The residential property market has generally been booming in Australia, but as lockdowns are ending and Australians are shifting back to a somewhat normal life, there is a growing appetite from borrowers seeking commercial finance.
Additionally, never before have Mortgage Brokers played a more important role in supporting Australian SMEs than right now following covid, bushfires, floods and other challenges they have faced over the past 2 years.
As broker originated settlements for residential home loans continue to rise to almost 70% of all mortgage settlements, there has been a considerable increase in broker originated settlements for commercial loans as well.
Broker-introduced business in commercial markets has increased from 15%, 5 years ago, to around 35%.
Brokers are being presented with an exciting opportunity to diversify their product offerings into the commercial lending space. If not, they risk losing their client to brokers who can offer a suite of lending solutions to their customers.
If mortgage brokers can expand their product offering to clients, they can assist their existing customer base with things like asset finance, but can also reach into the small business community and offer assistance to business owners who need to access funding. In doing so, mortgage brokers can develop a more resilient business for the future.
Here are five considerations for brokers who might need to diversify their offering:
#1 The variety of products and availability of funds
The market is currently flush with funds with major lenders arguably having a never-before-seen appetite for lending, which is due to several reasons.
- Government incentives for home buying and business support to help Australians through the impacts of COVID-19 have contributed to an increase in the number of money lenders have available to lend.
- The lowest interest rates ever seen in Australian markets is creating a demand from consumers to get their hands on relatively affordable loans.
- An increase in the variety of products available to borrowers. Asset finance and equipment finance are two examples where lenders have seen an increase in consumers looking to borrow. Improving technology has made it more efficient and easier to access business loans, and people are happy to pay a premium on the interest rate to get access to loans quickly.
#2 Nailing your ‘kit bag’ of lenders
Brokers have an abundance of residential home loan products that they can offer to their customers, but having a clear understanding of a variety of home loan solutions will help brokers ensure they can meet the needs of their clients.
Modern mortgage brokers should start out by having a clear understanding of five lenders that have a point of difference. This approach will best position a broker to meet the needs of a majority of clients that come through their door. Focus on five key areas to start with:
- One major lender
- One non-bank or second-tier lender product
- One construction development lender
- One ‘fin-tech’ lender
- One private lender
These are five completely different lending options where a customer’s circumstances might require a different approach to get their application approved. Understanding the ins and out’s of these five areas would be enough to satisfy the majority of clients coming to see a broker today.
#3 Diversifying your offerings
Some mortgage brokers steer clear of helping clients in other finance areas such as asset financing or small business loans because they feel like they lack the knowledge or expertise to get the deal done.
However, according to VOW’s head of Commercial and Equipment Finance, Glenn Mitchell, there are three options for brokers looking to diversify:
- You’re capable enough to write the product directly to the lender. If this is a new space for you as a broker, lenders and aggregators offer plenty of training and assistance to develop your capabilities.
- You partner with specialised brokers whose sole focus is in the specific area of finance. For example, you partner with a specialised equipment finance broker, who doesn’t compete with you in the residential space.
- Aggregators often have partnerships with certain lenders or groups who specialise in specific types of funding. So, if one of your existing clients tells you they’re looking for some commercial financing, and your aggregator has an association with a specific platform that provides commercial financing, you can simply inform your client that you can pass on their name and number and they will be in touch with your client later that day.
Any one of these approaches is a perfectly suitable option as opposed to simply rejecting your client.
The goal is to not lose a client by simply refusing to offer assistance with these diversified finance products.
#4 Tapping into the SME market
Mitchell said brokers need to look at their existing book and their communities for opportunities, especially for clients who run their own businesses.
He said, “The best brokers will look at their local community and align themselves with local business owners if they’re proactive. Let’s say you start your own mortgage business today, if it was me, I’d get in touch with every retail shop, factory, or any business in the area and explain that I specialise in mortgage broking and loan products. What better way to give your business a kickstart than by introducing yourself and supporting local business?”
“Not only that, you need to identify which of your existing clients you could offer further assistance to. Say one of your clients has a ute and you know he or she is a builder. Most likely, they’re going to turn that ute in every three years to receive tax benefits from it. So why wouldn’t you let him know that you can help him with his financing of that asset?”
“You’re not trying to convince your existing clients to do one thing or the other, it’s about letting them know you can support them when the time comes, in other aspects outside of their home loan.”
#5 Simple questions to ask your clients before finalising any home loan deal to help diversify your offering
Mortgage brokers are not just limited to offering residential and commercial property loans. Commercial clients are in abundance at the moment, and whether it’s being able to offer existing clients finance solutions beyond their current home loan, or tapping into the SME market to offer funding solutions to business owners, diversifying will allow a broker to shift away from over-relying on home loans as their main source of income. If brokers make some simple enquiries during the early stages of a home loan process, you can start to analyse further opportunities, for example:
- Many consumers have an average of two cars in their driveway. This could be a discussion point for any broker looking to provide solutions to their clients. Ask your client:
- Is your car/are your cars currently under finance? When does the loan expire?
- Do you currently have a lease over your commercial premises? Are you potentially looking to buy the premises in the future?
Diversifying is a way to ensure your business success
Diversifying the offering to your clients has benefits beyond being able to satisfy the needs of your clients, according to Mitchell, who said brokers who fail to think outside the box “will fall behind. They’re going to lose value in their business.”
“As a broker, you should be focused on building a business, and if you can say you’ve built your business on commercial lending, or equipment finance, as well as home loans, then you’ve got a solid loan book, and when one of those markets change or see a decline in demand, you’ve got yourself covered. That is, you’ve ensured you have an income flow coming from various sources, rather than just the residential home loans.”
“When I started off in broking in the 90s and early 2000s, you could get away with just providing one service, but nowadays, you’ve got to look outside the square. I’m not saying you have to be an expert in every single area, although that helps, but make sure you look at your options and cover your bases.”
“The most successful brokers I’ve met who aren’t necessarily experts in loans outside of the residential home loans market actually employ other people in the businesses that are specialised in those areas. Brokers should start by focusing on reviewing the products that are on their panel to understand them, but also brokers need to lean on their aggregator and their BDM to learn and develop their knowledge base, to be confident enough to know what products are available and how they might suit certain clients.”
“It’s a matter of putting yourself out there, attaining more knowledge and recognising that there are tools and support networks out there from industry bodies, BDM’s and aggregators to facilitate your development as a broker.”
Reach us today for a chat, HERE.