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If you go back to before the GFC, a broker would take a paper application form when they visited a customer, collect a couple of payslips and just fax it all to the bank – that was the amount of paperwork a typical broker did. A broker’s role was more about connecting with the customer, understanding what they wanted and finding them the right solution.
The home loan application process was effectively entirely managed by the banks. What’s happened over time is that more and more work has been pushed onto the broker, so now we’re doing a full assessment before we submit to a bank.
The proposed relaxing of responsible lending obligations is not going to reduce work for brokers. They will still have to do a full serviceability assessment, check living expenses and document everything in between. The banks hopefully won’t have to go into such a deep dive when they get an application, but the broker certainly will.
With the increased compliance and documentation requirements necessitated by the best interests duty, the successful brokers will be those who focus on being brokers. They will make sure that most of their time is spent talking to prospective customers, while letting someone else manage the administration, marketing and compliance work.
You don’t want to be a broker sitting there with a black pen crossing off (redacting) tax file numbers!
At homeloanexperts.com.au that’s exactly what we’re trying to do with our brokers: let them go back to being brokers who are talking to customers, understanding their needs and recommending the right product. All the administrative work is completed in the background.
It’s worth pointing out that BID only applies to mortgage brokers and not banks. We have 40-plus lenders on our panel, which allows us to go over what the customer wants to do and recommend a suitable product from hundreds of products, whereas the bank effectively has one policy and a couple of products that it can recommend.
This will differentiate us significantly more from the banks as customers will know that when they’re dealing with a broker, we’re acting in their best interest.
The proposed reform to responsible lending rules, which aims to shift from a ‘lender beware’ back to a ‘borrower responsibility’ principle, will likely only have a minimal effect on how brokers assess loans. The level of information that the banks request from a customer may not be as in-depth or audit-like as before. Part of it is also about the customer acknowledging that some of the responsibility is theirs.
You don’t want to be a broker sitting there with a black pen crossing off (redacting) tax file numbers!
The biggest issue has always been that banks will look at a customer’s current discretionary spending and say they can’t afford the loan. But we know that when customers get a home loan, they change their lifestyle to reflect the level of debt they have.
With the proposed changes, the banks may get a bit more lenient with serviceability. Customers who were declined in the past may get approval for a loan, or for a larger loan amount, because the banks may be more flexible around what the customer is actually spending.
This change has the potential to cut down on red tape, allowing for faster and more efficient decisions on credit. However, much of it will depend on how lenders implement any changes.
It is quite clear that brokers will need more support than ever going forward. Trying to generate new leads, keeping on top of constantly changing lending policies, processing new loans and retaining existing customers while running an office is simply not feasible for most high-performing brokers.
It used to be that a sole broker could settle up to $15m a year all by themselves. Now, I’m pulling back on that figure, and I think these days they can probably only handle up to $10m a year by themselves. If they’re looking to do between $10m and $20m, they could probably do it with a part-time assistant. Any more than $20m and they’ll probably need a full-time assistant.
My recommendation would be to use outsourcing services mainly because the right full-service outsourcing service will enable top brokers and companies to reach the next level both in terms of revenue and lifestyle.
Our outsourcing model of plug and play makes it really easy for brokers. Basically, they don’t have to worry about HR issues, training or upskilling. They can go back to being brokers and talking to customers.
Admin work is never going to stop for a broker. Brokers need to consider at what point they’re going to bring in staff or support. Should they go down the outsourcing route? And if so, which outsourcing model?
Alan Hemmings
CEO, Home Loan
Experts
