One of Australia's best mortgage brokers Ross Le Quesne joins podcast host Phil Tarrant to reveal the secrets behind the best investors he works with.
They explore mortgage debt, APRA benchmarks and the challenges investors face as the lending environment changes rapidly.
Ross reveals how benchmarks on interest only loans has impacted investors, the habits he sees in the best investors to tackle lending head winds and why investors that use a broker get an unfair advantage.
You will also find out the importance of managing cash flow, why you should be prepared for the unforeseen and what mortgage brokers will do to help investors in the future.
If you liked this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: Facebook, Twitter and LinkedIn. If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insights!
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Announcer: Welcome to the Smart Property Investment Show with your host, Phil Tarrant.
Phil Tarrant: G'day, everyone, it is Phil Tarrant. I'm the host of the Smart Property Investment Show, www.smartpropertyinvestment.com.au. Quick plug, straight off the bat. I'm excited today. I'm settling on a new property. It all happens in about an hour or so's time. A duplex that I've picked up in Queensland within my personal portfolio, which I'm very happy about. Dual income, about 530 grand, should be a good little performer, about 6.4% yield.
Anyway, that's what I'm not here to talk about. I'm here to talk about mortgage debt today, and I've dragged in my mortgage broker into the studio. The timing of this is impeccable. Ross Le Quesne from Aussie Parramatta. We put this in the calendar probably about a month ago, and it's the day we actually settle on this property that you helped me out with, so we're going to go get lunch after this and celebrate.
Ross Le Quesne: Yeah, exactly. That'll be good. I got a few more grey hairs thanks to you, but yeah, looking forward to lunch. Should be great.
Phil Tarrant: Let's talk about me as a client. Let's do three different benchmarks. Ease to deal with out of 10?
Ross Le Quesne: Well, you've got a good team around you, which makes it ... So there's lots of people that pull strings around, so I'll give you an eight.
Phil Tarrant: Eight on ease to deal with? Okay. Communication, access to decisions and communication?
Ross Le Quesne: I'll have to go a five on that one. We struggle a little bit there, but you're a busy man, mate, you've got a lot going on, so.
Phil Tarrant: Yeah, and the value of the remuneration I provide, the commission you receive, as a broker versus the headache that goes into doing my financing?
Ross Le Quesne: Well, there's a lot that goes to that. We're sitting here now. This is going to what, millions of people, is it?
Phil Tarrant: Oh yes, so they say.
Ross Le Quesne: Yeah, it's a payoff, right? You take the good with the bad.
Phil Tarrant: Yeah, I know. So not very productive. At least this loan was a pretty reasonable size, right?
Ross Le Quesne: Oh, it was. For you, it wasn't your typical 250 Queensland purchase.
Phil Tarrant: Yeah, it ended up being about 450 or something out of the loan?
Ross Le Quesne: Yeah.
Phil Tarrant: Quick shout out to our good friends at Pepper for turning that around pretty quickly for us. Good, anyway. So, you're a mortgage broker. I've known you for a while, and we have spoken on the years on the Smart Property Investment Show around the importance of finance in building a growing portfolio, a multiple property portfolio, and some of the pains and trials and tribulations associated with that.
Obviously, talk about it a lot on the show in terms of the Smart Property Investment Portfolio, and we've gone at length on that, and I'm also doing this personal stuff as well. Where we are today in terms of property investors in terms of where we were sort of one, two, three years ago in terms of the ease to get finance, it's a tougher market, isn't it?
Ross Le Quesne: It's definitely a tougher market. If I looked two, three years ago, the ease to get finance and the ease for somebody to build a substantial portfolio on not a huge income was a lot easier when you have six or seven different lenders that excess on the actual repayments that you're paying. A lot of our investors, as you know, would pay interest on their repayments. To now, where you've got the upper benchmark, so they're servicing it, principal and interest, 7.25 across the major deposit taking institutions.
