Broker expertise can help investors refinance

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The future looks brighter for property investors despite higher interest rates. With the market stabilising and rents rising, it’s a great opportunity for brokers to assist investor clients in refinancing their portfolios

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Vault Plus Mortgage and Finance Consultancy

David Merison

Blake Buchanan, general manager at SFG, is an expert in the broker channel with some 20 years’ experience in the finance industry, specialising in broking, lending and aggregation. Buchanan is known for his expertise and passion for the broker channel, along with his ability to deliver strong distribution results through systems, people, processes and partnerships.

Specialist Finance Group

Blake Buchanan

Michael Baumann has been in the industry for over 28 years, with 13 of those at CommBank. He spent the first part of his career in strategy at Boston Consulting Group before he moved to CommBank to work in Every Day Banking and Consumer Finance. Baumann is now executive general manager home buying, leading a team that supports Australians in realising their homeownership and investment goals. The home buying team serves internal and external partners who deliver exceptional experiences for customers, and covers the value chain, including broker/head group relationships, product design and delivery, policy and pricing decisions, acquisition and retention strategies, technology, data, risk and operations capabilities.

CommBank

Michael Baumann

Cory Bannister is senior vice president and chief lending officer at La Trobe Financial. He has a rich understanding of both the loan origination process via the third party channel, as well as the approval and settlement of institutional and retail loans. Bannister’s portfolio management experience extends to the selection and allocation of assets for multiple wholesale mortgage portfolios in excess of $1bn. He has been responsible for the management, review, risk profiling and audit of wholesale asset pools, and has had conduct of the relationships with substantial wholesale and retail investors, with responsibility for overseeing related reporting.

La Trobe Financial

Cory Bannister

Dylan Atherton is the head of home lending product at Suncorp Bank. Hailing from Brisbane, Atherton has extensive experience across product design, lending, business development and leadership within financial services, most recently at Suncorp Bank. He leads the home lending product division, which looks after product proposition development, home lending pricing, retention and credit strategy for the Suncorp Bank home lending business. Outside of work you’ll find him reliving his glory days as a lead guitarist, cooking up a storm, and spending time with his wife Renee and their two young boys, Vincent and Arthur.

Suncorp Bank

Dylan Atherton

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At CommBank, Baumann says customers are offered competitive variable rates and flexible loan features. One example is its offer of access to multiple offset accounts to help customers pay less interest and reduce the time it takes to pay off their loans. Baumann says changes have also been made to the bank's rental income policy to ensure the external environment is considered when assessing investor income. “We have decreased the gross rental income used for shading from 20% to 10% and have increased the maximum gross rental yield cap from 6% to 7%. Changes like this allow us to continue to deliver great investor customer outcomes.”

well for investors, with no portfolio size limits for borrowers, no DTI limits, loan sizes of up to $25m, and negative gearing benefits accepted in the serviceability calculation. Atherton says Suncorp Bank has received great feedback from brokers that its tailored BDM presentations and exceptional service at pace from its broker support team provide a seamless process for the submission of investment loans. “We have been number one for turnaround times with Connective from November 2022 to March 2023 and now offer Suncorp Bank SunLight loan processing, which sees decision outcomes within 48 hours for eligible customers.” Suncorp Bank’s Broker Portal is a one-stop shop, Atherton says, and the new Instant Pricing Tool for new personal lending makes it easier for brokers to get the best pricing for their investment customers in just seconds. “Our life of loan Home Package Plus Annual Fee Refund Offer means customers can save up to $11,250 over a 30-year loan [T&Cs apply],” he says. Atherton says Suncorp Bank also offers up to nine offset subaccounts on its standard variable home loans, ensuring investor clients can maximise their financial outcomes.

Bannister says La Trobe Financial has one of the broadest product suites in the non-bank sector and caters exceptionally well for property investors. It has products that cater for PAYG and self-employed borrowers looking to acquire or refinance investment property; an SMSF loan product to assist investors; construction and development loan products for investors looking to develop property (from a single house to mid-scale apartment buildings); residual stock loans to assist investors in selling down completed developments; and build-to-rent loans to help developers hold stock to be leased out. Bannister says La Trobe Financial’s credit policy also caters

Products and services for investor clients

“Investor clients are usually less emotive and more transactional as this often isn’t their first rodeo,” Buchanan says. “This can be beneficial to process times and experience outcomes as they are already aware of the process and understand the complexities when arranging finance.” Brokers who are aware of investor market trends can add a valuable layer to their conversation with clients. Buchanan says the benefits for property investor clients can include capital appreciation in value, yields or returns, but also deductions such as negative gearing and depreciation. “Being across things such as these will assist you with your investor client acquisition.”

