When the Bubble Bursts

Home Loan Specialists Mackay principal Gail Roots has seen the prosperity of Central Queensland rise and fall with the fortunes of the resources industry. She tells Kevin Eddy why her business is growing despite the downturn

Gail RootsHome Loan Specialists Mackay principal Gail Roots has seen the prosperity of Central Queensland rise and fall with the fortunes of the resources industry. She tells Kevin Eddy why her business is growing despite the downturn

The city of Mackay is currently experiencing a painful hangover after a decade of partying.

The city, which straddles the line between Central and Northern Queensland, has been a major beneficiary of the state’s mining boom. Mining service companies and the Hay Point coal terminal are major employers, spurring an influx of well-paid workers and development throughout the region.

But the party couldn’t last forever. The surging resources industry slowed to a crawl last year, and the streets of Mackay are no longer awash with easy cash. Property prices have stalled and formerly non-existent vacancy rates have rocketed.

Gail Roots, principal of Home Loan Specialists’ Mackay office, has seen the rise and fall of the region first-hand. She explains to MPA what that’s meant for her business – and what the future holds for Mackay.

BOOM AND BUST

Roots’ career as a mortgage broker spans a decade, but her links with the Mackay community go back much further. She arrived in the city in 1995 to manage Capricornia Credit Union’s new Mackay branch, and within a few years was home loan lending manager for Pioneer Building Society. However, she eventually became disillusioned with life in a bank.

“I became disheartened working for the banks and building societies, especially when good clients got rejected,” she says. “I wanted to help people get loans, not break their hearts.”

 
Destination Location

Roots says the location of her office has played a role in the success of her business. While she is based in central Mackay, she’s away from the main drag, instead facing the Convention Centre, Artspace gallery, city library and council offices.

“You don’t get a lot of walk-in business, but what you do get is good business,” she explains.

“I’m not on the high street like Aussie or a Mortgage Choice, so I don’t get the tyre-kickers – the people who are going from bank to bank to broker to bank. The business I get through my door is usually ready to go or prepared to do what do they need to do to get there.”



Within two years of working for another broker, Roots was ready to go it alone and bought into Home Loan Specialists, an LJ Hooker Home Loans franchise. After a few years of slow but steady expansion, everything changed.

“We had a couple of amazing years in 2011 and 2012 – my biggest years. They really built the business,” says Roots. For 2011–12 and 2012–13, Roots was LJ Hooker’s top-performing broker for Queensland and the Northern Territory.

“We were in a bit of a bubble throughout the GFC,” she admits. “Everywhere from Gladstone to Townsville and out to Emerald was insulated by the mining industry. It hadn’t even really bitten last year, despite the mining industry starting to cut back.”

The region is definitely ‘in a lull’ now.

“I was having three or four appointments a day in 2011–12. That’s halved. The [mining] industry has laid off thousands of people, and they can’t afford to stay here,” she says. “There’s not a lot of home lending happening, because people are scared about whether they’re going to have jobs. Until the industry start to re-employ, things will remain quiet.”

Roots doesn’t think that day is too far away. “I don’t think we’ll see things become as silly as they were, but we will see it improve, perhaps in 12–18 months’ time,” she says. “Also, Mackay isn’t a ghost town: there are jobs, and people are getting work, even if they aren’t as well paid as in the past. “But it’s a huge turnaround and a culture shock. People thought the mining boom would last forever, but it’s like everything else – it goes in cycles.”

MARKET FORCES
Seventy per cent of Roots’ portfolio is made up of homeowners, with the other remaining 30% investors from Mackay and elsewhere in Australia.

“First home buyers have dropped back: it’s harder for them to borrow. Saving their 5% deposit is probably the hardest part, given the high rents in Mackay,” says Roots.

“Still, you can buy a nice home for $350,000 to $400,000, so it’s quite a good market, if you can get the money together to get into it,” adds Roots. “Also, if FHBs are really committed to wanting to buy, they’ll sell one or more of the ‘toys’ that they’ve bought in better times, like a car or motorbike. Their mentality is changing.”

 
Community Lending

Roots highlights one idiosyncracy of lending in Mackay: her clients prize being able to walk into a bank branch.

“One difference [to bigger cities] is that people really want face-to-face contact with the bank. I would have to say 80% of my business is people asking for somewhere with a local branch,” she says.

“As a result, I don’t do a lot of lending with St.George or Adelaide Bank, who are competitive on rate but don’t have a physical presence in Mackay.”

Patchier web and telephone infrastructure might contribute to this, especially in more rural areas, but Roots also thinks it’s due to the close-knit nature of the community.

“Everyone knows each other to a degree, so it’s probably a cultural thing,” she says.

“Clients want be able to talk to someone face-to-face if there’s a problem, rather than talking to a voice on the end of a phone.”


As with elsewhere in Australia, refinancers are very active.

“Because people are uncertain about employment, they’re looking at their rate and seeing if they can get a better rate elsewhere,” Roots says.

“We’re seeing a lot of ‘home loan check’ type activity, especially referrals from clients sending their friends in.”

Refinancing to renovate is a different matter, however. Roots comments that it’s very tough to borrow in, due to the cooling of the market.

“Valuations are very tough at present, so you have to have good equity if you’re renovating. If you’ve only had property for the last five years or so, it’s probably still only worth what you paid for it. It’s the way the market is. Even if you want to use equity in your property to buy another one, it’s very tough. That’s something we’re coming up against to get deals across the line.”

A welcome move, therefore, is the introduction of pre-application valuations by several lenders.

“An upfront valuation is really handy,” adds Roots. “It saves our time, the bank’s time and the client’s time. Once you know the valuation, you know what you can or can’t do. That’s a good thing banks are doing.”

RIDING THE WAVE
Roots’ priority for now is keeping a tight rein on expenses while the Central Queensland market corrects itself. Cost control is a big priority, she says.

“I’m looking very closely at what we spend money on. It’s about checking everything to make sure you’re getting the best value.”

The salad days of 2011 and 2012 are also paying dividends in terms of trail commission. 

“Having the trail commission to see you through quiet times is essential,” says Roots. “It’s really important for me to keep my existing client base intact.”

Keeping in regular contact with her client base is critical, although this isn’t too tricky in a relatively small city like Mackay.

“We send quarterly newsletters, as well as cards on birthdays, anniversaries and at Christmas,” she says. “We call them too, especially in the first 12 months. That’s important. You don’t want to annoy them, but you want them to know you’re still there.

“As a mortgage broker, you’re ultimately selling yourself in the same way as a real estate agent or a car salesman. People won’t deal with them if they don’t like them, and it’s the same for us. So I’ll bend over backwards for my clients. If someone wants to see me on a Sunday and I’m available, I’ll see them. Would you see a bank opening up on a Sunday?”

Roots is also diversifying her product range, with overseas property investors on her target list and more self-managed super fund lending taking place. However, providing services other than mortgage broking isn’t on the agenda.

“I know a lot of brokers have an insurance arm and a financial planning arm, but I’m a home loan specialist,” she adds. “I do this very well, and I’m sticking to my strengths.”

This article is from Mortgage Professional issue #14.10. Download the issue to read more.