With interest rates at their lowest levels in 20 years, the Australian mortgage market has never been healthier. But as rates have begun to climb this year, the number of new loan approvals is diminishing.
With interest rates at their lowest levels in 20 years, the Australian mortgage market has never been healthier. But as rates have begun to climb this year, the number of new loan approvals is diminishing.
The static national lending sector hasn’t impinged on the growth of Australian Finance Group (AFG) though, as the independent wholesale mortgage broker moves to increase its eight per cent share of the market.
Mortgage brokers are predicted to issue 50 per cent of all new mortgages this year, a statistic not lost on AFG managing director, Brett McKeon.
“Our core business has grown the most over the past three years as consumers have become more comfortable with mortgage brokers,” Mr McKeon said.
That figure, closer to 25 per cent three years ago, has increased through a mixture of marketing, financial education and choice, which is the major factor according to Mr McKeon.
“Choice is critical to what we do – we offer our clients choice and that is what the market wants,” he said.
But another major factor in AFG’s business – interest rates – are tipped by economists to rise substantially this year as the Reserve Bank of Australia tightens monetary policy to control inflation, threatening to reduce the gains that have set records such as AFG writing $2 billion for the month of March.
And the RBA has already begun this process, moving in March to increase the cash rate by 0.25 per cent. Not to mention the national housing sector is considered to have been slowing for the past 12 months.
However, even under these slowing conditions, Mr McKeon is quick to point out that AFG managed to increase its market share by 1.5 per cent in that time.
He said that while the company’s growth has had a lot to do with low rates its performance is unlikely to be greatly inhibited if and when they rise. “If rates go up a lot, say by three to four per cent, I don’t think it’s a disaster for us. Historically lending has increased every year over the past 20 years,” Mr McKeon said.
To safeguard against this threat and to better serve its growing client base, the company has branched out into other services to diversify its revenue base.
“We’ve gone into financial planning in a bigger way, and adopted a holistic business approach and that’s given our clients a more competitive edge, which has enabled AFG to be more competitive,” he said.
While the major banks are largely wary about losing a business that has traditionally been offered by their branches to groups like AFG, some such as Westpac, faced with falling market share, have been forced to rethink their strategy.
In February, Australia’s fourth-largest bank signalled its intention to increase home lending conducted through brokers.
“I think the public generally have a negative perception of the big banks, and this hasn’t hurt us,” Mr McKeon said.
But the perception game is also something that AFG will pay more attention to, as it moves towards a public float within the next two years, he told WA Business News.
Being independent, the company has not, until recently, pursued an overly public marketing campaign.
In April however, AFG announced it would become a major sponsor of the Richmond Football Club, in its largest ever marketing spend.
On the recruitment side of things, Mr McKeon said that in the past, AFG has recruited specialists known to senior managers and where possible has opted to promote internally.
“We have our own HR [human resources] people,” he said.
“Sometimes, when we have exhausted all avenues, we might use a recruitment agency.”
AUSTRALIAN FINANCE GROUP
- AFG’s core business is wholesale mortgage broking
- It has 8 per cent of the national mortgage market
- The company is diversifying into financial services
- Mortgage brokers are tipped to control half of national mortgage market this year
- Marketing is becoming more important for the company