It makes a massive difference for somebody. The goals and I guess the objectives of investors are still the same, buying quality assets, under market if possible, with a good yield that are going to perform into the future, but it's more the number of assets they can finance is becoming more difficult under the new structures, which I guess was the aim of the APRA guidelines in the first place, to slow the market down.
Now with the interest-only benchmarks coming in, that's added another level of complexity to it, because then you now need to look at, well, am I going to reduce my rate and pay principal interest, or am I going to look at an interest-only option? It's been a challenging couple years, and it's really changing on a weekly basis for us.
Phil Tarrant: Let's quickly just recap on some of these things you just alluded to. APRA, so the Australian Prudential Regulation Authority, so these guys are in charge of keeping our economy sort of in check, to make sure that things don't go too crazy and put regulation in place to sometimes temper, sometimes promote, sometimes supercharge our economy by putting the rules down, for which banks and stuff can operate within. What have they done, what's APRA done, what are the requirements they put in place which has changed the lending environment over the last couple years? Just to recap quickly.
Ross Le Quesne: Okay, so basically, they put some guidelines out to the deposit taking institutions-
Phil Tarrant: Or ADI.
Ross Le Quesne: ... Around what the serviceability criteria should be, so basically, how much they can lend to a borrower and puts some minimum benchmarking around that as a guideline in terms of the bank should be putting buffers, so where an investor might be paying interest-only at 5%, so their repayments on $1 million is $50,000 a year. If you're looking at that same $1 million at principal and interest, it's about $97,000 a year. It's in terms of repayments at that benchmark rate, which is a good 2% above, which is where we're looking at, the benchmark is 7.25%, so it makes a big difference paying $50,000 opposed to paying $97,000.
Phil Tarrant: So practically, you're saying that million bucks, principal interest at 5% would be, you would need to pay $50,000 a year to the lender in terms of the mortgage, right?
Ross Le Quesne: Yeah.
Phil Tarrant: But now they're saying, that's $97,000? This way they're assessing you even though it's still only $50,000.
Ross Le Quesne: Even though you're actually paying that, to qualify for the same amount, we're going to-
Phil Tarrant: Double it, essentially.
Ross Le Quesne: Yeah, we're going to say it's principal and interest repayments at a higher benchmark rate, so the repayments we're assessing you on is, say, something like $97,000 per annum.
Phil Tarrant: So that's enforcing to the investor
Ross Le Quesne: Exactly.
Phil Tarrant: ... In their ability to manage the debt they have associated with the property, paying the mortgage?
Ross Le Quesne: Yeah.
Phil Tarrant: Okay, which people should be doing anyway?
Ross Le Quesne: Exactly, but it's, you know, it was interesting. I was looking at one of my big investors the other day. You look at someone like him where he's got $10 million plus in mortgages. The buffer was astronomical. $400,000 in net income, which is massive. It's massive. In some cases, for our investors, the rule doesn't apply to commercial sense sometimes, which is the hard thing.
Phil Tarrant: Okay, so APRA said banks assess people on P&I at 7.7%, okay?
Ross Le Quesne: Yeah.
Phil Tarrant: That's one thing. What else did APRA say to the banks?
Ross Le Quesne: More recently it was around the interest-only lending, that they have to cap the interest-only lending to 30%. So the banks were running-
Phil Tarrant: 30% of their total loan book?
Ross Le Quesne: Yeah, their total loan book.
Phil Tarrant: So one in three loans on a bank's book can be interest-only?
Ross Le Quesne: Yeah, exactly. And the banks, to give some context around, the banks were running at around 45%, so they had to reduce the loans quite significantly, and so the way they did that was to reprice the cost of an interest-only loan versus a principal and interest loan, and you'll see a big differential in the market of around about half a percent between what they're willing to give for an interest-only loan versus what they're willing to give for a principal and interest loan at the moment.
Phil Tarrant: And did the banks go to their customers saying, "You should convert to principal and interest because it's cheaper," or is that what brokers have been doing, trying to convert people into P&I loans as investors? To try and stay within those thresholds?
