Fifth Pillar: Macquarie and Yellow Brick Road create new retail bank, 1.15% discount on new loans; Mark Bouris game changer to create mortgage competition like the 90s, undercutting big banks
Tweet Topic Started: 7 Nov 2012, 07:43 AM (5,361 Views)
In a week in which the ‘people’s choice’ was re-elected as the President of the United States, I was lucky to be associated with an Australian move to democratise mortgages.
Many readers would have seen the stories in the media about the fact that my business – Yellow Brick Road – and Macquarie Bank have come together to market a more affordable mortgage product to everyday Australians.
These mortgages will be offered at a 1.15 percentage point discount on our base variable rate loan in the first year, reverting to up to a 0.86 percentage point discount for the life of the loan.
In the first year these mortgages will have interest rates of around 5.5%.
The big four banks’ standard variable rate mortgages have an average interest rate of around 6.62%, so you’re probably wondering how an organisation like Yellow Brick Road can market its own mortgage for 5.5%.
The answer lies in the difference between a risk premium and a customer discount.
That is, in Australia we can accept that someone who is wealthy will get a discount from the bank on their mortgage rate. But what Australians will not accept is that they pay more than their neighbour because they are perceived as being riskier.
So the banks do something very clever: they place the higher risk premium on all of their standard variable rate loans.
Then the banks offer "professional packages" to customers they perceive will use more services with the bank and add to profitability, so they drop the mortgage rate from 6.62% to 5.9% for their high net-worth customers who borrow more.
Proof that this works can be seen in the fact that all the big banks do it.
We’ve turned that idea around, and democratised the mortgage discount. Rather than customers waiting to be selected for a lower rate, we tell everyone they can have the lower rate, which after the first year, will be set at a similar level to the banks ‘pro pack’ mortgages.
This move is part of a broader philosophy that I’ve been pursuing since starting Yellow Brick Road. And that philosophy is this: only when the consumer is treated as an important and informed part of the banking system, will we have a truly ‘stable’ system.
An informed consumer knows how to take a home loan that is best for her circumstances and knows how to pay it off faster than the bank wants her to.
And the benefits of competition only exist when there is real choice upon which consumers feel they can act.
I worked to offer choice when I ran Wizard in the 1990s and 2000s, and in those days the borrowers responded.
But while lenders like Yellow Brick Road can disrupt the mortgage market with a discounted interest rate, the borrowers must have the confidence to act.
We have a way to go to get Australians back to full confidence, but I hope this new home loan shows all consumers what is possible.
*all percentage interest rates are annual percentage values
Mark Bouris is executive chairman of Yellow Brick Road, a financial services company offering home loans, financial planning, accounting and tax, and insurance.
These mortgages will be offered at a 1.15 percentage point discount on our base variable rate loan in the first year, reverting to up to a 0.86 percentage point discount for the life of the loan.
In the first year these mortgages will have interest rates of around 5.5%.
The big four banks’ standard variable rate mortgages have an average interest rate of around 6.62%, so you’re probably wondering how an organisation like Yellow Brick Road can market its own mortgage for 5.5%.
That means their SVR is 6.65% which is higher than the big 4 banks' average. The 1.15% discount on the initial year will attract some people but reverting to 0.86% discount for the rest of the loan is ho hum.
I put trolls and time wasters on my ignore list so if I don't respond to you, you are probably on it ....
Better than the "majors" sure, but not all that much better after the honeymoon period. There's quite a few non-bank lenders with better offers (eg http://www.ratecity.com.au/home-loans)
So what's the big deal?
My name is based on a Seinfeld character, not on a belief of a housing bubble.
by Robert Gottliebsen Published 7:34 AM, 16 Nov 2012
Strange things are happening in the banking industry and I am not sure the big banks are fully prepared for the new environment.
As I yarn to large prosperous companies they tell me that in recent times big overseas banks, particularly those from Europe, are suddenly knocking on their doors, offering loans at lower costs than Australian banks.
The overseas banks want a presence in Australia and have plentiful access to the low cost funds in Europe and the US.
It’s a long time since we have seen active overseas banks. The big Australian companies know that overseas banks have a history of being fair weather friends, but many are taking a slice of the action.