Benefits of broker diversification

Atherton says brokers play a critical role with their customers every day. “It’s so important that brokers are regularly reaching out to their existing clients to check in on where they’re at currently, but also to build a longer-term view of their financial and lifestyle goals for the future.” When a broker identifies an investment need, Atherton says one way Suncorp can help is with FASTRefi, a streamlined refinance process to help eligible customers gain access to their new investment loans sooner, without the need to book settlements with the outgoing financial institutions. “The market is evolving, and businesses will find it beneficial to be able to pivot with the changing demands and help their new and existing clients on their home lending journey,” Atherton says. Bannister says an increase in refinancing is typically correlated with a rising interest rate environment. It’s a good prompt for brokers to be proactive with clients, but they should be aware of the pitfalls. He says price is not the only consideration. Brokers also need to check lender serviceability model criteria for rental income shading, whether negative gearing is an acceptable add-back, whether the lender has a debt-to-income ratio limit, or whether the lender has any portfolio limits on borrowers.

To tap into the investor refinance market, Buchanan says brokers need a proven process and great client engagement programs. “As brokers target 80% share in the future, we need to remove any reason that your client would go somewhere else,” he says. “Great service, communication and outcomes are usually a broker's first priority, but just as important is your ongoing customer engagement programs. “When your client thinks about finance, budgets, loans or other, they should think of you and only you as their broker.” Buchanan says this requires good, transparent and accurate communication, but it must be consistent. “Your service and your reputation help as a platform to market your business to your target market.” As more clients research brokers before engaging, Buchanan says “there is nothing more powerful than great references from real people who have used your service”.

Baumann says that in an environment in which refinancing and home loans are top of mind, working with customers to identify their property goals will help them to both determine what they need from a home loan and also achieve those goals. He says the long-term relationships brokers have with their customers can add immense value for those considering refinancing. “The knowledge that brokers have of each client’s needs and circumstances helps lead to informed discussions and recommendations around the different home loan options that could help meet the customer’s property investment goals,” Baumann says.

Maximising refinance opportunities for brokers

Bannister says PropTrack data, along with La Trobe Financial’s observations of auction clearance rates reaching their highest level in more than 12 months, suggests that the property market is stabilising and beginning to improve. “However, it’s still early to call, and we remain cautious about calling it a ‘bounce’ at this stage whilst the economic outlook remains unclear,” he says. “For investors, demand for rental properties has arguably never been higher, and with the rapid increase in net overseas migration underway, we do believe that the need for quality rental properties will only increase, which is likely to underpin values of investment-grade property.” Atherton says new home lending investor volumes are staying steady at around 30%, with lodgments for investors also steady month-on-month. “We’ve seen indications that we have hit the trough of the market regarding property prices in some locations, and we expect to see an increase in investor activity as property prices level out and housing supply in these areas increases,” he says. “With fewer property listings now than the past five-year average, combined with a smaller pool of potential buyers, it’s contributing to the stabilisation of the property market.”

Buchanan says that in 20 years, he has never found the market more difficult to read. “I think the recent and slight increase [in property prices] is more of a dead cat bounce scenario that responded to the pause on rate increases,” he says. “There is little stock on the market, and so when we see full auctions or open homes, this is not reflective of the actual market.” Buchanan predicts a significant increase in stock entering the market towards the back end of 2023, putting downward pressure on prices. This, combined with affordability (including further potential rate rises), will likely see prices fall again. “However, with anticipated net migration forecasts of 400,000 next year, demand will be increased, and we know that stock usually increases – supply and demand. I think we are very close to an attractive investor market.” Baumann says high home loan approval volumes at the start of 2023 show that more Australians are looking to take advantage of the housing market recovery. “We have also seen a shorter time from starting an application to funding investor home loans, compared to owner-occupier buyers, demonstrating how CommBank’s fast home loan approval times can benefit investor customers looking to move quickly on an investment opportunity,” he says. “Our fast turnaround times help investors to search for their next investment property with confidence.”