Ross Le Quesne: Yeah, well, letters went out advising of the rate. In some case, they had a window where they could convert to principal and interest or gave them the customer number where they could sort of go, but obviously, as mortgage brokers, yeah, it's great to sit down and have a review of your portfolio to see what that means. The one thing for property investors is how can I hold my properties long-term? So it's not always about the cheapest interest rate. It's about what is my ability to hold the property-
Phil Tarrant: So, cash flow.
Ross Le Quesne: ... Long-term and look after their cash flow. So, it's a case by case. That's why you need to review it. The client with a $4 million debt position opposed to the client with a $500,000 debt position is a totally different category, because the $500,000 can easily can convert all these loans to principal and interest. The person with a $4 million portfolio makes it a little bit-
Phil Tarrant: A little bit harder?
Ross Le Quesne: A little bit harder.
Phil Tarrant: And another way to stay within those parameters was that the banks couldn't grow their interest-only books by more than 10% or somewhere-
Ross Le Quesne: No, that was investor books.
Phil Tarrant: That was investor books?
Ross Le Quesne: Yeah, they couldn't grow their investor books by more than 10% there, so their investor portfolios of all their investment loans by 10%. The growth in the market and the strongest lending has been in that investor section. It was a way of slowing that down, and again, you saw different rates for owner occupied rates compared to investment. At the moment, we've never seen better owner occupied principal and interest rates in the market, so a tip for any of the lenders, if you want to look at renegotiating something, that is your best bet, your owner occupied premises, to really get a good rate on that at the moment.
Phil Tarrant: So that's three things. Different serviceability, increased serviceability, keeping the interest-only stuff at 30%, so one in three loans in the bank's book is interest-only, and then slowing the level of lending you're offering investors. One of the purposes of this was this idea, that property prices are going up so quickly, and it's being driven by investors. It's one of the logics behind this, right?
And some people would argue that it's a stupid logic, and it probably only related to one or two markets in Australia, Sydney and Melbourne. When you've got Perth on the other side of the country hemorrhaging but, irrespective of where you are, these rules apply to all lenders lending in all different markets. They've copped a bit of flak about that, thinking that they could apply one principle to the nation, where it should really be applied in certain markets. Do you think this has slowed down property markets in Australia? These actions that have been taken?
Ross Le Quesne: Definitely, and if you look at the levels of growth that CoreLogic have put out over the last quarter, you can see that in most markets, especially Sydney and Melbourne, the level of growth has come off significantly. I think in terms of for the year, there's only a couple of markets that will get to that double digit growth this year. I think Hobart, Tasmania's one of them, like Hobart, but yeah, so it has significantly slowed down. I think even seeing Sydney showing a slight negative at the moment.
Phil Tarrant: That's a big, quick recap on what has been going on to where we are today, and as you mentioned, it is a different market today than what it was a couple of years ago. It's a little bit harder to get money. But some of this is forced best practise on investors to actually be more prudential investors, i.e., having great fat in their portfolio, so I thought for the rest of the podcast, Ross, we can just chat around what you're seeing the best investors in the marketplace doing at the moment, and some of the habits of these successful investors when it comes to their finance.
You work across primarily the investment market? I know you deal with a lot of owner occupied stuff, but you're quite well regarded within the Australian market as an investor specialist, so there’s an area you decided to channel your focus and attention as a mortgage broker. Talk me through, sort of, you work with everyone from one property to 50 properties, right?
Ross Le Quesne: Yeah.
Phil Tarrant: Do you have many people at 50 properties?
Ross Le Quesne: They'd be the few. They're few.
Phil Tarrant: I saw a stat that only 20,000 people in Australia own six or more properties, so when you start thinking about people with large portfolios, it's a pretty small, select pool of people. What makes these six plus properties, 10 plus property people different, do you think, from your one or two properties?