Then in consumer land, smaller banks, looking hungrily for growth, have suddenly re-rated apartment lending with the help of valuers.
Banks have always been nervous about city apartments. They liked lending on houses but when it came to apartments bank friendly valuers tended to value apartments at lower than market prices. And then the banks required higher equity than houses. Many Australians could therefore not buy apartments, particularly in Sydney.
Indeed a year or so ago the main buyers of Sydney and Melbourne apartments were Chinese. Chinese buyers are still there spending on apartments, but they are now joined by first homebuyers and those upgrading or switching to apartments.
The valuers employed by the smaller banks are not discounting the values and the smaller banks have lowered their lending standards (or synchronised them with houses).
Rarely have all buying groups been operating at the same time.
As a result in Sydney and Melbourne there is a lot more apartment buying. Whether this pushes up prices depends on the supply. In Melbourne there are signs of a glut, which is affecting the market, but in Sydney its all systems go.
And of course as a I pointed out earlier this week, Mark Bouris’ Yellow Brick Road is accessing low-cost funding to challenge the banks with lower mortgage rates (Mark Bouris' extreme CEO makeover, November 13).
Unfortunately, as I explained yesterday, large segments of the building industry are in a mess and banks are being very wary so liquidity is tight.
With all buying groups operating at the same time, let’s hope we don’t have some banks fostering demand and others restricting supply (Australia's dangerous apartment rot, November 15).
The resurgence of mortgage brokers after the GFC has been confirmed in the latest Mortgage Professional Australia (MPA) Top 100, which ranks the brokers that have written the highest value of loans over the past financial year.
In 2012 the combined sales of loans arranged by Australia’s Top 100 brokers was a cumulative $6.7 billion, compared with three years of sub-$6 billion sales following the GFC in 2008.
While Aussie brokers did not place in the top 10, a remarkable one out of every four brokers (26) on this year’s Top 100 list operate under the John Symond-founded brand, compared with just 15 in 2009, the year following the GFC.
This was also the second year in a row that Aussie placed more brokers in the Top 100 than other broking firm, ranking ahead of AFG, a non-branded aggregator where brokers operate under their own brand names, which had 19 brokers in the Top 100.
The Ray White-owned Loan Market Group was well represented, with six brokers in the top 100, with Daniel Esposito of Loan Market Manningham in Bulleen, Melbourne, ranking 14th overall ($86 million in loans).
Two brokers from Mark Bouris’s Yellow Brick Road ranked in the top 10 (Ross Laurenson, Yellow Brick Road, Frankston ranked 28th with $72 million in loans) while Smartmove Professional Mortgage Advisers had three brokers in the 100.
James Symond, nephew of John Symond and an executive director at Aussie, says the 2012 results "underpin Aussie’s commitment to the thorough training, development and ongoing company support to every broker who works with the Aussie brand.”
Aussie became the first branded mortgage broker to require all its brokers to obtain a diploma in financial services, with the aim of raising the professional bar.
In addition to the diploma requirement, Aussie brokers must also obtain membership of the Mortgage and Finance Association of Australia and are supported with additional training, coaching and marketing support.
The success of Aussie’s broking model is also testament to the foresight of John Symond, who shifted the business from a non-bank lender in 2002, when it offered its own home loans, to a mortgage broking model offering a range of home loans.
The top-ranking Aussie broker was Glenn English based in Carnegie, Melbourne, who managed to write 220 loans with a value of $82.6 million, ranking him 18th overall.
The post-GFC resurgence recorded in the Top 10o results was confirmed in the most recent JP Morgan Australian Mortgage Industry report (volume 16), which noted that about 45% of all loans are arranged through brokers, approaching pre-GFC levels. NAB in particular engages more with the broker channel to grow its mortgage book.
However, the same JP Morgan report notes that profitability has not risen in tune with brokers' growing share of the distribution pie – currently sitting at about two-thirds of pre-GFC levels – while "participants continuing to exit the market as a consequence”.
According the most recent MISC (Market Intelligence Strategy Centre) report on the broker market, the number of broking firms and aggregators has shrunk to 119, the lowest recorded number of active broker firms since MISC began measuring this figure in 2001.
