The New Zealand Mortgage Broker Survey 2006

Published by: Datamonitor

Published: Jun. 23, 2006 - 72 Pages

Table of Contents

CHAPTER 1 EXECUTIVE SUMMARY

The New Zealand mortgage market continues to grow

Brokers value efficient and personal relationships with lenders who offer low interest rate products

Brokers valued an attractive fixed interest rate product

Mortgage brokers are well rewarded for their business despite being unhappy with their commission structure

Most of the surveyed brokers expected their 2006 business mix to remain similar to that experienced in 2005

Awareness of non-standard mortgage products is high and lenders can expect more of these loans to be written in the future

Mortgage brokers are expecting their businesses to perform well despite major changes to their commission structures

CHAPTER 2 INTRODUCTION

Scope

Who is the target reader?

How to use this report

CHAPTER 3 MARKET CONTEXT

New Zealand's mortgage market continues to grow

New Zealand's housing loans outstanding have grown from NZ$70.3 billion in 2001 to NZ$120.5 billion in 2005

Total housing loans outstanding increased to NZ$120.5 billion at the end of 2005

Housing loans outstanding per adult grew at a rate of 12.3% compounded annually over 2001-2005 period

Average house price growth was higher over the 2001-2005 period than previously

The survey reveals the average loan size is in line with the average median house price

27% of surveyed brokers indicated that their average loan size is between NZ$151,000 and NZ$200,000

CHAPTER 4 THE BROKER AND THE LENDER

Brokers value efficient and personal relationships with large lenders

Brokers value fast decisions and direct contact with the lender

Fast lending decisions are important to brokers

Low comparison interest rates and direct contact with the decision maker are also considered essential

Support from the help desk, a wide range of product features and the ability to negotiate were also of importance

Upfront commission is not a factor

Of least importance are alternatives such as electronic submission capability and brand strength

Big lenders are important to brokers, with ASB being the most commonly used and also regarded as offering the highest level of all-round service

Auckland Savings Bank offers the best all-round service to brokers

The National Bank of New Zealand also ranked highly in service to brokers

Brokers also consider Sovereign to offer good all-round service

ANZ and Westpac offer good all-round service

ASB is the most commonly used lender followed by ANZ and National

ASB is the most commonly recommended lender by mortgage brokers

ANZ is the second most commonly used lender yet it was ranked fourth in terms of best all-round service

Brokers rank National Bank of New Zealand as their third most commonly used lender

Westpac received 13% of total responses

Brokers continued to use lenders that do not offer high levels of service

CHAPTER 5 THE MORTGAGE PRODUCT

Brokers had definite opinions on consumer preference

84% of surveyed brokers valued an attractive fixed interest rate

51% of surveyed brokers valued a packaged product

The other four alternatives were significantly less important

Clients place emphasis on having an attactive introductory interest rate

Clients also place emphasis on an attractive variable interest rate

Consumers place an equal yet small value on having overpayment and redraw facilities in their mortgage

CHAPTER 6 THE COMMISSION STRUCTURE OF THE MORTGAGE BROKER MARKET

Mortgage brokers are well rewarded for their business although they are unhappy with their comission structure

Mortgage brokers receive more than 0.7% upfront commission

The most common upfront commission was between 0.71% and 0.80%

60% of respondents receive a volume based incentive

The most common volume based incentive is between 1% and 10%

The majority of respondents choosing the 'other' cateogry stated that their volume based incentive was difficult to specify

Most brokers would prefer to keep receiving a trail commission

More than 75% of surveyed brokers would prefer less upfront and more trail commission

Just 19% of respondents indicated that theywere happy with their current mix of commission

There is a mismatch of stated preference and recommendation

CHAPTER 7 REFINANCING AND OTHER TYPES OF HOUSING BORROWING

In 2006, first time buyers will be less important than in 2005, while refinancing will be more important

More than 70% of surveyed brokers revealed that first time buyers with a deposit of less than 20% desposit are the primary borrowing type

56% of surveyed brokers indicated refinancing was an important component of their business mix

40% of surveyed brokers disclosed that low-doc lending was an important contributor to their business mix

Refinancing is important and expected to increase in 2006

30% of respondents indicated that refinancing made up 0-10% of their business mix

Most surveyed brokers expected the level of refinancing to increase in 2006

The majority of brokers did not expect their business mix to change significantly in 2006, however there is a slight increase expected in low-doc lending and refinancing

CHAPTER 8 THE NON-STANDARD MORTGAGE MARKET

Awareness and understanding of non-standard mortgage products is high and lenders can expect more of these loans to be written in the future

Most surveyed brokers are able to define a reverse mortgage

Brokers were able to name reverse mortgage providers

The most commonly listed reverse mortgage provider is Sentinel

13% of respondents were unable to cite any reverse mortgage providers

Brokers are familiar with sub-prime mortgage providers

The surveyed brokers reveal a preference for larger mainstream lenders offering sub-prime mortgage products

Bluestone is the most commonly used specialist lender, followed by Liberty and Pioneer

CHAPTER 9 THE FUTURE FOR MORTGAGE BROKERS

Mortgage brokers are expecting their business to perform well although they are concerned about commission structures

Brokers expect their suite of products to expand

Brokers are very concerned about commissions being reduced

Lenders reducing commission is considered the greatest concern by brokers

Many brokers were very concerned that lenders will pull away from the broker distribution channel