Ross Le Quesne: That's a great question. I guess they understand the fundamentals, the basic fundamentals, which comes down to your ability to hold the property, which comes down to cash flow. What factors are involved in cash flow that I see of these successful investors? One is their rents and their rental yields. They balance that. They understand how much negative cash flow they can afford from a month to month basis, and they balance that.
From a serviceability point of view, that cash flow really helps with their borrowing, moving forward. They'll take on strategies like where in my portfolio can I add a granny flat that's going to increase my cash flow and increase my serviceability? They'll look at it from a strategic point of view. You're buying a property now that is a duplex that has a dual income stream, and you said, you know, where most people in Brisbane might be getting a 4.5% yield, you found a way to get a 6-
Phil Tarrant: 6.4
Ross Le Quesne: 6.4% yield. So just thinking differently around that, looking after your cash flow. What other strategies do you have to look at cash flow? It's about managing your rents, being an active, reviewing your rents on a regular basis. What other things contribute to cash flow? Your interest rates. Are you reviewing your interest rates? There's been so many changes in the market, and they've increased rates on investment and interest-only, but if you look now, some of the lenders are dropping their fixed rates.
You might be paying 5% on your interest-only investment loan, but with that same lender, you can get a fixed rate at 4.2%, so what's the difference of a 0.8% over $1 million on your portfolio? It's $8,000 a year in cash flow. So they're looking at things like that, to really manage their cash flow. What other things, like in business, we say cash is king, and cash flow is king. It's about having those buffers.
A lot of people that have been in the market over the last few years, especially in Sydney and Melbourne would have equity in their properties, so quite often, people will borrow a little bit of extra money, have that money sitting in an offset account, or it may be savings, because if there is a downturn, if they do lose their job, if something unforeseen does happen, you want to be able to manage any cash flow drainage from the property.
For me, I've had times where people in my properties haven't paid rent, or I've had a renovation that's going on, which means that property hasn't been rented for a period of time. It's great to have cash reserves and a buffer in place. I think, one, the asset selection around cash flow and having all these other factors in to really managing your cash flow to hold property long-term is really important.
I think having a good team of people around you to assess your goals and look at what you're doing. I mean, you use a great team with the buyer's agents, with accountants, myself, that we sort of look at where you're going and what you're doing. I think that's key, because the mistakes that the not so good investors make is they buy the wrong property.
Phil Tarrant: Asset selection is fundamental.
Ross Le Quesne: Yeah, exactly, because you can have one property that takes all your negative cash flow, or you can have 10 properties that takes that same amount of negative cash flow. It is one of the fundamentals.
Phil Tarrant: That's a leveraging get off smart cash flow management.
Ross Le Quesne: Exactly, really, really important. I think looking at the bigger picture as well. Sometimes people are focused on, "I only want to deal with a big four bank," which limits their ability to grow a portfolio. So you've got to be open to what is the situation in the market, and what does this mean? And taking a longer term view on it.
I had a case where one of my more sophisticated investors wanted to get into the market and actually took a slightly higher interest rate, because the development potential, he was buying three blocks in a line. The development potential of that property over time was going to make him a lot more money than the higher interest rate, so sometimes it's just looking outside the box a little bit to say, okay, how can I secure, because I know the money that I'm going to make from this investment long-term is more than the slightly higher interest cost is going to cost me.
Phil Tarrant: The disparity between interest-only and principal interest now is-
Ross Le Quesne: Quite a lot.
Phil Tarrant: Yeah, it can be up to a percentage point, right?
Ross Le Quesne: Yeah.
Phil Tarrant: Is that going to change at any point in time, do you think? Do you think lenders-
Ross Le Quesne: Lenders have to work within the guidelines of APRA and not grow their investment book too fast, but obviously, things might ebb and flow if thing comes off and property markets soften and there's less investors in the market, banks want to be lending as much as possible, right? That's how they make money. I think a lot of people probably see the world the wrong way. It's not like banks don't want to be lending money. Banks love lending money, right? That's what they do.
