Government Grants and First Home Buyers
Lower interest rates and increases in government grants have enticed more Australians, particularly first home buyers, to purchase a residential property. The number of permits in January to build private sector houses rose, despite total approvals to construct dwellings falling, official data showed.
But now the party's officially over. According to leading economists interviewed on the ABC AM program last week, home buyers can expect to be repaying around $130 extra per month on an average mortgage after the next few Reserve Bank of Australia board meetings. The RBA is widely tipped to raise its key interest cash rate by up to 75 basis points in a further attempt to wind back the Commonwealth stimulus and return interest rates to a normal level.
The central bank last raised interest rates earlier this month, and since then the country's major commercial banks have announced increased profits. But now, there will be a bit more room to shop around for better rates. Treasurer Wayne Swan recently announced that the Federal Government is putting more money into non-bank lending to try to prop up competition in the mortgage markets.
Competition in the home loan market suffered in Australia over the last two years. Non-bank lenders Bluestone and RAMS Home Loans were two lenders to find themselves a victim of the global financial crisis, crippled by the higher cost of borrowing. When talk turned from subprime to "credit crunch", there was no credit.
Liquidity just dried up, leading - as governments around the world wind back stimulus packages - to higher mortgage rates. Higher rates, above movements in the RBA cash rate, are costs banks have to pass on to consumers to preserve their profitability. Australia's RBA was the first central bank in the world to put up rates after the crisis passed Australia, at least.
Renewed competition in the marketplace may mean that you are able to shop around for better rates. You won't be restricted to the big four banks, or banks at all, once the Commonwealth plan to stimulate non-bank lending kicks in. Still, a rate rise of two per cent would still leave variable home loan rates well below the 9.60 per cent peak seen at the time of the last Federal election. So if your wages haven't dropped because of reduced hours, it's a good time to increase payments to pay your mortgage off faster.
You've still got time under the first home buyer's grant, even though it too is being wound back. Plenty of other people are taking the option: so many that banks are struggling to keep pace with an unexpected increase in applications from first-home buyers. Managing your mortgage properly may mean you buy fewer consumer goods in the short term whilst you attempt to manage your mortgage, but it means increased financial security in the long term.
The Banks and the Mortgage Brokers
Over the past decade franchised mortgage brokers have experienced boom times. Mortgage Choice, RAMS, Wizard and others extended to satisfy the call for for credit score from the proliferation of non-financial institution credit score providers, till recently. There's no escaping the brutal truth of the credit score crisis, it is hitting the non financial institution area hardest.
According to the Mortgage & Finance Association of Australia (MFAA) the market share of non bank mortgage originators has declined from a peak of 15 per cent to about 4 per cent; effectively bringing an abrupt halt to the trend from the late 1990s. The appeal of buying into a branded, non bank franchise may be waning.
Mortgage brokers often work in what are referred to as a franchise environment. This is distinct from a being an "independent". A franchisor has a lot of controls placed on the mortgage brokers. Consumers do accept as true with manufacturers however the franchisees are deprived through now no longer being capable of perform freely of their markets. Commission structures are often stacked in favour of the franchise group; the agreement terms are onerous.
The promises made to mortgage brokers who seek to take buy a franchise or to work within a franchise environment is that leads will be provided. Mortgage brokers however, thrive on good quality leads. More often than not however, the quality of leads is minimal. They are usually web-generated and often when you follow them up they don't know why you are calling.
Other mortgage brokers join "aggregator" groups. In the market as it stands today, mortgage brokers need to be "approved" by banks before making mortgage applications on behalf of clients. Independent brokers need to achieve volume hurdles to get access to banks and other lenders. These groups manage a lot of the compliance, professional indemnity and training services and enable smaller firms to gain access.
It is useful to understand that many experienced brokers won't go into franchises; they don't need the training. On the other hand, franchising is a resilient business model and offers many small businesses stability, systems, buying power and brand strength that could give them an edge over independent retailers and service businesses.
Regarding the issue of constraints on franchisees who need flexibility in a tough market, there's the challenge of large and expensive centralised systems and the issue writ large of relevance in an industry that's undergoing change.
The industry has attracted those with an entrepreneurial flair in the past and will continue to do so into the future. When banks were closing branches people with entrepreneurial flair came into the industry. They were consumer centric and filled the void left by the banks. Some very successful franchise systems were created; others became independent brokers.
The bottom line remains the same: if you're providing a high level of customer service you'll get business. It's the one-on-one interaction that consumers want. The response to the recent Great Financial Crisis is that consolidation is inevitable. Even at the smaller end independent brokers are merging with other brokers.
Despite the upheaval, brokers have retained their share of total business. They still are holding 40 per cent; a healthy share. It shows that consumers like dealing with them. Current circumstances give brokers more opportunities than less, to capture business. Customers want the comfort that they are making the right decision.
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