Spring is finally here – but for many Australians on loan hardship, it isn’t time to smell the flowers. With the end of the loan deferral period looming, the question of whether or not they can resume full or partial repayments will be foremost in the minds of borrowers and brokers. But, according to Connective director Mark Haron, the decision to extend so-called “repayment holidays” will fall squarely in the court of the lender. He spoke with MPA about why brokers should avoid giving advice and should instead stick to education.
Record new highs for the broker channel
At the end of August, the MFAA reported an encouraging statistic – mortgage brokers had facilitated 57% of all new residential home loans during the April to June quarter, settling a new high of $52b.
Connective also revealed a record-breaking result; the aggregator’s June settlements increasing by more than 54% against the same period last year.
According to Haron, the growth shown by these numbers indicates a very strong usage of the broker channel during the pandemic.
“Even though it’s been quite a challenging time for brokers and their customers I think that’s brought out the best in mortgage brokers.”
“It’s shown the customers and the broader community that, when times are tough, brokers are there to support their customers.”
He says early on in the pandemic, when repayment pauses were first offered to those in hardship, borrowers were desperate for answers about what that would mean for them. With lenders overwhelmed and understaffed while the situation rapidly escalated, many people turned to their brokers for answers.
“Mortgage brokers really stepped up,” he says, explaining that while brokers couldn’t request hardships options on their customer’s behalf, they spent countless hours “triaging” those customers who were concerned.
As a result of the education that brokers provided during this time, many clients realised they didn’t need to pause their repayments and that to do so would not be a smart idea. This interaction then lead to new business through the broker channel, says Haron.
How to keep these numbers strong
He says brokers should continue to educate and support their clients in order to keep the positive momentum of last quarter going, adding that open rates for email marketing have surged during recent months. He also believes that, as an industry, we should aim to hold onto and further improve recent advancements in technology use, such as digital documentation of signatures and electronic VOI.
“That will certainly improve the service proposition to customers and will hopefully, over time, improve the efficiency for brokers as well.”
Why brokers shouldn’t give mortgage deferral advice
As 30 September draws closer, he cautions against brokers giving advice on the extension of loan repayment deferrals.
“It’s been made really clear that it’s up to the banks to determine whether or not to continue the deferment of those loan repayments.”
“ASIC has gone to more than normal lengths to really put some information out there pointedly to the banks to describe how careful they should be in assessing whether or not someone should continue on the deferred repayments.”
He says while the arrangements have prevented customers from suffering hardship today, they could have quite a significant impact in the future.
“Our concern is that a lot of customers may make complaints about that in the long term if they feel that they didn’t really understand the consequences of doing such a thing.”
“It might sound a little bit alarmist, but while the customers see banks and brokers as their best friends at the moment because they’re helping out, that might be a bit different in 18 months to two years’ time when they feel the full financial impact.”
“We’re very concerned about a broker being in the middle of all of that and a customer saying that they relied on the broker’s advice when they really needed to be relying on the bank’s advice.”
“The broker can educate the customer as to what those consequences are but should really leave it up to the bank to be making that final advice of whether or not they should be on a deferral.”
The numbers don’t lie
In order to educate customers around this issue, Haron says economic modelling is key.
“As we know, if you’re not paying at least the interest off each month, the interest gets added to the principal amount and in a lot of cases with a lot of banks there is a capitalisation of the interest.”
“It doesn’t take long for that principal component to really blow out and become quite significant.”
He suggests showing the customer what the principal amount would look like if they didn’t make repayments for the next four, six or 12 months – and how this would change their repayment amounts moving forward.