Phil Tarrant: That's how they make money, yeah. That's how they make their money, exactly. They want to be lending as much as possible. Obviously, within the parameters of risk, right? So, the way in which lenders can, and maybe you can give your observations on this, the way in which lenders can influence their mortgage volumes is by special rates to attract more business. It's like you walk into Kmart, and there might be specials on barbecues, because they've got a shitload of barbecues they want to sell, so they'll shift them really quickly. Market economics, right? So lenders often offer special rates to try and attract more business, depending on where they are in the cycle.
Ross Le Quesne: So they'll have their standard pricing, which their existing customers get and the advertised rates, but then as mortgage brokers, we can apply for pricing on your behalf, to see what they're prepared to offer. I'm getting the feeling that some of them are getting sort of under that 30% cap now with the way the rates are priced. I'm seeing slightly better pricing, and you're seeing even fixed rate pricing for interest-only. I think as the demand for investment loans, and as there's a lot of scare mongering in the mainstream media about what's happening in the markets, so I think that, then, perpetuates itself into reality, right?
So you'll see less people investing, and your more sophisticated investors knowing the areas where they're going to invest, but a lot of your mainstream investors will drop off, which will drop the level of investment loans that then opens up the pricing to invest in loans because they'll be well under that cap. It's the same with what we've seen in regards to the growth of investment loans. The credit policies are loosening a little bit around the investment criteria because they're under that 10% cap now. They want to be as close to the 10% growth rate as they possibly can, so-
Phil Tarrant: So supply and demand, that's all it is. Like anything, it's just the market, right? If you see a lender offering cheaper rates, you can assume that they want to win more business. Yes or no?
Ross Le Quesne: It's a hard one, because also, they want quality business, so they might have a cheap rate, but then their credit criteria to actually get that loan approved is stricter than the next person. It's not necessarily driven-
Phil Tarrant: It's not that simple? Okay.
Ross Le Quesne: Yeah, it's not that simple. It's not driven entirely by rate.
Phil Tarrant: So they want their cake and eat it? They want as much business as they can take on in order to work within their parameters that they work within, but they want to make sure it's good business?
Ross Le Quesne: Yeah. Quality.
Phil Tarrant: Yeah, so they can be beggars and choosers.
Ross Le Quesne: Yes, exactly.
Phil Tarrant: It's a funny dynamic. So if I'm just a normal punter and I'm trying to get a new home loan and I don't use a mortgage broker, how can I tap into those special deals or cheap rates if I go directly to a bank? Do I need to speak to all of them individually and say, "What can you offer me?"
Ross Le Quesne: Yeah, that's-
Phil Tarrant: Does that need to happen, though, at the application stage? Would a bank, if I go direct, go, "Okay, Mr. Tarrant, well, fill out all these forms, and then we'll assess it," or can I just go to them, "Look, I want to borrow about 500 grand. I don't go through the rigamarole of doing all the documentation. Will you give me this rate?" Can I have that conversation with them before, or is it always an after type thing?
Ross Le Quesne: It's so much easier going through a broker. You're talking to the wrong guy.
Phil Tarrant: Some people would like to go direct, right?
Ross Le Quesne: Yeah. Well, some people-
Phil Tarrant: That said, though, that said, more people use a broker than don't use a broker these days. I think 53% of all home loans are now originated through a mortgage broker.
Ross Le Quesne: Because people don't want to go through the hassle of going around individually and negotiating rates. But you're right, yeah, people can do that, and have we seen that? Yes. People who have the time to do that, it's like how much is your time worth to be able to go around and to do that? And then, yeah, you might negotiate the rate, but because they don't have the intricate knowledge of a mortgage broker of understanding will the loan actually get approved, and is it most likely to get approved based on their credit criteria, they can just waste hours going through the rigamarole of finding the best rate, then applying but actually, "No, sorry, sir, you don't qualify, because you haven't provided all your information up front."
