Sam White on refinancing, repricing and cashbacks

In a wide-reaching discussion on MPA’s Podcast recently, LMG Executive Chairman Sam White provided his insights into what’s ahead for the broker industry in Australia.

At its height, the wave of refinancing activity that consumed the workload of LMG brokerages accounted for around 59% of all broker activity.

Executive Chairman Sam White said that figure is dropping as the industry works through the fixed expirations on their back books.

“Last month (the figure) was just over 50%,” he said. “That will progressively slow down.

“The long-term average was in the 30% bracket. We won't get back to that, but I think it'll return to somewhere in the late 30% to early 40%. There are still quite a few people to roll off the fixed rates … there's probably another three or four months of that heightened activity to come.

“Brokers are staying in touch with the customer and I think the more the banks work to retain existing clients, refinance numbers will drop because there's less need to have to refinance the customer.”

The end of cashbacks - a ‘healthier environment’ for brokers

The recent rush of cashback offers by lenders created itchy feet among borrowers. The refinancing incentives ‘dumbed down’ broking, Mr White said, overshadowing the more valuable, long-term service that brokers offered clients, such as structuring a deal and presenting a multitude of options that met their individual needs.

“(cashbacks) were a simplistic way of looking at helping a customer,” he said. “It was all about who you can give you $4,000 or who can give you $6,000, and I just felt that wasn't in the best interest of the customer.

“The real value a broker brings is in so much more: understanding what the customer wants, finding a solution to that problem, explaining to the customer the options available to them and then helping the client go through that process.

“I know that will reduce the total number of refinances we get, but I think it's a healthier environment for brokers to operate in.”

Mr White said the cashback incentives were providing sugar hits for clients which some were seeking out in regular periods.

“If that kept happening and clients kept being trained to do that by lenders, effectively the average life of a loan would be six to 12 months, which would be a disaster, I think, for everybody.”

Mr White believed repricing - which good brokers routinely did as a first action and ongoing basis - demonstrated one of the ongoing strengths of the customer-broker relationship.

However, there was room for lenders to make repricing easier.

Repricing - how can we make it easier for brokers and their clients?

“One of the defining issues over the next few years is how (the repricing) process works with lenders. How do we get lenders to put their best foot forward when we ask for repricing, rather than being told ‘no’, and then the client wants us to go and do a full scan at Best Interest Duty for the market.

“We go and make a full application - and all the work that a broker and client does for that - and then the original bank comes back and says, ‘Listen, we'll match the pricing or better’. So, after all that, brokers get frustrated, their clients get frustrated and time has been wasted.”

Mr White said a better outcome was offering the existing lender an opportunity to table their best repriced offer, which was good for 30 days. If the client didn’t want to take that repricing, the broker then goes and completes a scan, which the lender is made aware of.

“I think that gives better competition for lenders to keep their clients, but it also means that a broker can do the work in doing their best interest duty work and the full scan of the market and a full application. It would also let the broker know they won’t get gazumped by the original lender just matching the deal. If they want to match it, they should do it, upfront.

“We've seen that work in other industries, particularly energy in Australia, and we think there's a regulatory response to that, which we'd like to see.”