How to protect your practice in a rising Interest Rates environment.
On the 3rd of May 2022 the RBA finally increased the cash rate by 25 basis points to 0.35%. Let’s get a little perspective here – Interest Rates in Australia averaged 3.89 percent from 1990 until 2022, reaching an all-time high of 17.50 percent in January of 1990 and a record low of 0.10 percent in November of 2020.
This was the first rate hike since November 2010. I am not a betting man, but an educated guess tells me this is just the beginning. We can expect many more interest rate increases over the next 12-24 months as the Government tries to get on top of inflation.
The official inflation rate is 5.1% but anyone who buys food, houses, cars or petrol (i.e. everyone) knows the real inflation rate is much higher.
In an inflationary environment the cost of living rises way faster than wages meaning the money you have simply buys you less and sadly many people can’t afford the basics of life like food and shelter. Something must be done to slow down inflation. So, interest rates look set to rise.
What can you do in the face of rising interest rates to distinguish yourself?
Have an informed view – clients, particularly older clients, or investors relying on income, are going to be concerned. This is going to be a front-of-mind topic. Many will call you as their trusted advisor. After all, you deal with money don’t you? Therefore, they will look to you for insight and guidance (note, not that naughty word “advice”, but rather guidance and reassurance). Take time to read and gather some insights that resonated with you which you can share. Very few of my readers are economists – and even economists get it wrong more often than not! The important thing is to have a position and long after that is forgotten, you will be remembered for your considered approach and understanding manner.
Mortgages and loans are likely to get more expensive. – so, if you are a finance broker, refinancing existing loans to save customers an easy 1% will no longer be part of the playbook. But, locking a variable exposure to fixed at the right time may be a smart and very defensive play, or even a part into different duration fixed products can cushion the blow. Start to scour the market for lenders who offer fixed rate offerings that may not have moved. Our rates have not yet, but they probably will from July when the full impact of borrowing costs are passed on by the primary funders, so you may even be able to move quickly in some cases.
If you are a planner, or work with a planner or accountant, take stock of how much interest rate cover your client has. It may be that they are ahead on payments and have plenty of headroom, and simply quantifying this will give the priceless reassurance that is required that they can ride this through a series of increases.
What will it mean for your practice, brokerage or business? Deal flow will likely slow and you will need to accelerate new client prospecting because existing clients may be locked-in or only refinanced in the past couple of years. If property prices stagnate or possibly reduce, then the average size of loans may shrink and commensurately so will your commissions and fees if you have assets under management. So, time to start tightening the belt. The banquet table is not as plentiful, and the feeding frenzy is going to ease up.
But it’s not all doom and gloom.
As in all areas of life, the cream will rise to the top and the advisors and brokers who are smart and committed to adapting to rising interest rates will do well.
If you’re looking to profit from rising interest rates, here’s what you can do:
Early movers will get a jump on the rest and increase their volume over the next 6-12 months meaning they’ll make up for lower refinancing volume down the track. Plus, you’ll build loyalty with your clients meaning they’ll stick around for longer.
Acquire more new customers than ever before. Right now, interest rates are on everyone’s mind and clients are shopping around. This is the perfect time to increase your marketing. You don’t only need to grow “organically”. Some will see the change in monetary policy as the time to call it quits and having ridden the downward cycle, they will dismount from their ponies and sell. Here could be that golden opportunity to make sensible offers to acquire books and with them more new customers than ever before.
Invest in your own future now – you may be able to borrow money today while it’s still relatively cheap and particularly before the SME backed Government loans are set to expire on 30 June. The specialist fixed rate loans we offer are still available for brokers, advisors and planners looking to purchase trail books or hire more staff. An investment in your business now while money is cheap will stand you in good stead as interest rates rise and rise, because you can create a little war chest to go shopping.
Top Mortgage Brokers have systems in place to action the above with ease. For them it’s like switching sails on a sailing boat. The downwind sail is packed away and now it’s time to ‘tack’ their way through the headwind.
If any of the above feels like a challenge for you that’s ok, you can learn how to implement systems that make your business profitable in both declining and rising interest rates.
If you want to discuss how you can prepare for rising interest rates, reach out to our Head of Sales & Business Development Daniel Cordukes for a confidential discussion, you can reach him at email@example.com.
Jeff Zulman is the Founder and Managing Director of Trailblazer Finance, a specialist financial services lender offering business loans, valuations and M&A buy/sell advice, specifically tailored for Mortgage Brokers.
All great organisations start by answering the fundamental question, ‘Why?’.
At TrailBlazer Finance we provide specialised cashflow lending solutions to recurring revenue-based businesses, harnessing the value of reliable, stable and predictable cashflow.