Phil Tarrant: If you've done it right, if you've applied for a loan and the lender goes, "Okay, let's assess this person," and they start doing credit checks and stuff, if you get your credit file hit all the time by people making queries on it, that's not a good thing, is it?
Ross Le Quesne: It's one of the factors that lenders look at in what they call a credit score. But there's so many factors. There's maybe 100 factors that go into providing what your credit score is based around length of employment, length of residence, whether you actually have a credit card, whether you declare you've got a credit card. Yeah, there's so many different factors that go into an actual credit score, and they don't tell us the algorithm. Credit hits is a big factor in that credit score, yes.
Phil Tarrant: These are all done by machines or is it people still doing credit scoring?
Ross Le Quesne: No, no, it's machines.
Phil Tarrant: It's all machines? So they chuck all this information into a box, and then it says yes or no?
Ross Le Quesne: Exactly.
Phil Tarrant: Or more information required?
Ross Le Quesne: Yeah.
Phil Tarrant: Okay, all right.
Ross Le Quesne: So people can go onto mycreditfile.com.au and see what their actual credit score is.
Phil Tarrant: That's free, but it takes like a week.
Ross Le Quesne: It's free and takes a week, or you can pay, I don't know, 30 bucks or whatever it is and get it.
Phil Tarrant: Is it a good time to be a mortgage broker?
Ross Le Quesne: It's a challenging time to be a mortgage broker. There's a lot more regulation, a lot more, obviously, factors to consider in terms of yeah, it's not just black and white. We never used to have that conversation around, I wouldn't say never, but in terms of the conversation around the difference in rates between principal and interest and interest-only is a genuine conversation now in terms of in the past, a lot of investors would come to us and say, "I want to pay interest only."
Where now, we're having the conversation because the difference on a $350,000 loan may be $200, because of the difference in interest rates, and then after five years, there's going to be $10,000 or $15,000 better off by doing principal and interest, and that wasn't a conversation that we were having, because the rates were the same, whether you talk of principal and interest or an interest-only loan.
Phil Tarrant: Is that the way it's always going to be from here on in? It's always going to be disparity between principal and interest and interest-only? Or do you think the market will realign itself and nothing is forever?
Ross Le Quesne: I've been in the market for 15 years, and I've seen constant changing ebbs and flows. There was a time where there was different rates for investors and owner occupiers, and then they were exactly the same. I think at the moment, while the APRA guidelines are in, and they'll be in for the foreseeable future, yes, there will be a disparity, but who knows?
Phil Tarrant: The APRA guidelines, primarily it was to take the perceived heat out of the market, that's pretty much?
Ross Le Quesne: Yeah, and I think you guys have reported through your other publications and I've read something recently that has said for the moment, the measures will stay in place. By them saying for the moment, it means that yeah, there is a chance that they will take them away when the market cools for them.
Phil Tarrant: I mentioned beforehand that more people use a mortgage broker now than don't use a mortgage broker to secure new loans, right? 53%, I think, is the percentage. I know that there is a collective movement, momentum for mortgage brokers to do even higher percentages of loans, so there's always a bit of conflict between banks and brokers. Brokers are an important distribution tool for banks to shift their mortgages?
Ross Le Quesne: Yeah.
Phil Tarrant: I can't remember, that was like the $7 trillion in residential, the value of residential real estate in Australia is about $7 trillion?
Ross Le Quesne: Yeah.
Phil Tarrant: I think there's about $3 trillion in debt, as in mortgages against it?
Ross Le Quesne: $3.6, $3.3 trillion. Yeah, it's very low.
Phil Tarrant: So, as an LVR, there's more equity than debt on Australian residential real estate, but the value of our banks and the value in their balance sheets and their profits, I think, sort of 40-odd percent of it is probably generated from their mortgage books, right?
Ross Le Quesne: Yeah.
