Australian originator sheds light on commissions

Michael Russel, CEO of Mortgage Choice, Australia’s biggest independently-owned originator, recently took it upon himself to correct some misconceptions about the commissions that originators receive from banks in return for the home loan business they generate.

He was responding to media articles, which claimed that originators were failing to adequately disclose these commissions to customers, and that borrowers were being charged additional interest on their home loans to compensate the banks for the commissions they had to pay to originators.

“It is important to set the record straight, and to reassure home buyers that licensed mortgage brokers (originators) are actually working in their best interests,” he said.

Firstly, he noted, there was legislation in place, in the form of the National Consumer Credit Protection Act, to protect consumers from non-disclosure of any fees or commissions paid with regard to their home loans.

Secondly, he said, there was categorically no premium added by lenders to their published mortgage interest rates to compensate for paying mortgage broker commissions. “It is widely publicised that lenders pay mortgage brokers a commission for arranging a loan… and customers are not penalised in any way for using a mortgage broker as opposed to going direct to that same lender.”

And the situation is almost exactly the same in South Africa, notes BetterBond Home Loans CEO Shaun Rademeyer. “Here consumers have the National Credit Act and the Consumer Protection Act to provide safeguards against non-disclosure, and only accredited originators can apply for bonds on behalf of consumers.

“What is more, there is absolutely no additional charge to the consumer who secures a home loan through an originator rather than going directly to a bank. In fact, thanks to the efficiency of our loan application procedures, borrowers who are customers of originators will often end up paying a lower rate of interest on their bond, thereby saving many thousands of rands in interest over the life of the loan.”

Shifting the focus on singles

The popularisation of the solo life is a historic change in society, according to sociologist Eric Klinenberg, author of ‘Going Solo: The Extraordinary Rise and Surprising Appeal of Living Alone’.

In a recent essay for The Guardian, he noted that the percentage of solo households was growing in many industrialised countries, with Sweden having the highest rate of solo living at 47% of households, Norway 40%, the UK 34% and Japan 30%.

The trend is also growing in the US, where the latest census figures show that single adults now account for about 25% of households, and that two thirds of those householders are single women.

One reason for this, says Klinenberg, is that the generally greater personal wealth in developed countries enables singles to sustain relatively expensive one-person homes. In addition, people are marrying later, divorcing more frequently, and living longer.

But whatever their reason for living solo, the adults who do so have become an increasingly important demographic for estate agents, most of whom were used to dealing with couples and families when marketing properties.

Indeed, South African agents have already found solo buyers an increasingly important target market for properties such as inner-city flats, and sectional title townhouses in security complexes and on estates.

However, the pace of growth in new household establishment tends to slow down when economic growth and employment creation are sluggish, as they are currently in SA. In these circumstances young people tend to delay leaving their parents’ homes to establish their own households, and elderly singles are more likely to also live with family, often in the three- or four-generation households we now see coming to the fore.

Other singles, with or without dependents, often prefer to continue to rent until the employment market is less uncertain and they can be sure they will be able to afford the monthly bond repayments on a home of their own.

Consequently, agents may now need to refocus their marketing for smaller properties towards the many existing homebuyers who are looking to downscale. Increased property rates, the rising cost of utilities, the lack of time for maintenance and upkeep of a large property, and concerns over security are making this an increasingly popular move among couples and families of all ages.

In addition, many of the buyers that are coming into the market now are concerned about the environment, and want smaller, energy-efficient homes that will reduce their carbon footprint.

Five tips to help new agents stay the course

Many new agents are coming into the industry once more, and while many have a good working knowledge of terminology, legal issues, and contracts after a few years, not many seem to have a real business plan that will carry them through when the going gets tough.

New agents often get started with help from family and friends, and forget to think past those contacts. Or they think that the companies they work for will make them successful. What they really need to understand, the experts say, is that they have to be responsible for building up their own businesses and ultimately, for their own success, using a plan with the following five main ingredients:

• A real plan of action for attracting and building a client base. Business won’t come to you – at least not in the beginning – so you need to devote a certain amount of your day to business development: client calls, cold calls, and creating relationships with other transaction service providers and contacts who may be able to give you referrals. 