Brokers were also concerned about lenders aligning commission to a product's profit and margin

There were two issues that were of much less concern to brokers

APPENDIX

Supplementary data

Definitions

Balances outstanding

CAGR

Cash rate target

Gross advances

Lending commitments

Non-conforming

Research methodology

Primary research

Secondary research

Future readings

Relevant links

Datamonitor's custom research capabilities

Asia Pacific SPP writing team

How to contact experts in your industry

List of Tables

Table 1: 27% of surveyed brokers expected no significant change to their business mix, while 23% expected low-doc lending to increase and 18% of brokers anticipate refinancing will rise

Table 2: Sentinel accounted for 53% of responses, followed by the Avon Investments Group with 33% which is shared by its various brands

Table 3: Bluestone represented 34% of all responses to this question

Table 4: Housing loans outstanding, 2001-20005

Table 5: Housing loans outstanding per person, 2001-2005

Table 6: Median House prices, 2001-2005

Table 7: What would you estimate your average loan size to be? Figures are in NZ$'000s

Table 8: What do you consider to be the three most important attributes of lenders that you deal with the most frequently? Choose only three

Table 9: In your opinion, which three lenders offer the best all-round service to brokers? Include banks, building societies, specialist lenders and credit unions

Table 10: Which three lenders do you most commonly use? Include banks, building societies, specialists and credit unions

Table 11: In order of importance, how would you rate the following product features from your client's perspective? Rank from 1-6 where 1 is the most important

Table 12: Which of the following best matches your average upfront commission rate? Answers are in percentage (%)

Table 13: Which of the following best matches your average volume based incentive (VBI) rate? Answers are in percentage (%)

Table 14: How do you feel about lenders phasing out trail commission?

Table 15: If you could change your commission structure, which of the following would you choose?

Table 16: Rank the following in terms of value of business from 1-6, where 1 is the most important

Table 17: In 2005, what proportion of the value of your business would you estimate was based upon refinancing?

Table 18: Do you expect any changes in the level of refinancing over 2006?

Table 19: Which of the follow best describes a reverse mortgage?

Table 20: Would you prefer to use a 'sub-prime mortgage specialist' or a major provider offering sub-prime mortgages?

Table 21: How do you expect your mortgage business to perform in 2006

Table 22: Do you envisage increasing the suite of products that you offer to include any of the following? If you already offer, please disregard

Table 23: How concerned are you about the following. Rank in terms of importance, where 1=very concerned, 2=slightly concerned and 3=unconcerned

List of Figures

Figure 1: Over the 2001-2005 period, housing loans outstanding increased from NZ$70.3 billion to NZ$120.5 billion

Figure 2: Housing loans outstanding per adult increased from NZ$23,544 in 2001 to NZ$37,503 in 2005, corresponding to a growth rate of 12.3% compounded annually over the period

Figure 3: The median house price has increased from NZ$175,000 in 1992 to NZ$280,000 in 2005

Figure 4: The most common average loan size was between NZ$151,000 to NZ$200,000 as chosen by 27% of surveyed brokers

Figure 5: Brokers placed the most value on fast lending decisions, followed by low interest rates and direct contact with the decision maker

Figure 6: 23% of surveyed brokers named ASB as one of their three lenders offering the best all-round service, followed by National and Sovereign

Figure 7: Surveyed brokers indicated that ASB and ANZ are the most commonly used lenders

Figure 8: An attractive fixed interest rate and packaged products are considered the most valued features from a client's perspective

Figure 9: Of the mortgage brokers surveyed, 34% are paid an average upfront commission between 0.71% and 0.80%

Figure 10: Approximately 90% of respondents receive a volume based incentive with the most common amount between 1-10%

Figure 11: More than three-quarters of the respondents revealed that they would prefer to continue receiving trail commission

Figure 12: Surveyed brokers indicated that their ideal commission structure would be less upfront and more trail commission. This confirmed earlier concerns to the phasing out of trail commissions

Figure 13: According to surveyed brokers, first time buyers with less than a 20% deposit where the most important business line

Figure 14: Refinancing in New Zealand contributes a smaller proportion to brokers' business mix

Figure 15: All surveyed brokers expected that refinancing in 2006 would remain similar or increase from 2005

Figure 16: More than 80% of surveyed brokers accurately defined a reverse mortgage product

Figure 17: The majority of surveyed brokers would prefer a major mortgage provider when recommending sub-prime mortgages

Figure 18: Overall, almost 90% of surveyed brokers expect their 2006 revenues to be at least similar, if not larger than in 2005

Figure 19: Life insurance, motor insurance and health insurance are products that surveyed brokers expect to be offering in the near future

Figure 20: Brokers were most concerned about lenders reducing commission, followed by pulling away from the broker distribution channel

Figure 21: Datamonitor's core consulting capabilities

Abstract

• This report collected a substantial amount of primary data covering attitudes towards different lenders and which lenders are preferred.
• It reveals the average upfront and trail commission rates and the incidence of volume based incentives
• It discusses product features which are most valued by consumers
• It looks at how well the non-standard mortgage market is understood and which lenders are used when recommending these products

• Find out what mortgage brokers want from their lenders
• Find out which lenders are most regularly used by brokers and which offer the best service
• Lenders: find out what mortgage brokers think of you and your products

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