National regulation of the mortgage broking industry in 2010 raised the compliance costs and professional standards of the industry, with many part-time brokers quitting the industry alongside other full-time brokers struggling to earn a living as a result of the GFC slowdown.
This compliance burden was highlighted in the responses of brokers that ranked in the top 10, with Colin Lamb of Mortgage Solutions Australia (10th with $102 million worth of loans) saying “tighter legislation” was the biggest challenge facing the industry, which “we embrace and are proactive about, including in our systems and approach”.
Other challenges noted by top 10 brokers include competition generated by the banks through their different channels.
“On one hand [banks] understand that 50% of their business comes from brokers, and on the other hand, they create models like UBank that undercut and undermine everything they’ve tried to create in the broker channel,” says Rael Bricker from House+Homeloans in Perth, who ranked fourth with $141 million in loans.
Other concerns were the ageing workforce, education of brokers and finding new staff.
Within in these industry dynamics, the Top 100 reveals those brokers that have risen to (or remain at) the top. Brokers who appeared in the 2009 list and in the 2012 list include ACT broker Gerald Tiffen from Tiffen & Co and the Mortgage Detective (ninth this year and ninth in 2009) and Justin Doobov from Bondi Junction-based Intelligent Finance (fifth in 2012 and eighth in 2009)
Top spot for the second year running went to another Melbourne mortgage broker, Mark Davis from the Australian Lending & Investment Centre (ALIC), who settled $169.6 million in 2012 writing an astonishing 474 loans in 12 months – more than a loan day.
ALIC has picked up a host of industry awards over the last few years, with Davis putting his success down to “continuing to change what I do daily and challenge my own processes as well as banking processes.”
“If you keep evolving with the customer and what their needs are, you stay ahead of the race.”
Mortgage broking remains a male-dominated profession at the upper echelons of the profession, with only 13 brokers in the Top 100 – almost the same number since 2009.
However, women have ranked highly in the past, with Mortgage Choice’ Wendy Higgins from Glenelg East in Adelaide ranking number one in the MPA Top 100 in 2009 and 2010.
This year’s top-ranking woman broker is a stalwart of the industry, Katrina Rowlands of Mortgage Success in Wollongong who ranked eighth, writing 343 loans worth $106.5 million. Rowlands has ranked in the Top 100 every year since its inception in 2005 and says she has sustained her business by “continuing to focus on the client’s best outcome”.
“I continue to believe I can make a difference. That’s the secret; knowing you can make a difference and taking control of the process to make that difference. I can’t tell you the number of times I’ve had a bank say that their turnaround times have changed to four or five days, and I’ve had to say, 'That may be OK, but not for my clients'."
Well,, he is like Obama "the peoples chioce" democratising the banking sector for all the strugglers in a socialist way (everyone is high worth to me!) so that the little lady who'll shift her mortgage over to the.wizard of oz because he is helping us all find our confidence!
by Stephen Bartholomeusz Published 6:24 AM, 20 Dec 2012
Is it a coincidence that the ink had barely dried on Commonwealth Bank’s move to outright control of John Symond’s Aussie Home Loans when Macquarie Group took up a placement in emerging financial services brand Yellow Brick Road? Probably, but it is a convenient one.
It is known that Commonwealth was concerned about the tie-up between Mark Bouris’ YBR and Macquarie earlier this year when they announced a partnership agreement under which YBR will distribute white-labelled mortgages and other financial products manufactured and managed by Macquarie.
Macquarie, which had propelled the growth of Aussie into a major independent force in the 1990s by providing funding via its PUMA securitisation vehicle, will also give YBR access to competitive funding from the cheap deposits it holds in its cash management account product, a platform of choice for financial advisers to manage client funds.
The partnership between Macquarie and the fledgling but ambitious and well-connected YBR was viewed, inside Macquarie and externally, as the start of an aggressive push into retail financial services and the creation of a "fifth pillar" within the highly-consolidated and concentrated banking sector.
The demise of the satellite listed infrastructure model, and a more cautious approach to taking principal positions – and the extra capital and liquidity it is holding – makes annuity-style and agency-type activities far more attractive to Macquarie than they were in the halcyon pre-crisis days.
