Diversification has been a primary focus and catch-cry for the finance broking industry. At La Trobe Financial we have engineered our products and policies to ensure that we make the diversification opportunity a reality for all finance brokers.
However, whilst diversification is a great first step, a finance broker will need to consider each customer’s lifecycle. To do this, we mean using a Customer Lifecycle Management (“CLM”) strategy. Implementing a CLM will help you start building a sustainable business over the long-term.
What finance solutions will your customers need today, tomorrow and in the future?
We understand that financial goals will shift as each customer’s situation changes to serve their current needs. Some needs will be long-term. For instance, saving for retirement takes place across decades. But that doesn’t make shorter goals, such as saving for a deposit on a home, any less challenging. Knowing what financial milestones to target and when, will help finance brokers ensure that they respond to a client’s needs as they arise.
We encourage finance brokers to think about their customers, and consider whether they are actively catering for each customer’s full lifecycle of financial needs. Not only will it create additional revenue opportunities, but it will also enable you to really showcase your abilities as a true finance professional. Recognising opportunities for your customer, before they ask you, is adding value to their financial requirements. Now that’s making a difference.
The life journey
Over the course of the next few weeks we’ll walk you through a typical customer’s finance requirements over their life journey. As a finance broker you will be able to demonstrate your ability to cater for a customer’s first loan such as a purchase of their “first home loan” and last mortgage requirements (such as “aged care loans”), as well as all of their other mortgage needs in between (such as an investment property loan) and/or “life events” happen (such as divorce, illness etc.). We have also aligned our wealth creation solutions through our award-winning Credit Fund, so watch this space.
Stage 1 – Getting onto the property ladder – purchasing the first home
Housing affordability generally in Australia has become, and will continue to be a significant issue for local property buyers. In particular those looking to buy in the Sydney and Melbourne markets, now two of the least affordable major metropolitan markets in Australia.
While home ownership rates in Australia have been in gradual decline for a few years now, the rate of decline has occurred much faster in younger households (such as the 25-34 year old age bracket). In Melbourne and Sydney the rapid acceleration in house prices has significantly outstripped income growth, meaning a bigger deposit is required. In our current low-wage growth environment combined with rapidly increasing house prices and low levels of stock on the market, this is easier said than done.
More and more young Australians are relying on the “Bank of Mum & Dad” for their first home deposit and will continue to do so, therefore like any “Bank”, it is important Mum & Dad’s investment is secured ensuring their generosity does not go up in smoke. This is where La Trobe Financial’s Parent to Child (P2CTM) loan makes a difference. An innovative product solving the issues in first home ownership.
Tina, a twenty something millennial and her partner were looking to purchase their first home and had been saving diligently - even forgoing the smashed avocado breakfasts Bernard Salt - The Weekend Australian Magazine, October 15-16, 2016. However they only had enough to cover a 5% deposit plus costs. In addition to this, Tina’s credit file had 2 small telco defaults which limited their borrowing capacity via Lenders Mortgage Insurer (LMI), effectively reducing their finance approval to 80% of the purchase price.
Tina’s parents were willing to assist their daughter and her partner by contributing the remaining 20% required. However they didn’t want to provide personal guarantees and jeopardise their financial security.
Tina and her partner were approved for a Residential Full Doc mortgage up to 80% of the purchase price, avoiding the need for costly LMI, and with no guarantees required from the parents.
Tina’s parents’ generous contribution (20%) was invested into the La Trobe Australian Credit Fund, and then used to lend to Tina and her partner to complete the purchase via a Parent to Child (P2CTM) loan, with the parents’ investment secured by way of a registered 2nd Mortgage against Tina and her partner’s new property. The loan terms were documented in a formal Letter of Offer with monthly repayments payable.
The interest rate and loan term of the P2CTM loan was set by Tina and her Parents at a low 3.50% p.a. for 20 years, which when combined with the Residential Full-Doc loan meant the “blended” interest rate was a low 4.20% p.a. for what is effectively a 100% LVR with no LMI payable and no parental guarantees involved.
Tina and her partner were delighted with the result in that they were able to purchase their first home, avoid a LMI premium of about $18,000 and get their foot firmly on the property ladder. Tina’s parents were both pleased knowing that they had assisted their daughter, and more importantly knowing their “investment” was protected.
If you would like to know more about this innovative product please call your local Senior Manager Client Partnerships or call 13 80 10 to speak with one of our Credit Analysts directly to learn how we can help you make a difference in assisting our younger generation enter the property market and realising their dreams.
In our next edition we will showcase how we helped two lucky couples with their wedding and honeymoon plans – Stage 2 – Getting hitched – cash out for the wedding and honeymoon