Phil Tarrant: So mortgages are important for banks. I'm not going to say it's a reluctant relationship with brokers, but brokers are an important channel for those guys to connect with customers that choose a mortgage broker to secure finance. Do banks also have their own direct channels via high street banks and stuff? So it's an interesting relationship. There's a thing called channel conflict between brokers and banks, where often, banks like to have a direct relationship, but they also use the broker channel as well to generate volume. So channel conflict being when a bank tries to connect with broker's clients, is a big bugbear for the mortgage industry.
Ross Le Quesne: It was interesting. I noticed on one of my banking sites the other day, before I'd even logged in, there was a popup, "Do you want to chat to a home loan consultant right now?" That was interesting to me, because it's just another way of the banks getting you direct.
Phil Tarrant: Does that annoy you? Do you sit there and think, well, no? I get approached by banks saying, "I'll give you a better rate," and I go, "Hang on a second. I have a mortgage broker," you know? And I'm not going to use this to beat up on the banks, but you guys are at 53% of all mortgage loans, and I know there is a collective movement on the onward march to 60-plus percent. Over in the UK, I think they're even higher. 70-odd percent of loans in England are generated through the mortgage channel. What are mortgage brokers going to do to secure more of that footprint to help Australian investors own those?
Ross Le Quesne: I think with the added compliance and complexity and just the differences in rates now, before you had fixed and variable rates. Now we've got fixed interest-only, fixed principal and interest, variable interest-only, variable principal and interest, investment interest-only, investment ... So there's so many variables. A rate is no longer a rate, and a product is no longer a product the way that the loans are assessed. So there's so much more complexity and the added layer of complexities is just going to drive more and more people to mortgage brokers.
Phil Tarrant: So it bodes well for mortgage brokers?
Ross Le Quesne: Exactly. I think they've seen that in the UK. You and I went over and did the UK study tour, and they said that. As compliance got more and more over there, so did the share of business to brokers.
Phil Tarrant: Is it 70% or more, higher market share out there? I can't remember.
Ross Le Quesne: Yeah ...
Phil Tarrant: Somewhere around there.
Ross Le Quesne: It was high, and that highlights that with that will become greater scrutiny on mortgage brokers as well, because the regulators won't be just looking at the banks. They'll be starting to, and I think you saw that in the UK as well, where the regulators got a lot more onto to brokers as well.
Phil Tarrant: Our mortgage industry sure has grown up quite a lot over the last decade. There is NCCP came in, which is the code for brokers operate within and be licenced and stuff. For a period of time when it was a fledgling, new industry, there were some rogue operators out there that probably weren't behaving in the best way, but the mortgage industry today, the third party mortgage industry, i.e. mortgage brokers, it's a professional operation outfit now, and adding considerable value to consumers, i.e., people that need mortgages right across Australia. It's been an interesting growth for the mortgage channel, and in fact, that 53% means that it's more popular than going direct.
Ross Le Quesne: Yeah, definitely. You see different figures. I've seen figures closer to 60% as well, so it's yeah, I mean, depends on who's reporting it, I guess. It's definitely a growing industry and the added level of complexity, I know for you. Exactly. It would be a challenge, and I think a lot of people are finding that, but the banks will find ways, and the digital age is coming. They're getting smarter with their technology.
Phil Tarrant: It's interesting. I think I mentioned on the Smart Property Investment Show, about a month or so ago, I was out in San Francisco for a study tour. I went out there for mortgages and looking at real estate and stuff. Everyone in lending, whether you're a bank, broker, aggregator, whoever, everyone's talking about the digital channel, so people securing finance via a web platform which has no human element touching it. AI, and all this sort of stuff, right?
We spoke to some really smart operators out in San Francisco where this conference was, and these guys are platform, tech-based platform businesses. Had a guy from Salesforce talk about the future and stuff. What was clear to me is that technology's going to really augment the way in which people offer services within the financial services space, i.e. home loans or other debt, but what the findings were from pretty much everyone was that even your Gen Y's and millennials, they want a person involved in that process. It so important to have that personal connectivity when taking on mortgage debt.
