Protect your business from risk: choose your clients wisely and focus on serviceability and documentation
1. Royal commission shakedown
January marks the calm before the storm, but we all know what’s coming next month: the royal commission’s final report. The commission has highlighted, among other things, conflicts of interest with broker remuneration and dodgy lending practices. The commission also expressed concerns that the staggering growth of the broking sector has not delivered more competition for consumers, which the industry has staunchly challenged.
“Early discussions have focused on the calculation and disclosure of commissions, and the nature of the royal commission is highlighting more protection for consumers, so these changes are likely to have a significant impact on broking business models. It’s going to be an interesting year,” People’s Choice Credit Union spokesperson Stuart Symons told MPA.
2. Tighter lending appetites remain
With rising household debt and responsible lending in the spotlight, there’s an industry-wide focus on more accurately assessing borrowers’ serviceability and affordability of the debt— a responsibility that will largely fall on brokers.
“[Brokers] will be expected to have a deeper understanding of the products they are offering. If lenders are pricing for risk, brokers will be expected to understand how that affects their clients, including pushing for complete disclosure to allow lenders to properly price that risk,” Symons said.
“Similarly, brokers will need to look beyond regurgitation of investment proposals. Instead, they will need to show they have a deep understanding of those proposals and also document that understanding and their communications.
“At the same time, competition for lending will place far greater pressure on credit providers and their brokers to speed up transactions – it’s a difficult balancing act.”
3. Protect your business: Choose your clients wisely
The reams of data that will become available this year with the introduction of Open Banking and Comprehensive Credit Reporting will be a boon for brokers and they should use it to protect their businesses, explains Symons.
From July 1, the major banks will have to release data relating to credit and debit cards and transaction accounts to customers on request, with the rest of the industry part of a staged introduction that will see mortgage data made available in February 2020. CCR will allow for the broader use of positive payment histories.
“Clients will be able to authorise the release of this information to brokers, who will be under greater pressure to show due diligence. It will also allow brokers to show they have a better understanding of their client’s position and be able to advise accordingly,” Symons said.
“If faced by a choice between a client who is willing to provide extensive access to documents to back their stated financial position and another who is providing a bare-minimum, it may pay to point out that the financial sector is under greater pressure to assess individual circumstances – and will more likely lend and invest where full information is provided.”
4. Housing market correction continues
The Sydney housing market, which saw values balloon to a staggering 12.8% in 2017, is forecast to slow some more in 2019. In 2018, the Sydney market declined by 5.2% and it’s expected to drop a further 3.3% this year, according to estimates from Moody’s Analytics. In Melbourne, the outlook is equally grim with house values forecast to fall by 6% this year.
In the other capital cities, Brisbane’s house values are forecast to gain slightly (1.2%) while both Perth and Hobart are expected to decline somewhat. The housing market in Adelaide is expected to remain stable with a 2.6% rise in 2019.