Rising property prices

Bannister says these factors are attractive to property investors, supporting future growth in rents and an appreciation in house prices, set against a backdrop of a likely easing in interest rates as inflation returns to the target range.

Baumann says stronger-than-expected housing demand driven by population growth and higher rental yields is still creating opportunities. “A lack of housing supply has led to what looks like an earlier than expected recovery in the housing market,” Baumann says. “Inflationary pressures are also especially acute in the rental market, with the national change in rental rates reaching over 10% in 2022, a trend that has yet to reverse.” He says these factors caused rental yields to climb to 3.9% in March 2023, with investors passing on some of the cost increases to renters. “We expect greater activity in the property investor market if house prices continue to recover and rental yields continue to strengthen,” Baumann says.

Bannister says property investors are not immune to interest rate changes, and there’s been a softening of demand generally, in line with trends in the owner-occupier market. But he says there’s been a moderate uptick in investor lending enquiries this year, mostly led by sophisticated investors eyeing opportunities based on the following macro factors:

House prices are stabilising. After what has been a relatively short but sharp period of decline in house prices, and as we approach the top of the interest rate hiking cycle, investors recognise that value has come back to the market, with prices around 10% lower nationally than 12 months ago. Rents have increased significantly. Rents have risen by approximately 10% in the last 12 months, improving investor returns and partly offsetting recent interest rate increases. They are not likely to ease soon, with record-low vacancy rates and tenant demand on the increase. Net overseas migration is increasing to record levels. Australia’s net overseas migration intake is expected to surge to 400,000 people this year, placing further pressure on housing availability, both for those looking to purchase, where property stock remains well below the five-year average, and those looking to rent, where vacancy rates are below 1% in some areas. New dwelling approvals have plunged to a 2.5-year low. At just 180,893 in the 12 months to March 2023, approvals are at their lowest outside the COVID period, meaning there isn’t likely to be any supply-side relief for the housing market any time soon – a potential boon for landlords.

Investment loans are reducing in step with all new lending at Suncorp Bank, he says. “However, we’re seeing new investor lending sitting at around 30% to 35%, which is consistent with historical trends at Suncorp Bank. As expected, we’ve seen pockets of investors being more cautious and waiting for the sweet spot to invest, to maximise their capital and returns in an uncertain market.”

Atherton says rising interest rates bring uncertainty for consumers and investors. Higher loan repayments are reducing maximum borrower capacity and therefore the options available to investors. “We have seen refinancing increasing and purchases trending down from the peak during these interest rate rises,” Atherton says.

The effects of higher interest rates and inflation

Brokers have the chance to work closely with property investor customers to refinance their loan portfolios. MPA spoke to Suncorp Bank head of home lending product Dylan Atherton, La Trobe Financial chief lending officer Cory Bannister, Specialist Finance Group general manager Blake Buchanan and CommBank executive general manager home buying Michael Baumann about the trends and opportunities.

IT'S BEEN a rollercoaster ride for investors lately, but there’s light on the horizon. A lack of housing supply has seen rental yields skyrocket in Australia – PropTrack reported in March that the median national weekly rent had risen 11.1% over the past 12 months, while CoreLogic recorded a 10.1% increase in the year to April. While this is beneficial for investors, it’s offset by the fact that interest rates have risen 11 times since May 2022. Borrowing capacity has reduced, and there are fewer properties for investors to purchase. But there’s evidence that the ongoing decline in house prices has halted. PropTrack’s April Home Index shows prices rose 0.14%, while CoreLogic recorded a 0.7% lift in April. Refinancing by property investors is also increasing. ABS lending indicators for March show the value of external refinancing for investor housing rose 12.3% month-on-month and was 27.3% higher year-on-year.

