Mortgage Broker Crunch

Hi there,

I run a small side-time hustle generating car/home finance leads for brokers.
(Not trying to solicit business)

However, a few of my clients and also some new ones I am onboarding have said some troubling things to me.

Their short on new clients, property volumes are down and their trails are barely enough to pay the bills and they don't see the next few months as being particularly cushy?

I thought I'd come in and take a pulse from the mortgage brokers here. I was considering being one myself but now will have to think twice.

Cheers,
Shawn

 

Depends on the broker I think. If the trail isn't enough to pay the bills they might be quite new? From what I understand the drop-off rate for new brokers is quite high.

 

It would be a tough time for some brokers - no doubt. Especially new entrants to the industry.

There's been a general credit crunch, refinancing isn't an option for some borrowers due to widespread changes to lending policies and some property markets have slowed down.

Then there's all the other stuff like the RC, PC's report, uncertainty of how we'll be paid in the future.....fun times.

Cheers

Jamie

 

To make an observation, brokers that pay third parties to generate leads aren't a great example of successful brokers...

Overall I think it's an extremely difficult time to enter the market, but if you can generate business and have reserves to cover a year or two without much income, you'd be fine.

 

What Pete said, I generate all leads internally, without paying an external party and with all the business in the world i'm fed up. 5 years ago the mortgage broker is king, banks will do anything to gain business, right now the Royal commission is changing the dynamic of the industry as a whole, the amount of work that goes into a loan application is crazy and the broker better convert that loan as if not, it will be costly. The information required to submit a std resi loans with the big banks is ridiculous and compliance is nuts, and if that lead does not convert is costly for the broker could be $500 a loan or more depending on the complexity of the deal.

As a result, I just stick to SMSFs and do a few resi's a month. and SMSFs are even worse with the lenders. Personally I am getting a touch over it. In saying that, and being over it, i'd say it would be hard for a new broker to enter either market.

Thats my two cents on a friday arvo with a beer in hand.

Cheers Ivan

 

Some random thoughts:

- Brokers generally require 'activity' and 'transactions' to generate volume. They usually 'trigger' borrowers to seek loans/refinances/etc. In 2018, sales activity is down near 20% in Sydney relative to last year. As much as prices are falling, less is happening. Hence margins, loan revenue, etc are falling.

- INV credit growth is at 1.6%. Thats really near/at decade lows. The 10% cap that was just removed didn't mean anything, because the market is at 1.6% so no mainstream lender will be near 10% (perhaps theres an odd exception to it).

- 15-20% of new loans written are now IO, this will likely stabilise a bit below the 30% cap naturally.

- Anectodally, i've spoken to half dozen or so very talented & experienced Sydney brokers in the industry about their plans for the upcoming period. I was shocked, pretty much all of there business plans involve cutting staff/costs and working their back book (i.e. just managing their existing customers). It means those brokers without existing clients will struggle.

- I'd imagine there'll be a big Sydney broker exodus in coming years. It'll be hard for many to make a living with settlement volumes significantly down and broker numbers significantly higher. That is, the pie is getting smaller, and there's more brokers looking to get a piece.

 

Hi Redom

This is exactly what I am hearing from a RAMs broker I use....in his case business is down 30% since March....that is very telling what is going to happen in Sydney. This is definitely a mini credit crunch. The real issue is most people with loans with major banks in Sydney who borrowed can't move....if they can't service it will cause a big issue as the indebtness is huge. That will have a flow on affect.

I agree some brokers will go to the wall or get out of the industry. For example the guys I use used to do about $8-9/month...now he is down to a more manageable 6.5m...a 30% drop from the peak...and approval success rate has dropped significantly.

 

I've spoken with two bank BDMs recently and they are both expecting a shake down in the number of Mortgage Brokers. I think it was more around the new regulations than anything to do with the market.
In terms of the market the abs figures are still trending up for mortgage approvals.
Cheers, Medine

 

I can see two general categories that will leave the industry:
1. Fairly new brokers that don't have a solid trail income will quit because they need to earn a living.
2. Older brokers may bring their retirement forward a few years because they're frustrated with the regulatory environment.

Those who have a solid business and cash flow will likely try to ride it out. My experience with other challenges in the industry suggests that those who come out the other side of these periods tend to have less competition and thus be in greater demand.

 

My broker over here in Perth said he's the busiest he's been in 5 years. Existing clients flat out trying to refinance, many without success...

 

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So he’s busy but not making any money unless he is fee for service

 

That's exactly what my Financial Planning buddies are saying is happening in their industry, with an escalated effect on the older planners because of the new requirements. So I do think we'll see more of it in broking, too.