• A resolution to work with people who will work with you. Avoid people who slow you down, bring you down, or put you down. Spend more time with people who are making things happen and living life in a positive way. 

• A proper plan for keeping in touch. You may remember all your clients, but they will probably forget you unless you regularly remind them who you are, and more importantly, what you do. Don’t lose business to other agents because your contact can’t remember your name, especially when technology makes it so easy to stay in touch. Remember everyone has a home, wants a home, or is in a position to refer others to agents who can show them homes or list their homes. When they make a decision to buy or sell, you want your name to come up. 

• A commitment to keep learning. Take every opportunity you can to learn something new about real estate trends, property law, or different marketing methods. Everything you absorb will give you more confidence, help you provide a better service, and make you a more memorable agent. 

• A love for what you do. Real estate is hard work, and you are also dealing with people’s lives, emotions, and their hard-earned money, which can make you the target of all sorts of negativity when things don’t go as planned. You need quantities of perseverance, perspicacity, and empathy just to get through every day, but it really will help you keep smiling if you find your work fulfilling.

Rate hike a comma, not a full stop

The Reserve Bank’s decision to raise interest rates by 50 basis points last week will undoubtedly put something of a damper on the property market recovery that is currently underway.

However, says Shaun Rademeyer, CEO of BetterBond Home Loans, SA’s biggest mortgage originator, this is not expected to be severe, or lasting, unless more hikes follow in short succession.

“The current increase in the repo rate from 5% to 5,5% will only take the banks’ prime lending rate – and the mortgage rate – from 8,5% to 9%, which is exactly where we were before the last post-recession rate decrease, in July 2012. And there has been huge increase in the demand for property since then, even though consumers have had to contend with steep fuel and electricity price hikes and other significant cost-of-living increases.”

There are many reasons for this, he says, including a growing population, relatively low growth in low home prices and the banks’ increased appetite for long-term rather than unsecured lending. “But the major one is that many consumers have worked very hard since 2009 to clean up their credit records, reduce their debt loads, and not take on any new credit.

“This is clearly evident in the latest statistics, which show that the rate of new household credit creation has been dropping since November 2012, when it reached 10,4%, and was just 5,5% in December, compared to 5,9% a month before.”

“What is more, the rate of credit growth in the household sector is expected to remain below the rate of growth in disposable income, which is currently at 7%, for the foreseeable future. In short, consumers are in much better financial shape now, and actually much more able to deal with moderate rate increases, than they were at the start of the recession five years ago.”

Turning to specifics, Rademeyer says the rate increase means that a homeowner with an existing 20-year bond of R900 000 taken at 8,5%, for example, will see the minimum monthly repayment rise by almost R300, from R7 810 to R8 098.

“But it must also be said that a mortgage rate of 9% is still extremely low by SA standards – and that bonds granted at prime rate have in any case been a very rare occurrence for the past five years, with most being granted at one or two percentage points above prime. Our advice to those who have established a good payment record, and whose financial position has improved since their bond was granted would thus be to approach their lender now and see if they can negotiate a reduction in this differential.

“Alternatively, if they are worried about further rate increases, they may want to consider fixing their interest rate for the next few years. The banks usually charge a premium for this, but some consumers consider this a small price to pay for certainty when it comes to budgeting.”

Meanwhile, he says, first-time buyers should not be put off entering the market by the rates increase, but rather prompted to move quickly while it is still relatively easy to qualify for home loans – and before a steadily growing shortage of rental properties pushes rentals up even further.

“BetterBond statistics show that the average home loan currently required by first-time buyers is around R630 000, which at an interest rate of 8,5% meant a household income of around R18 000 a month was required to qualify. At an interest rate of 9%, that qualification level rises by just R1000 to R19 000 a month – while the monthly repayment rises from R5 467 to R5 668.

“However these figures are only indicative and prospective buyers should not delay getting into the market now, even if they have to buy a less expensive property to do so. A reputable mortgage originator will be able to advise them as to affordability and the best home loan options currently available to them.”