Published 05 June 2023

“When your client thinks about finance, budgets, loans or other, they should think of you and only you as their broker. Your service and your reputation help as a platform to market your business”

Blake Buchanan, Specialist Finance Group

“For investors, demand for rental properties has arguably never been higher, and with the rapid increase in net overseas migration underway, we do believe that the need for quality rental properties will only increase”

Cory Bannister, La Trobe Financial

“[At CommBank] we have seen a shorter time from starting an application to funding investor home loans, compared to owner-occupier buyers ... Our fast turnaround times help investors to search for their next investment property with confidence”

Michael Baumann, CommBank

“It’s so important that brokers regularly reach out to their existing clients to check in on where they’re at currently, but also to build a longer-term view of their financial and lifestyle goals”

Dylan Atherton, Suncorp Bank

Suncorp Bank is committed to delivering banking that's good for our customers and the community. We provide banking solutions that support sustainability and financial wellbeing. We’re committed to making it easier for brokers to do business with us. Our award-winning products and competitive interest rates set us apart from other lenders. We’re focused on making Suncorp Bank the best in market so that, under the best interests duty, brokers can choose an organisation that delivers value.

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Specialist Finance Group is a family-owned business that’s been serving the broking community for more than 30 years. With a customer-centric model, SFG provides its members with the best possible systems, services and support to assist them in growing and improving their businesses. SFG’s unique model has seen rapid expansion in recent years and has consistently delivered results well above system.

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La Trobe Financial is one of Australia’s leading diversified credit asset managers and credit specialists, with $16bn in assets under management. Since 1952, La Trobe Financial has been driven to help people realise their potential with specialist financing and investment solutions.

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At CommBank, we know brokers deliver exceptional outcomes for customers, which is why we’re focused on delivering simpler, better and easier processes to provide brokers with an enhanced level of support every step of the way. Our strategy has been designed based on broker feedback and focuses on how we can improve the experience and build a strong and more sustainable third party banking channel that helps you – our broker partners – to support more customers in achieving their homeownership goals. If you’re not already accredited with CommBank, now is a great time to join us, as we’ve simplified our accreditation process. Head to www.commbank.com.au/home-loans/broker-accreditation.html to find out more. If you are already accredited with CommBank, check out our free 24/7 training hub – it’s all part of our commitment to being better together and supporting you every step of the way.

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Apr 2018

Apr 2019

Apr 2020

Apr 2021

Apr 2022

Apr 2023

14%

12%

10%

-2%

Combined capitals, 11.7%

National, 10.1%

Combined regionals, 6.0%

Rolling annual change in rents (all dwellings)

Source: CoreLogic Rental Pulse, May 2023

Refinancing on the rise

Source: Australian Bureau of Statistics Lending Indicators, March 2023

up 12.3% to $7bn (27.3% year-on-year)

For investor housing

up 3.9% to $14.2bn (9.1% year-on-year)

For owner-occupier housing

up 6.5% to $21.2bn (28.5% year-on-year)

For total housing

Blake Buchanan

Specialist Finance Group

Michael Baumann

CommBank

Cory Bannister

La Trobe Financial

Dylan Atherton

Suncorp Bank

Industry experts

Month-on-month increase in value of external refinancing - March 2023

National rental rates 10% higher year-on-year

Buchanan says the investor market is segmented, with the effects of rising rates and inflation varying. “Overall, we have seen the market respond by increasing rental returns, which has added to cost of living pressures,” he says. “Investors who may have entered the market more recently are likely considering their current options, including sale, whilst seasoned, moderate or high-net-worth investors are gearing up their portfolios as they capitalise on subdued values and higher yields.” As the cash investment market has increased, Buchanan says it’s likely that some aged investors will exit the property space for equal or greater returns by keeping their money in a bank.

Specialist Finance Group

Blake Buchanan

CommBank

Michael Baumann

La Trobe Financial

Cory Bannister

Suncorp Bank

Dylan Atherton

Blake Buchanan

Specialist Finance Group

Michael Baumann

CommBank

Cory Bannister

La Trobe Financial

Dylan Atherton

Suncorp Bank

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Specialist Finance Group

Blake Buchanan

CommBank

Michael Baumann

La Trobe Financial

Cory Bannister

Suncorp Bank

Dylan Atherton

Blake Buchanan

Specialist Finance Group

Michael Baumann

CommBank

Cory Bannister

La Trobe Financial

Dylan Atherton

Suncorp Bank

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