From the moment, at the very start of the GFC, Commonwealth acquired 33 per cent of Aussie it was destined to eventually move to control and perhaps the only surprise this week was that it chose to move to 80 per cent, with an ability to move to 100 per cent in time, rather than something around the 50 per cent level which would have conferred control but perhaps preserved the appearance of independence for Aussie.
Certainly that move straight to 80 per cent appears to have surprised and unsettled Macquarie, which has been using Aussie to distribute a significant volume of its retail product.
CBA would be concerned about the potential of the Macquarie/YBR relationship and the presence of Nine Entertainment on the YBR register, a position paid for in part with advertising inventory that YBR is yet to draw on.
With Bouris’ marketing ability and his track record of growing a financial services business (Wizard Home Loans), Nine as a platform to broadcast the brand and Macquarie’s financial muscle and creativity YBR might be tiny today (a market capitalisation of around $70 million) but it does represent a retail banking threat.
It was CBA which in the 1990s was the first of the major banks to respond to John Symond by slashing its home loan margins to compete, more than 200 basis points of margin that has never been recovered.
Did CBA decide to move to absolute, near-total control of Aussie and risk losing the independent character of the brand because of the YBR/Macquarie/Nine tie-up? Perhaps, although only those inside CBA would know.
Is the placement to Macquarie (and a smaller placement to the family of YBR adviser Christopher Joye, who helped broke the original deal with Macquarie) a reaction to the CBA move on Aussie?
Almost certainly not, although it may well have confirmed the appeal of the deal for Macquarie, which would realise that its flow through the Aussie channel could be threatened by CBA’s increased stake.
The original deal last month was supposed to contain an equity layer, but didn’t. The placement of about about 8.5 per cent of YBR to Macquarie and 1.5 per cent to Joye announced today was designed to cement that alliance. For whatever reason, there was a delay between intent and execution.
The Macquarie stake is, perhaps, somewhat smaller than one might have expected and, one assumes, what Macquarie might originally have envisaged.
Bouris would no doubt be keen to ensure his brand is perceived as independent of the major banks and that he can now use that as a marketing message against CBA and its Aussie subsidiary. He would also, presumably, be keen to ensure he maintains control and doesn’t give Macquarie a platform to edge its way towards effective control.
Macquarie isn’t generally renowned for being a passive investor, although in this instance and at this stage in the relationship and YBR’s short history the ability (assuming YBR can executive its strategy) to grow its effective retail presence behind the YBR brand is far more important than the size of the equity stake.
At some later date, if YBR is successful, Macquarie may need to lift the holding to protect its exposure to YBR but it could be counter-productive to bring a bank brand next to YBR’s at this point.
It wouldn’t be surprising if Bouris brought in other allies – James Packer is a mate of both Bouris and Nine's David Gyngell – to add more firepower and credibility to YBR’s challenger ambitions. Packer was an investor in Wizard and, despite his withdrawal from financial services and media, might see it purely as a small investment and as support for his friends.
Bouris would have seen the CBA acquisition of Aussie as an opportunity to ratchet up the aggression and ambition, despite CBA and Symond’s confidence that the perception of Aussie as an independent non-bank brand can be maintained.
The issue of secondary brands owned by the major banks is starting to become a focus for the non-banks, which are pushing for the relationships between the four majors and their "other" brands to be made more explicit to consumers. Bouris has the visibility and marketing skills to elevate that campaign and would see the CBA move as an early Christmas present.
The timing of the two sets of announcements might be coincidentally close but does help to establish the battle lines and ground for the next attempted non-bank assault on the big banks’ retail banking stronghold.
Better than the "majors" sure, but not all that much better after the honeymoon period. There's quite a few non-bank lenders with better offers (eg http://www.ratecity.com.au/home-loans)
So what's the big deal?
Big deal? Mark is a star.
Didn't he copy someone elses idea once again?
WHAT WOULD EDDIE DO? MAAAATE! Share a cot with Milton?
Yes. Mark has all his wavy hair at 50 or so and is very respectable.
stinkbug omosessuale Frank Castle is a liar and a criminal. He will often deliberately take people out of context and use straw man arguments. Frank finally and unintentionally gives it up and admits he got where he is, primarily via dumb luck! See here Property will be 50-70% off by 2016.
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