Keeping the edge in wholesale lending

Last week, we featured Kim Cannon of Firstmac talking about the future of wholesale lending. This time we hear from Advantedge's Brett Halliwell about the reshaping of the wholesale space.

MPA: Is white-label lending – rather than mortgage managers – the future of the wholesale lender business model?
Brett Halliwell, Advantedge: We have seen phenomenal growth in the white-label market, with brokers operating under all major aggregators embracing the benefits of white label. In addition to our long-standing history working with PLAN, Choice, Smartline, Mortgage Choice and FAST, we are delighted that AFG, Connective, Loan Market and Astute have chosen to become white-label partners with Advantedge this year. The results have been extremely positive with all those brands.

On the mortgage management side, there has been a level of consolidation between some of the key mortgage management players, and some funders have adjusted their level of participation. We believe will continue to see mortgage managers occupying a differentiated place in the lending market, while they still enjoy a strong presence on a number of aggregator lending panels.

MPA: Can mortgage managers provide a viable alternative for investor financing now that APRA is constraining bank lending?
BH: Mortgage managers have access to a number of different funding sources, including regulated banks such as NAB’s Advantedge subsidiary. Some also access wholesale funding via securitisation. The underlying lenders supporting white-label brands are predominantly bank-funded. We have recently seen that regulators are becoming increasingly mindful of rising property prices in an environment where Australia currently has record-low interest rates. It is appropriate the industry takes a prudent approach to lending with an expectation that interest rates will inevitably increase at some time in the future.

As a result, bank lenders are tempering investor lending and the funding available for investment purposes. We believe white label and mortgage management regulators are likely to keep a watching brief on securitised lending. Both funding sources will continue to be competitive in the new lending landscape.
Getting the Price Right at Advantedge
MPA: Does the cost of funds remain a significant competitive disadvantage for the sector?
BH: Mortgage managers have access to different sources of funding to meet their needs. The costs of funding via securitisation have decreased considerably since post-GFC highs, so those mortgage managers with access to this funding source are continually reviewing their funding mix.

Having said that, securitised funding tends to cater to a smaller sector of the market and can be more restrictive. In terms of accessing bank funding, the rates offered by Advantedge to mortgage managers are extremely competitive, which in turn allows them to offer competitive retail rates. On the white label side, Advantedge has access to funding through its parent, NAB, and is able to continually monitor the market and set retail rates at competitive levels.

MPA: In the wake of the Financial System Inquiry’s final report, should consumers be more aware of what wholesale lenders do?
BH: The Financial Services Inquiry looked at a number of different elements of the mortgage, lending and banking industry more broadly. We continue to express the view that our multi-brand model, which offers white-label products to a number of aggregators and also wholesale funding to mortgage managers, continues to be positive for the industry. The ongoing role of both of these categories within the market continues to create alternative options and also enhances competition. Advantedge is well placed, being a fully owned subsidiary of NAB, which offers additional comfort and security to brokers and their customers when they are having a conversation around white-label and mortgage manager products.

MPA: Do you tailor your products for a particular section of the market?
BH: Within our white-label market, we work closely with each of our aggregator partners, who tailor the product features based on demand from their brokers. The traditional mortgage management model allows a high degree of flexibility to mortgage managers when it comes to selecting and tailoring product features. Across the board, we have enjoyed considerable success over recent years in attracting mainstream business within low LVR segments. Our success has been driven on the back of attractively priced products and consistent service.

MPA: Will the majority of brokers in the future sell their own branded white-label products?
BH: A key learning for us has been achieving the right balance between product, price, marketing and service. Advantedge has invested considerably in creating appropriate marketing tools to support sales, giving brokers the confidence to sell and consumers the confidence to buy. A critical element has been developing a range of branded B2B and B2C marketing materials to include point-of-sale, online and post-settlement collateral.

Due to the considerable marketing investment required, we think it’s unlikely that white label will ever become so tailored that different brands can be offered at the individual brokerage level. But we certainly believe brokers can enhance their own standing in the market by harnessing the home brands offered by their aggregators, which are powered by strong sales and servicing support, rather than being under their own brand.

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