Brokers should consider non-bank lenders and adopt a long-term view with their clients when dealing with the latest interest rate hikes, said mortgage finance industry leaders Peter White and Mark Bouris.
White (pictured above left), the managing director of the FBAA, said it’s “very different and difficult times” for everyone in the industry right now. He recommends that brokers stay close to their customers and lenders.
“This is my 45th year in the industry and I have never seen a market like this,” White said.
The comments come two weeks after the RBA lifted the cash rate to 4.1% – an 11-year high – and more than one quarter of borrowers are considered at-risk of mortgage stress, according to Roy Morgan data.
And there may be more pain to come with Westpac upping its cash rate forecast last Friday, joining NAB which is predicting a 50-basis point rise by August.
ANZ’s forecast remains unchanged at 4.35% the time of writing, while CBA (also 4.35%) will be updating its forecast after the latest CPI indicator data is released on June 28, according to Rate City.
Subsequently, borrowers with a CBA, NAB, or ANZ variable mortgage saw their interest rates rise 0.25% on Friday, June 16.
Bouris (pictured above right), executive chairman of brokerage Yellow Brick Road (YBR), said the danger was that those that had been on a fixed rate and were either just now rolling off their fixed rate or were about to had been insulated from rate increases.
“This is where I believe the RBA is running a real risk of overcooking the rate increases to get on top of inflation,” Bouris said,
White agreed, saying the Reserve Bank made decisions on data that was “two to three months old”.
“It’s not current. To me, that’s very poor decision-making and they need to wait and see the full effect of what they’ve done in the past before they move again,” White said.
“What it means to brokers is that you are chasing an outcome that you may never be able to achieve because it’s all unknown. One minute you have a deal and the next you haven’t because the rates have jumped.”
Adopting a long-term view
While both Bouris and White are critical of the RBAs decision-making and urge for a pause in monetary tightening, they both agree that there are strategies brokers can use to help their clients.
Bouris urged brokers to adopt a long-term view, saying that while a lot of the work would likely be unpaid in terms of commissions, being there for clients and providing them with direction during these challenging times would strengthen the relationship.
“YBR’s advice for brokers is to adopt a relationship-based approach when it comes to dealing with borrowers in need,” Bouris said. “While you may not receive an immediate financial benefit from providing advice and direction to borrowers facing into financial uncertainty, the long-term dividends will generally be much more rewarding.”
White agreed, urging brokers to stay close to their customers. “Make sure you are working with them to help resolve any issues and stay close to your lenders to understand what their credit policies are and if there are any particular variations in that,” he said.
Are non-bank lenders the salvation?
With banks subject to stricter regulations and the serviceability buffer, some brokers may look to non-bank lenders for more options.
White said that since non-banks did not fall under APRA, it was important for brokers to be aware of what they could offer. “They could be the salvation to many of your client’s problems,” said.
However, Bouris said non-banks were having a “hard a hard time of it” due to the funding advantages of authorised deposit-taking institutions (ADIs).
“Wholesale funding markets are proving to be challenging, while lenders that can accept retail deposits can benefit from an increasing gap between lending and deposit rates,” Bouris said. “The market for vanilla loans is super competitive among the majors and second-tier lenders.”
However, Bouris said non-banks would become increasingly important for loans that were not so straight-forward.
“As to the future, lenders that are willing to pick up the pieces from the fallout from these rate hikes will become increasingly important,” he said.