A FOOT IN THE DOOR

The role of the mortgage broker is ever more crucial.

As the Australian housing market continues to boom and the role of the mortgage broker becomes even more crucial, there

are opportunities for franchisees, writes Noha Shaheed.

Demand for residential property in the past five years from both owner/occupiers and investors has been enhanced by rising house prices and declining residential housing loan rates, according to IBISWORLD’s Mortgage Brokers in Australia January 2017 report.

This has boosted mortgage broker industry growth, with revenue projected to rise at an annualised 3.5 per cent over the five years through to 2022, to reach $2.7 billion.

Loans issued via mortgage brokers - many of which are in a franchise - have increased in value, both in absolute terms and as a proportion of total mortgages issued. In the latest Review of Mortgage Broker Remuneration report by the Australian Securities and Investments Commission (ASIC), the value of mortgage brokers to the consumer was seen in a positive light.

Consumers with recent experience or future intention of using a broker (58 per cent) were much more likely than general consumers (25 per cent) to consider that brokers offer a better deal, says the review. Only 3 per cent of consumers with recent experience/future intentions thought that brokers offered a worse deal, compared to 7 per cent of general consumers).

CHALLENGES

Industry revenue is expected to grow at a slower rate of 2.8 per cent this year because of a projected slowdown in housing price growth and tighter restrictions on lending to foreign buyers of domestic property.

Competition among brokers has intensified over the past five years, largely because of increased consumer awareness of the role they play in the mortgage lending market. More big players are expected to emerge, and the big banks are already starting to make their presence felt by integrating broking into their services.

However, borrowers have a more positive perception of the value of an independent broker as they are not tied to one particular financial institution, so therefore can offer a broader range of options. As many broking services are part of a franchise, this opens the doors to potential franchisees.

SMARTLINE

A franchise established in 1999, Smartline Personal Mortgage Brokers, has a culture of support within its network.

“In the past three to four years there has been a real turnaround and emphasis on first-year support for franchisees,” says New South Wales/Australian Capital Territory state manager Matt Fitzpatrick. “Smartline is non-territory based, so franchisees are collaborators."

Some even share offices, which he says helps them get up and running quicker.

Fitzpatrick says one of the major benefits of the Smartline system is work/life balance. This is a key attraction for the 60 per cent or so franchisees who come from banking and

corporate backgrounds.

Once a franchisee becomes established, they can start outsourcing many of the administrative tasks.

But while franchisees are at a stage where they need to be hands-on all the time, it can be easy for them to take a holiday as another franchisee can fill in.

The initial investment for a Smartline franchise is $13,000 plus GST for a five-year rolling contract, which can be renewed without a fee after that period.

Franchisees receive structured support for marketing including digital, Facebook and Adwords. However, while digital is important, the nature of the business is very much about people and helping franchisees start the conversation with customers, says Fitzpatrick.

A dedicated team is on hand for lending knowledge, plus a franchise development manager helps with key performance indicators, prospecting and networking. Leads are not provided, but a business coach is available for the franchisee’s first six months to help with sales, staffing and any specific issues.

BUYING ISSUES

Fitzpatrick says the business has the buying power to source better rates for indemnity insurance, but the main benefits to franchisees are leveraging the brand name and running a business with low overheads.

A challenge of the business is building up a reputation as a mortgage expert in the community. It can also be at least four to six months before a broker receives payment.

“Financial pressure is a big hurdle, but any business is the same,” says Fitzpatrick, who believes the future of mortgage broking is bright considering the positive ASIC review.

“About 70 to 75 per cent of mortgages overseas are obtained via brokers, but it’s at 50 per cent in Australia at the moment.”

He believes Australia will follow the overseas trend.

MORTGAGE CHOICE

Established in 1992, ASX-listed Mortgage Choice has expanded from being a brokerage into a fully fledged financial services provider.

CEO John Flavell says the brand is “a one-stop financial shop” providing access to home loans, financial planning, risk and general insurance, car loans and business lending. On the mortgage front, its special offer is a “paid the same” commission model for brokers.

“Under the terms of this unique payment model, our brokers are paid the same rate of commission regardless of which lender or product a customer chooses,” he says. “This commission model is also carried over into our financial-planning arm, with advisers being paid the same rate of commission regardless of which insurance product their customer chooses.”

Flavell says that while a franchise is a full-time commitment, the hours are flexible to fit a franchisee’s lifestyle. Some franchisees work from home and find time to take children to school and pick them up, catching up with administration work in the evening.

STREAM OF LEADS

Mortgage Choice provides its brokers with a steady stream of home-loan leads from the day they start. These come from the brand’s market-facing activities including advertising, local brand awareness and public relations.

“We also help our brokers grow their business through an in-house call centre and a dedicated web-chat system that directly connects potential customers

with franchisees,” says Flavell.

There is also a mini-site for franchisees that draws from the Mortgage Choice corporate website. This plays a significant role in helping franchisees build their local profile.

The initial cost of a franchise is $14,815 plus GST for a five-year term, with the option to extend. Included is two weeks of training at Mortgage Choice head office, followed by a 24-month in-franchise business training and education program, Accelerate.

Every inductee is assigned a mentor/sales and credit coach for the first 36 months. Ongoing support is provided with franchisees having access to IT support, compliance support, marketing support and diversified products and services.

However, while Flavell says the biggest challenge is turning a profit, he believes the future of the industry is positive.

“Things are looking good for the mortgage-broking industry,” he says. “Many changes are happening in the market, with lenders altering their pricing and policy requirements across their suite of services.

“Complexity breeds confusion, and confusion breeds opportunity for mortgage brokers to help their customers with their financial goals.”