Yes, there might be easy ways to get to a point where you're speaking to a person, or a lot of the heavy lifting might be able to get done by machines, but into the future, that relationship is still key. I was quite bullish about those sentiments, because it says the value of the advisor moving forward is only going to become more and more and more and more pertinent, which bodes well for mortgage brokers, bodes well for financial planners, bodes well for accountants, bodes well for lawyers.
Ross Le Quesne: Yeah, exactly, and at the end of the day, for most people, it's not a $20 book. It's a $500,000 or a half a million dollar purchase, or in Sydney these days, it's $1 million. They want the confidence of an expert guiding them, and sometimes too much information creates confusion. There's a lot of information online, so an expert with the experience to guide you-
Phil Tarrant: Distil it all and guide you through. It's really funny because yes, machines, technology's going to replace a lot of the administrative tasks associated with every role, but we're talking about financial services. But I think it was the guy at Salesforce said it, he said that at the moment, professionals, and let's say mortgage brokers, spend about 16% of their time on education. So being up to date with stuff, making sure they've got the tools to be able to do their job.
He said that, I can't remember the time period, but let's call it five, 10 years, that the professional, as in the advisor, mortgage broker, accountant, lawyer, whoever, will spend 26% of their time on professional education, development, to be able to deliver the advice that customers are going to require to add value. Tech's going to do a lot of crap, but the need to be able to be a good advisor is going to take so much more time, and that's where the value lies moving forward.
Ross Le Quesne: Yeah, well, just look in our industry. Let's say we've got 20 lenders, and they're changing a number of things. They're changing rates, they're changing product guidelines, they're changing credit guidelines, they're changing features of products. So to be across all of those for 20 lenders is, it takes a lot. It's the benefit of having a bigger team. We’re able to sort of, we have a 10-minute standup every day, and we chat about these things, and we experience a number of things. It keeps our finger on the pulse around those changes, but for the individual to try to do that?
Phil Tarrant: No, man.
Ross Le Quesne: No, man.
Phil Tarrant: So for all of our listeners who aren't yet using a mortgage broker, Ross, I'm going to give you a chance to tell them the one reason why they should be thinking about using a mortgage broker. What is it?
Ross Le Quesne: We make your life easy.
Phil Tarrant: Pretty much it.
Ross Le Quesne: Yeah.
Phil Tarrant: What did, you're Aussie, what did the Aussie slogan say, "We'll save you"?
Ross Le Quesne: "We'll save you."
Phil Tarrant: Is that still the tagline?
Ross Le Quesne: It is, it is.
Phil Tarrant: "We'll save you"?
Ross Le Quesne: They brought it back, yeah, they brought it back.
Phil Tarrant: There you go.
Ross Le Quesne: Everyone used to say it. It was 10 years old, and everyone used to say it to us anyway, so yeah, they brought it back.
Phil Tarrant: There you go. There's a plug for Aussie. I'm going to have to call up the guys and ask ... Anyway, Ross, enjoyed it, mate. Always like a bit of a freestyle chat with you, and thanks again for helping me out in that latest purchase.
Ross Le Quesne: Yeah, congratulations. Let's go get some lunch, celebrate.
Phil Tarrant: Sounds good. Remember to check out smartpropertyinvestment.com.au. If you're not yet subscribing to our morning marketing intelligence, latest news in property investment, being the first to know what's going on overnight, www.smartpropertyinvestment.com.au/subscribe. Chuck your details in there, we'll make sure we start sending you this important information.
If you've got any questions for me, for Ross, or for anyone else on the team about this podcast or any other ones that we've done, email the team, [email protected] Thanks again for all those reviews coming through iTunes. If you are listening to this, just scroll down to the bottom of the podcast and tap that five star button.
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Announcer: The information featured in this podcast is general in nature and does not take into consideration your financial situation or individual needs and should be relied upon. Before making any investment, insurance, tax, property, or financial planning decision, you should consult a licenced professional who can advise whether your decision is appropriate for you. Guests appearing on this podcast may have a commercial relationship with the companies mentioned.