While there is no shortage of businesses that understand the value in what we do, chances are, hearing our elevator pitch isn’t going to leave you personally inspired to “change the world” either.
This isn’t to say that we aren’t passionate about cashflow lending, we are, however our ‘Why’ runs much deeper…
At Trailblazer, we have tried to create a company culture of giving back.
Not only does the team engage in self-led social workdays each year – that finish with a WhatsApp frenzy of happy selfies and stories at the end of each day, but we’ve been supporting a number of charities since our inception. Our major partners in this area have been ‘Room To Read’ a non-profit organisation, and the ‘Humpty Dumpty Foundation’.
To further our mission, we are excited to announce the launch of the TT Foundation.
This charitable arm of TrailBlazer Finance has been set up as a vehicle to drive our impact further, allowing us to give even more to the causes that we support. Going forward, 100% of the Discharge Fees paid by clients at the maturity of their loans will be credited to the TT Foundation and distributed to a range of Australian registered charities, where we want to help to make a difference.
This significant milestone in TrailBlazer Finance’s timeline adds an equally great, tangible commitment to our ‘why’.
To kick things off we made the TT foundation’s first donation of $10,000 to the ‘Humpty Dumpty Foundation’. This has since seen the purchase of medical equipment that is already supporting babies in need at Bankstown Hospital (NSW).
We are honoured to be able to combine our passion for cash flow finance with our passion for giving back, and are looking forward to watching the foundation grow in impact over the years to come.
If you are interested in finding out more, please feel free to e-mail us at TrailBlazer Finance or call us on 1300 139 003 for a discrete conversation and insight.
Look at the trials and tribulations faced by the mortgage broking industry over the last decade. Should we be surprised if the pandemic has had an impact on the most valuable asset your business has, and which you have grown over its life? Absolutely not.
As a company that has bought, sold, valued, and lent against thousands of trail books, we have eagerly (and anxiously) sat in front row seats observing how the COVID-19 pandemic has impacted trail book valuations over the past year, and here is some of what we’ve seen:
What climbs with COVID-19 cases? Arrears rates
At the beginning of 2021, Sam (name changed to protect his identity) had an epiphany. After a decade of building and nurturing a successful mortgage brokerage and helping clients achieve their dreams, it was time to realise his own ambitions by following his passion in firefighting.
Sam’s primary concerns were ensuring his clients would be transitioned to a safe set of hands and achieving a sale price commensurate with the hard work and energy he had poured into his business.Read More
The sharks of mortgage broking: How to eat and avoid being eaten.
It’s likely that you’ve heard the saying “there are two certainties in life: death and taxes”. While this holds true for the vast majority, there’s a third certainty for those in the mortgage broking industry, that being change.
What we can expect from the ATO in 2021
2020 was a lenient and generous year for the ATO with respect to small business. Not surprisingly as a result the ATO’s revenue target took a hit and debt levels increased 18% from $45 billion to $53 billion.
With the worst of the pandemic behind us in Australia and the economy picking back up, it’s reasonable to assume that the ATO will be less lenient on small businesses going forward.
How one brokerage turned obstacles into drivers for growth
NFS mortgage brokerage is living proof of the success that can be achieved with a mindset acknowledging “the obstacle is the way“. A partnership between two former co-workers, founded in 2016, the business grew by 28% to $233m in 2020 alone. Their experience and approach provide key learnings for similarly resilient brokers.
10 golden rules for preparing to buy or sell a mortgage trail book
Buying or selling a mortgage trail book need not be a difficult or angst-ridden process. All buyers and sellers really want is to increase the certainty of a sale proceeding and speed up the time to completion, so as to help avoid any nasty surprises.
With that in mind, here are our top 10 golden rules for selling or buying a trail book.
How to create additional value in your planning practice
2020 has been a strange year to say the least. With the fate of the economy at large in flux, it has never been as important to future-proof your business. Whether you’re looking to attract new talent, secure additional funding or exit the industry gracefully, it’s worth putting a few tangible strategies in place to enhance the value of your practice
We’ve already looked at the factors that influence practice value, now here are our seven tips for creating additional value in your practice.
How one mortgage broker grew his business through ingenuity, diversification and smart funding
Back in 2015 Craig Vaughan had an idea. Already running a successful mortgage brokerage (since 2007) he knew there had to be a better, smarter, more efficient way to write more business and create a better client experience without being insanely overworked.
Given that his concern was fairly universal for mortgage brokers, Craig decided the solution was a workflow engine specifically for brokers, geared around enabling teams to effectively allocate, time and track tasks to enable efficiencies and greater loan volumes to be written within agreed SLAs.