The Treasurer’s banking reform package announced a week ago will have some obvious ramifications, but it’s the not-so-obvious consequences that will have the largest impact.
While mortgage rates should drop with increased competition, it will be the rise of the relationship mortgage that will be the lasting benefit to consumers in this country.
There are two main points to the Treasurer’s reforms: firstly, by abolishing mortgage exit penalties and ensuring a system of data-sharing among financial institutions, it will be easier for Australians to leave one mortgage lender and go to another.
Secondly, the government will shore-up a ‘fifth pillar’ to the four pillars of the major banks. This will consist of the credit unions, building societies and the Australian Financial Institutions (the AFIs, known by some as non-bank lenders).
They will benefit from a government awareness campaign, deposit guarantees and a revitalising of the funding mechanism called residential mortgage-backed securities – a bond market that lenders can use for wholesale funds.
These two components could form the beginnings of renewed competition in Australian lending.
But it’s the return of the relationship that most of us will notice. With their increased lending capacity and policy status in Canberra, the fifth-pillar institutions will be used by more Australians in the next few years as they see an alternative to what is offered at the banks.
I think Aussie banks are very strong and professional and have played their part in easing Australia through the GFC and its aftermath. But when it comes to their retail customers, banks sell a product and then decide on the nature of the relationship dependent on the product purchased.
This is very different to the corner-store lenders – the building societies, credit unions and AFIs – which advise on the right mortgage product based on the relationship.
At the banks, ‘advice’ itself is a product; at an AFI such as Yellow Brick Road, advice is a natural consequence of the relationship.
Many of you will find this familiar, because it’s the same role the banks used to play, in the days when the branch manager had a relationship with householders and business customers. In this environment, advice is offered based on knowing the customer – the only financial advice worth anything.
I’m not saying that everyone wants this kind of service. There’ll always be people who are happy to apply for a bank mortgage over the internet. But others want the advice and the relationship.
The proposed banking reforms will open up the corner-store lenders to Australians who will once again have the choice between a mortgage as a product and a mortgage as a relationship.
I’m betting Australians will be amazed at what they’ve been missing.
Mark Bouris is the Executive Chairman of Yellow Brick Road, a financial services company offering home loans, financial planning, accounting & tax and insurance. Email Mark on mark.neos@ybr.com.au with any queries you may have or check www.ybr.com.au for your nearest branch.