Moving with the tide

Entering the finance industry just after the GFC, Mr Caine says he has “learnt the hard way” and has witnessed countless changes with the lending policies of the banks, particularly in regards to SMSF lending.

“It’s been quite a rocky road. There have been quite a lot of changes over the last decade in this space that we’ve had to adapt to,” he says.

“I’ve been there from the start before SMSF lending became mainstream so to speak, so I understand what’s changed, how frequently the banks have changed their attitude to it, and how the complexity involved with SMSF lending has increased.”

Having a postgraduate certificate in SMSFs has been immensely helpful in understanding some of the complex aspects with SMSF loans, he says, and assuring accountants and advisors that their SMSF clients are in the right hands.

Keeping on top of change

Keeping up to date with the frequent changes to lending policies, legislative reform and changes within the lending market has always been a critical part of the service his firm provides, but he notes that it can be challenging at times.

“What one bank did yesterday doesn’t guarantee that they’ll do that again tomorrow and that’s where we need to navigate who does what for our clients to make sure that we’re up-to-date with all the policies, so that our accountant and advisory partners don’t have to be,” he says.

Mr Caine says his firm is in constant contact with lenders to make sure that whenever there is a change, they understand it and can implement it for customers.

“What we’re seeing at the moment is the banks tightening up the restrictions around what the minimum cash balances need to be before the SMSF can enter a borrowing arrangement,” he explains.

“That’s probably been one of the biggest shifts where banks are requiring more and more cash to be held in the fund as a minimum.”

A lot of the tighter lending restrictions he believes stem from the fact that when borrowing for SMSFs started in 2007, a lot of trustees entered loan transactions they shouldn’t have. Some funds, he says, bought small, low-value properties that potentially weren’t the best asset to hold for their retirement.

“I think many people became a little too excited and got carried away and wanted to have property in their super fund, no matter what it was. I think that’s probably led to a bit of a grey area in this space,” he explains.

While the take up of SMSF loans started off slow, he says, it soon went too far, and it’s now come back down again.

“I think where it is at the moment is where it should be. The banks, off the back of the APRA recommendations, have a fairly rock-solid policy for what the minimum requirements are for liquidity, and it enables trustees to be able to buy better quality, higher-value properties that are going to be more beneficial to them in their retirement,” he says.

A good example of this, he explains, is rather than a trustee with $100,000 in their SMSF purchasing an asset for $250,000, they hold off a few years till they’ve got $200,000 in their fund, and they instead buy an asset worth $400,000 to $500,000.

“That will make a big difference to that trustee’s retirement because they’ll be buying a better quality asset,” he says.

“I think the controls [for borrowing] were probably a little too loose to start with, where anyone could buy anything, and now it’s been tightened up, and I think it’s for the better.”

Fallout from the royal commission

Looking ahead, Mr Caine predicts it will be a tough 12 months for the mortgage broking industry following some of the findings of the royal commission. He expects it is going to impact all lenders in some way.

“I believe policies are going to be very tight over the next 12 months, and it’s really important that, as brokers, we put the right client with the right bank the first time,” he says.

“I think understanding the banks’ ever-changing policies for brokers is probably going to be the trickiest part over the next 12 months, because things are getting tighter.”

A two-way lever

As the firm deals solely with clients of advice and accounting firms, building solid referral relationships with these firms is very important for attracting new clients.

Being able to leverage off technical expertise and skills, Mr Caine says, is essential when working with accountants and advisers. His firm places a lot of emphasis on having the skills to be able to facilitate any transaction that comes across its desk, no matter how complex it may be. Mortgage brokers, he says, need to have a strong technical base, so that they can go into an accountant’s office and understand the structures and strategies that the accountants are dealing with, and want to implement for their clients.

“Dealing with accountants is a two-way lever where we can help their client either save a lot of money with a refinance or obtain a good loan structure, so that the accountant achieves a big difference for their client, while we get the benefit of taking on a new client. I think it is about having an expert for each part, so the accountant does a really good job at the accounting, and we do a really good job at the lending,” he said.

“Having a contact in each part of the process is a really beneficial structure for our mutual clients. Everyone is doing their job with a lot of experience and good intent.”

A tool for collaboration

One tool that has strengthened the firm’s relationships with its referral partners is the development of a shared online portal for accessing client information. The portal allows all parties to access and review client updates. The portal saves accountants and advisers the trouble of calling their firm to find out where their client’s dealings are up to.

“The accountant is able to see straight away which part of the loan process their client is up to and they can see all of our file notes and our compliance documents,” he explains.

“So if they’ve got clients that they’ve referred to us, they can see exactly what stage the client is at. They can see if a loan has been approved or there are documents still missing, or the loan has been pre-approved or they’re waiting on the valuation. It helps the accountant be more across the process without having to do any work.”

Giving accountants and advisers this control is very important to the firm.

“We want to make sure that they’re not left in the dark in terms of where their client’s application is,” he says.