From the GFC to the royal commission into banking, the path for mortgage managers has been fraught with opportunities and challenges.
Now as this niche segment emerges from the pandemic into an environment of rising rates and bonds, the prime loan market is on the horizon for those who can weather the storm.
“For the adept mortgage managers, who have evolved with the challenging times, this future scenario will be more than just a silver lining – it'll be a golden opportunity, with prime loans as the cherry on top,” said Peter James (pictured above), director of mortgage manager and non-bank lender Mortgage Ezy.
Before the chaos of the Global Financial Crisis (GFC) settled in, mortgage managers were on a roll, capturing market share right from under the noses of big banks.
But as the dust of 2008's financial meltdown settled, non-banks – the pillars supporting most mortgage managers – felt the ground beneath them shake.
Why? Well, the bond market – an essential lifeline for non-banks – saw its pricing skyrocket, according to James.
“Investors, wary of risks, tightened their purse strings, pushing mortgage managers into a most challenging terrain,” James said.
For almost a decade, these managers found their footing again.
Then entered the royal commission in December 2017 and over the next year shone the spotlight on the practices of big banks.
At its conclusion in February 2019, James said many brokers and their clients sought out non-banks who had emerged unscathed from the inquiry to register a protest vote against the banks and find alternatives.
“Mortgage managers benefited from this shift, as they provided a more personalised service and treated their customers individually rather than the using the cookie-cutter approach of the banks,” James said.
As the saying goes, all good things come to an end, and with the Reserve Bank of Australia repeatedly nudging up the cash rate, the bond market again showed its fickle nature.
“Spreads widened, with some reaching up to a staggering extra 1%,” James said. “As a result, the previously steady stream of prime loans migrated to the banks, and mortgage managers, if they had not already done so, began seeking specialty lending opportunities.”
Enter Mortgage Ezy. Recognising the gaps left behind in lending by the banks, the Gold Coast-based mortgage manager stayed ahead of the game by initiating several niche lending products.
Specialising in areas like SMSF, alt doc, expat, and NDIS loans among others, James said that innovation and adaptability could turn “challenges into gold mines”.
This strategy has seen it win a wide array of awards, the latest being named the Bluestone Home Loans Mortgage Manager of the Year at the 2023 Australian Mortgage Awards (AMAs) for the second year running.
Today's financial landscape is still replete with challenges, especially for mortgage managers, and at the forefront is the ominous shadow of rising interest rates.
For traditional banks, James said interest rate hikes often meant fatter margins, as borrowers usually saw immediate rate increases passed on in full.
“However, the story isn’t the same for depositors who experience delays in adjusting their savings rates and often short-changing them with fraction of the increase delivered,” James said.
“Mortgage managers’ fortunes are tied to those of the non-banks they use, and these non-banks, depend on the professional bond market for 100% of their funding.”
As interest rates increase, investors often demand yields significantly higher than official rates, especially if they think more increases are to come.
James said this results in eroding competitiveness, making it arduous for non-banks and their mortgage managers to both retain existing business and attract new clientele.
Yet, it's not all gloom and doom. Mortgage Ezy remained optimistic, with history showing that within challenges lie hidden opportunities.
James said the ongoing “bank wars” and market dynamics had forced a survival-of-the-fittest environment, especially among mortgage managers.
“It's a Darwinian setting – adapt or perish. And in this rigorous test, only the most resilient and innovative mortgage managers will emerge unscathed,” James said.
“Silver linings do exist. What goes up, including interest rates, must eventually come down. When this happens, those non-banks who've weathered the storm will find themselves in a prime position to capitalise on the renewed competitiveness, especially in the coveted Prime loan segment.
“Mortgage managers who have adapted to the changing market will thrive in the future, with prime loans as the golden opportunity.”
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