How to position your business in a competitive broker market: Matt Carlson
GUEST OBSERVATION
The news has been awash with stories of falling house prices, less sales, lower clearance rates and more stringent lending policies in recent months. But despite these ongoing market and regulatory challenges, the Australian broking industry is in a remarkably healthy state.
Recent data from the MFAA Industry Intelligence Service (#6) shows brokers have written more value of residential home loans over the past year than since data started to be collected in 2013. With sales of homes beginning to slow across Australia, but the value of mortgages originated over this period, it creates an interesting dynamic within the mortgage broking market. Why is this occurring?
CoreLogic, which performs valuations on behalf of leading Australian banks and financial services companies, helps shine a light on this market dynamic via the statistics of why valuations were ordered — approximately only 25% of property appraisals over this period were for purchases, 5% for construction and a huge ~70% were for refinance (including restructure, top-up and new product type) of existing loans. Transaction numbers may have declined nationally, but brokers are still very busy.
In fact, the growth of brokers over the past couple of years means there is more competition in the industry than before — and that gives customers greater choice in who they engage with. So, in an increasingly competitive yet complex market, how can you differentiate your business?
1. Look broadly across your lender panels and prepare before application
In a tighter regulatory and more focused credit risk environment, lenders are needing to make policy decisions on which clients and security they are willing to provide lending for. Borrowers are under greater scrutiny, and lenders are asking for more evidence around their ability to service the loan. You need to do more research and keep up to date with policy changes for the lenders you deal with. It’s not just the simple things; for example, are there postcode restrictions; what are the acceptable securities; what are the differences for investor, owner-occupied; and what type of product is your customer looking to utilise — interest-only, line of credit or P&I. All these will most likely mean brokers have to navigate in a matrix environment.
If you haven’t yet done so, it could be worth getting to know some of the more specialist lenders. The MFAA IIS report shows the growth off non-ADI lenders growing substantially and consistently over the last couple of years, and knowing the alternative value propositions is important to giving your customer the best possible result.
Another standout result in the recent data is the decrease in conversion rates — that is the percentage of loans that are applied for which settle. Valuations play an important role, particularly in higher LVR business. If you are not running a property report and getting some understanding of value before the submission of the application, you are potentially costing yourself time and money as well as creating a negative customer experience. As a professional, managing expectations and setting your client up for success is critical.
2. Sharpen your value proposition
Position yourself as a credible source of information and show your clients you’re knowledgeable about the things they care about. For example, if you’re dealing with investors then they will most likely be interested in rental returns and yields, capital growth and want to know more about the markets they are looking to invest in. You can no longer generalise your approach; you have to personalise your interactions if you want to win and keep the business.
With so much information freely available to your customers, you need to be a step ahead. Personalisation, knowing the markets that you operate in and where your customers can give you the edge over those who don’t.
Check out state performance benchmarks by using tools such as the MFAA’s Industry Intelligence Service Summary. Are you as good as the average or better? If you are better, what are you doing to stay ahead? Arming yourself with knowledge can give you insight into where you can improve and help you build your value proposition.
3. Engage with your customer base long-term
A new mortgage should be more than just a transaction, but rather, the start of a long-term relationship with your customer. With great service and personal service, this can reward you with repeat and referral business in the future. Don’t just do the minimum and keep in touch with your client through mass, generalist non-value add information — make it personal, make it insightful, make it better than your competitors.
Consider tracking the local property market so you’re aware when your client puts their home up for sale or for rent. Track market activities that you can then use to engage with your clients. Know when your clients are in high equity positions. Remember when they said they “want to renovate in a couple of years” or when they told you an investment property was a dream in the future. The little things are what will make a difference in a competitive market. It’s not just when your client sells that you have risk of losing them as a client. Remember that more valuations are ordered for refinances than sales — is that your client talking to another broker or lender?
Buying and refinancing property can be stressful for borrowers, particularly when the housing market is challenging. There is regulatory focus, countless news articles about how hard things are and when lenders are changing their policies — what better time for you to make the most of the situation and provide professional, insightful and valuable services for a great customer outcome.
Matt Carlson is CoreLogic's senior leader for western region and broker solutions.
