Should there be an industry standard for packaging deals?
Since the Financial Services Amendment Act (FSAA) came into effect on 15 March, advisers are more accountable than ever before, especially when it comes to their duty of care towards their clients. It’s not just advisers that are affected by these changes. Lenders also need to look at their obligations and think about whether they’re providing enough education around their products and credit criteria.
Bringing in an industry standard for advisers when packaging deals could be a simple way to create more efficiency, improve turnaround times and conversion rates, and help advisers better meet their obligations towards their clients.
The current state of loan application conversion rates
The conversion ratio of applications to settlements across the NZ market is currently very poor, averaging around 35-45%. In comparison, conversation rates in AU sit at around 60% or higher. There are a few possible reasons for this:
- It might be that advisers are submitting applications to multiple lenders at the same time.
- The lending landscape is more complex in NZ with less certainty around the credit risk appetite of lenders in an ever changing market.
- There is a lack of consistency when packaging applications, making it difficult for lenders to make an informed decision.
The third reason is an issue that Peter Wood, Bluestone’s NZ Managing Director is very familiar with, as he says.
“Industry-wide, the way deals are packaged could really use an overhaul. We still see a lot of applications that are missing essential information. As a responsible lender, we really can’t make a decision without knowing the full story. What’s needed is an industry standard requirement that says, irrespective of lender, when you send us a deal, here’s the mandatory information. The use of technology such as electronic bank statements, online verification of identity should be embraced and utilised to support these applications quickly and efficiently.”
An industry standard for application packaging would mean less back and forth between advisers and lenders. It would save everyone time and help advisers meet their duty of care obligations to their clients.
Baden Martin, Head of Mortgage Adviser Distribution for ANZ New Zealand agrees on the need for an industry standard. He says,
“Bank decision times are impacted by the proportion of applications that result in deferred credit outcomes. Standardising the requirements for home loan applications across lenders could potentially reduce defer rates. This would benefit all parties in a home loan application through improved credit decision times and higher rates of client satisfaction.
Under the new CCCFA guidelines everyone has a part to play to ensure product recommendations meet robust customer suitability and affordability requirements. By working together and creating consistency across lender expectations we can help improve the home loan experience for all parties.”
What would a mandatory industry standard for packaging look like?
Here’s an example of what a mandatory industry standard for packaging could look like:
- Fully completed loan application form signed and dated with the appropriate declarations.
- Complete diary notes with clear requirements and objectives.
- ID for all applicants (with signatures that match declaration).
- Sales and purchase agreement (if applicable).
- Latest income documents
- Last two payslips if PAYE.
- Last two years’ signed and dated financial statements for self employed borrowers.
- Trust deed (if applicable).
- Most recent three months’ personal bank statements for all applicants.
- Most recent six months’ mortgage statements on owner occupied, or most recent six months’ rental statements from property manager, or six months’ personal bank statements clearly showing rent paid.
- Most recent six months’ mortgage statements for all loans being refinanced.
- Most recent statements for all debts being refinanced.
Right now, advisers are not helped by the fact that every lender has different criteria and documentation requirements, so this would need to be an industry-wide measure.
Brendon Smith, CEO of NZFSG agrees.
“As a group we are all about putting customers first, with current turnaround times being one of the biggest challenges for our industry right now anything that would help reduce these and provide more certainty for customers should be considered.
In our view having a set standard across the industry to reduce rework, enable quicker decisions will ultimately improve the customer experience as well as being more efficient for all.”
As we move to a more regulated financial services industry in NZ, we all need to start looking at what we can do to provide a better service to clients and make sure we’re meeting our obligations.