NAB analyses growing market trend
NAB has identified the refinance boom as one of the key market forces shaping the broker market – and it says there are plenty of opportunities for brokers.
According to the Market megatrends 2022: Uncovering the opportunities for brokers report presented by NAB executive - broker distribution Phil Waugh, and CoreLogic head of Australian research Eliza Owen on Oct. 22, there are six forces shaping the market.
They are described as: the pace of change, a soft landing, the rise of investors, first-home buyers in prime position, the refinance boom, and a digital revolution. Data and insights for the report were provided by NAB chief economist Alan Oster, NAB head of behavioural and industry economics Dean Pearson, and CoreLogic.
Waugh (pictured above) spoke about the refinance boom and digital revolution. He said homeowners on average refinanced their loan every 5.6 years (according to PEXA), and 81% who have refinanced over the last 12 months, intended to refinance over the next two years.
NAB figures show the refinance market reached a record $18.9bn in August (in dollar terms), indicating the effects of interest rate commentary on refinancing activity.
With almost 70% of residential home loans going through brokers (68%, MFAA June 2022 quarter), Waugh said the role and responsibility of brokers had never been more relevant.
Refinance activity is largely driven by the significant uptake of fixed rate home loans taken over the past two to three years, he said. These loans are now approaching their expiry dates, moving to variable-rate loans.
“We’re seeing that fixed rate expiry bubble come through … that will come through until July 2023, which provides a huge amount of opportunity for brokers,” Waugh said.
Read more: Refinance: Everything you need to know
Waugh said he expected “like-for-like refinancing” to become more prevalent over time, and that the bank would use technology to make the process more seamless.
NAB remains focused on retaining existing customers, by ensuring that the variable revert rate (from the fixed rate) they’re moving to is priced “with an appropriate rate” and an “appropriate discount”, he said.
“There’s a lot of activity across our team, to ensure that balance is appropriate”, Waugh said.
Equally, Waugh said the bank wanted to grow its market share by attracting new customers from other financial institutions coming off their fixed rates.
“The challenge for all lenders in this market will be around rate and discounting, ensuring that we’ve got the right balance between discounting and sustainability for the enterprise,” Waugh said.
When it came to striking a balance between retaining existing customers and attracting new customers, when the rates offered to existing customers may be inferior, Waugh acknowledged this was a topical issue, particularly around the expiry of fixed rate loans.
Waugh acknowledged that it was frustrating for a broker when they approach a bank to request a rate for a customer, the rate isn’t met, an LOI comes into the bank, then the retention unit calls the customer and provides a rate lower than what they asked for.
“It’s not a great enterprise outcome, it’s not a great customer experience [and] it’s a terrible broker experience,” Waugh said.
Waugh said NAB is focused on supporting the customer in their early interactions, and on interacting with the broker before customer fixed rates expire.
“So, the process of expiry to them – the revert rate – is a sensible process but it’s also a sensible economic outcome for the customer,” Waugh said.
Given the level of commentary on this issue, Waugh said he thought organisations and lenders would get “far better” than what they have been historically, which he said had been a huge focus at NAB.
Waugh said the same challenge applied to borrowers on a variable rate who were seeking to better that rate. They may go through an LOI, the retention unit calls and offers a cash back and a cheaper rate, and the broker has completed the work.
“It’s a very frustrating experience for brokers and for customers – and I don’t think it’s great for the reputationally for the organisation,” Waugh said.
The bank would focus on proactively calling customers to ensure they have a sensible outcome, whether they’re existing or new customers, he said.
“The activity that brokers are doing with their customers, to give [them] the best possible economic outcome, needs to ensure that we look after our existing customers just like we look after our new customers,” Waugh said.
Meanwhile, NAB Group chief economist Alan Oster is predicting below-trend growth for 2023, although Waugh said the country “should avoid a recession”.
The bank is forecasting GDP to be around 3% through 2022, dropping to 1.8% in 2023 and that it would remain at a similar level in 2024. The official cash rate is forecast to reach 3.1% by early next year. NAB is to provide updated forecasts on November 9.
Low unemployment, a general resilience post-COVID, and increasing business investment are among the factors supporting the economy, Waugh said. On the downside, cost-of-living pressures and ongoing challenges around affordability continue to surface and aren’t currently slowing at the speed many expected.
Despite this, NAB’s measures of consumer confidence have consistently shown that Australians are more resilient than other measures suggest, he said.
“We’re generally feeling reasonably confident in the economy in Australia, and in the resilience that Australians have shown,” Waugh said.
“But we do know that there are some challenges for customers, and they are doing it a bit tough.”
With the backing of the Royal Commission and response through COVID-19, Waugh said NAB is available to assist customers.
“Our message to brokers is to ensure customers facing challenges interact with us early and have those conversations,” Waugh said.