already among the world’s highest, with $30 million owed on credit cards2.

Our penchant for plastic even has the banks taking steps to help curb our habit. Late last year the Australian Bankers Association proposed a new code of conduct to ban unsolicited credit card limit increases, make it easier for consumers to cancel cards, and improve transparency on interest-free periods3.

The reality, however, is the buck stops with each of us when it comes to personal debt. Here are our tips to get on top of credit card debt in 2018 before it gets on top of?you.

 

Take stock

The first step to crunching debt is knowing how much you owe. It can be easy to lose track of credit card debt, especially if you have more than one card. Take note of what you owe, and the interest rate, on each?card.

Now take a look at the bottom of your latest statement where it spells out how long it will take to pay off your credit card and how much interest you will fork out in that time if you just pay the minimum due each month. Warning – the figures might alarm?you.

If you just make the minimum monthly payment on a $5,000 balance at 15 per cent (starting at $102 per month and decreasing over time, with an absolute minimum payment of $20), it will take you almost 24 years to rid yourself of the debt and you will end up paying more than $12,000 with interest! Notch the repayments upto $246 per month until the balance is cleared, and you knock the debt over in two years and save more than $6,000 in interest.4

The key take-out here is always repay more than the minimum?due.

 

Demolish your debt

Make a plan to crunch your card debt. You may consider socking all your spare cash onto the card with the highest interest rate and pay it off first, but remember to pay the minimum due on your other cards. You could also investigate consolidating all your plastic debt to one card with a low rate. Just make sure you take full advantage of any introductory low-rate window by repaying more than the minimum due each?month.

Cancel cards as you transfer balances from them, or once paid off, so you are not tempted to rack up debt on them?again.

If your cards are getting the better of you, consider speaking with a financial adviser or visit ASIC’s MoneySmart website?www.moneysmart.gov.au?for further?information.

 

Track your spending

Run through at least six months of card statements to get a handle on your plastic purchases and look for ways to cut discretionary spending, such as entertainment, clothes and holidays. Create a budget and sink leftover funds into your credit card balance to pay it off?sooner.

 

Purge the plastic

Exchange your credit card for a debit card so you can only spend what you have in your savings account. You will avoid deepening your debt and hopefully develop better shopping?habits.

 

Choose the right card

Think about avoiding cards offering rewards such as frequent flyer points as they usually attract a higher rate and require years of high use to accrue decent rewards. It may make more sense to opt instead for a low-rate card with an interest-free period, and make the most of it by paying off any new debt before you accrue interest?charges.

 

Set aside the Christmas savings

Start saving now for next Christmas. If you put aside $10 a week from April 1 until December 1, you will squirrel away $340, enough to cover a few Secret Santas. Add to your stash by dropping your gold coins into a jar at the end of each work week. You won’t miss them and your little pot of gold will lighten your?wallet.

Any small steps you take to save consistently throughout the year can make a big difference come spending?season.

 

1. www.moneysmart.gov.au/managing-your-money/budgeting/spending/australias-christmas-spending
2. www.abc.net.au/news/2017-12-20/will-the-new-credit-card-rules-have-any-impact-on-our-debt/9275178
3. www.abc.net.au/news/2017-12-20/will-the-new-credit-card-rules-have-any-impact-on-our-debt/9275178
4. www.moneysmart.gov.au/tools-and-resources/calculators-and-apps/credit-card-calculator

 


Any advice contained in this article is of a general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regard to those matters. Information in this article is correct as of the date of publication and is subject to change.

Productivity Commission submission and request for information

I would like to share with you AFG’s response to the Productivity Commission’s Draft Report on Competition in the Australian Financial System. As you are aware we have been engaging with the Productivity Commission over and above the submission process and they have asked AFG to collate some real examples of the work you do to help your clients and drive competition. Click here to complete the survey. There is a tight turnaround on this request, please complete by next Thursday 29th March.

With last week’s headlines taking aim at our sector, I would like to provide some balance to the noise. It is very disappointing that a Royal Commission ostensibly set up to look into the poor behaviour of the banking sector has evolved to also consider the mortgage broking industry – an industry which for over twenty years has brought competition into the mortgage market place. However, given we now represent over half of all mortgages originated in the industry, it isn’t surprising.

We do however have concerns that the backdrop of the Royal Commission will be used to leverage a better commercial outcome for those organisations which are the primary focus of the Royal Commission, the major lenders.

  • The primary regulator of mortgage broking – ASIC – have recently completed a full review of the Broker Remuneration Model. ASIC indicated that the model is not broken rather it needs some ‘tweaks’. These tweaks have been proposed by the Combined Industry Forum (CIF) which is a group of bankers (including the big four and the ABA), other financial institutions, brokers, aggregators and others who have come together to address the proposals outlined by ASIC. The industry have actually moved to implementation phase of these responses and in many aspects have commenced making changes to previous ways we did business. Examples include the abolishment of bonus payments to brokers, a rationalisation of the array of soft dollar payments as well as changes to how brokers are remunerated on settlement. When combined with increased regulation and surveillance of the channel by ASIC, these changes make for a more robust and responsible industry that continues to be focused on good consumer outcomes.
  • AFG have been an advocate for competition and choice for Australian consumers since it began business, 25 years ago It is why we have 45 lenders on our panel and we are proud of the fact that of all our originations, more than 35% are to non-major lenders – the very same non-major lenders who would be unable to distribute their product and bring competition to the industry without a broker channel.
  • If banks had a more cost effective option to originate mortgages they would use it. Banks accept that the broker channel is how consumers want to access their products.
  • The broker channel provides choice, convenience and competition for Australian borrowers. It is why we originate over 50% of all mortgages in the country and also why this share has grown from around 38% just after the GFC when there was less competition in the market. Without the broker channel, don’t think for a second consumers will be better off.

Whilst the headlines have largely focussed on the Royal Commission this week, there were two other important news releases that are worth noting:

  1. The first was the ACCC’s report into interest rates of the big banks. Conclusions were that pricing was opaque. Without a broker helping their client to navigate the more than 3800 offerings in the market place, how is that client expected to get the right product?
  2. The second was APRA’s announcement that 100 branches have been closed by banks over the past 12 months. Does anyone else think it strange that if the proprietary channel was an efficient means of origination they would be closing branches?

There are estimates of around 16,000 mortgage brokers out there supported by thousands of small businesses who every day go to work to find a better outcome for consumers. At AFG we tell you, our brokers, to concentrate on the outcome for the consumer and the rest will look after itself. I am sure there are other broking groups with a similar mantra. I would encourage you all to keep doing what you do best, helping your clients.

Regards,
David Bailey
CEO

Reserve Bank of Australia has again opted to leave the official cash rate on hold at 1.5%

The Reserve Bank of Australia decided to once again leave the official cash rate unchanged at 1.5% with the last rate move back in August 2016. I’d like to share today’s rate announcement and the thoughts on why the Reserve Bank of Australia has made this decision.

With wages growth remaining modest and concerns emerging around the impact retail deflation is having on the overall economy, interest rates are predicted to be steady for the majority of 2018.

Even when rates are unchanged, the role of your broker remains the same. There may be different rates available from our lenders, so your broker is always on hand to ensure you have the right financial solution for your current circumstances.

If you’d like to have a chat about what today’s news means for you and your finances, please don’t hesitate to get in touch with an AFG broker.