'Have your cake and eat it too'

by Calida Smylie13 Mar 2014
A non-bank lender is saying brokers can ‘have their cake and eat it too’ by choosing the income option which best suits.

Australian First Mortgage (AFM) managing director, David White, told Australian Broker they made the decision around a month ago to offer a couple of income choices, after listening to broker feedback.

“A lot of brokers were saying to us, ‘I’ve been a broker for 30 years – I don’t need a higher upfront but I need a bigger trail in my loan portfolio’. Others were saying, ‘I’ve just started out and I’ve got a lot of costs, I need a higher upfront’,” White said.

Brokers can now choose whether a trail of up to 0.25% and upfront at 0.50% suits best, or the upfront at 0.70% and trail of 0.15% option does. These options are available on loans of up to 80% LVR with interest rates starting from 4.85%.

“It gives brokers options to look at for income for their businesses choose from based on where their business is at, and also makes sure the customers are getting low rates without any conflicts of interest,” White said.

Previously, AFM offered one product with a higher rate (earning higher commission) and a lower rate (earning lower commission). The lender then offered the same product at a lower rate with lower commissions to help brokers to compete with price sensitive customers.

However, this caused a consumer conflict of interest. “You can’t really sell a customer a higher rate when you can give them a lower rate,” pointed out White.

So AFM decided to keep the interest rate the same but offer brokers two income options.

White believes they are “probably” the only lender in the country that is offering a trail of 0.25% to the broker from day one, with interest rates below 5% variable for the customers under 80% LVR.

“We’re doing something fairly new, I would say. We’re just trying to be innovative in the market to give customers are getting the best interest rate and best product possible – with no application fees, valuation fees or legal fees – while ensuring brokers have options to earn good remuneration as well.”

So how is AFM able to offer this? By good pricing, said White.

“We’ve got a large portfolio and our business doesn’t have any debt. Because we write a lot of business, wholesalers have given us cheaper delivery rates, to help us get out to market to deliver better options. So we’re not funding it through extra cash flow out of our business, it’s the way we’re pricing our business in a very competitive market.”

He said the product is “keeping the other lenders on their toes” – and so far, the higher trail option has proved more popular.