Not unsuitable clause to drive competition

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Assessing client needs more closely could result in mortgage and finance brokers placing loans with a wider variety of lenders next year, which will assist in reviving competition reduced by the financial crisis.

A panel of industry business leaders said that following the "flight to quality" that occurred during the GFC, the new 'not unsuitable' requirement under the NCCP's responsible lending laws will make for greater competition.

"At the onset of GFC, there was a flight to quality," Connective principal Mark Haron said. "A lot of that was around credit policy, and brokers wanting to make sure every deal they do is going to settle - they did start using major banks more because their credit policies hadn't tightened as much as some of the non-banks and smaller banks, and particularly international banks."

Haron said the responsible lending requirements will make brokers "more open" to a "broader range" of lenders. "The responsible lending requirements will give them more opportunity to assess a whole range of lenders to suit those client needs, as opposed to taking clients down the path of dealing only with one or two lenders," Haron said.

FAST managing director Steve Kane said brokers had delivered on customers' desire for comfort by writing major bank loans during the GFC. "It wasn't necessarily that non-bank and second tier lenders were good, bad, or indifferent, it was that customers required certainty and security, because for many people, a housing loan transaction is the biggest they'll do in their life."

Kane said that brokers will now be required to do more analysis of a customer's actual financial standing, and making sure that when they do make a loan recommendation, the product is 'not unsuitable' - so driving competition in the market.

"The reality is that [responsible lending] really gives the broker the opportunity to look at a wider selection of products, to make sure those products are not unsuitable for the customer," Kane said. "I think brokers have at their heart the value they provide for their customer, and that is what will drive competition. It isn't just about price - it's about service, it's about credit quality, it's about the process they go through for that loan that will determine where things go. As competition improves over the next 12 to 18 months, you'll find brokers will seek out those opportunities that best suit their customer's needs."

Citibank director of mortgages Steven Ramage said that there has been no "overflow effect" in 2010 with market growth only at 8%, which has meant that brokers are continuing to direct the majority of loans to the major banks.

"If the market is at its normal 13% grow level, the majors struggle to service it, and therefore you get this overflow where brokers have to go and choose another lender," Ramage said. "They haven't had to do that, because they haven't had the overflow."

Ramage said the market is starting to see a shift where increased volumes will result in natural competition coming in.

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  • peter on 21/12/2010 2:55:57 PM

    agree, you could have only 1 lender and provide a "not unsuitable loan" product in every case!

  • Melb Broker on 21/12/2010 12:43:33 PM

    The term "not unsuitable" is so vague that any facility could be deemed not unsuitable.You could twist your reasoning in so many ways to justify your reasoning for the choice. It just a wank having to use this absurd phrase. Any broker worth his wait is salt already knows this and understands the ramifications of putting their client into a loan that is unsutable. This is just Govt clowns trying to prove their salaries are valid.

  • Alwyn Beardmore on 21/12/2010 12:09:03 PM

    O believe the thrust of this article to be totally incorrect. There will be less competition because the brokers who haven''t already been focussing on giving their client the best available options will start doing so and you will be surprised at the results.

  • oldBroker on 21/12/2010 12:02:40 PM

    Don''t agree. 99% of all products will be ''not unsuitable''.

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