Client retention to help amid economic headwinds

With the Reserve Bank of Australia (RBA) widely expected to raise the cash rate by 50 bps on Tuesday (2 August), industry experts discussed the economy and property market with brokers during an “exclusive” webinar hosted by Connective.

Given the grim picture the Australian Bureau of Statistics (ABS) has revealed, with Australia’s consumer price index reaching 6.1 per cent alongside rising interest rates, there have been concerns raised over borrowers’ circumstances and lending capacities.

In addition, home lending has cooled this year following the records seen during the pandemic.

Speaking at an industry webinar, hosted by aggregation group Connective, the head of research at CoreLogic, Tim Lawless, said while housing conditions have “diversified” it was important to keep in mind that sales activity was still “above average”.

“We’re seeing things fall but it’s coming off record highs,” Mr Lawless said.

“The headwinds are outweighing the tailwinds but there’s still opportunity for brokers as borrowers will need to refinance after fixing.”

While economic headwinds have raised some concerns, Connective executive director Mark Haron said there were “opportunities for brokers in an increasingly complex economic environment”.

“Even with a dip in real estate transactions, a rising rates environment is going to trigger an increase in refinancing activity as borrowers begin to roll off two-year fixed rates in the next 12-18 months,” Mr Haron said.

“While communicating with clients whose fixed rate loans are expiring is important, brokers should focus on ongoing retention activities to help them create long-term client relationships which are integral to business success.”

The ACCC home loan price inquiry found that the longer someone is with the same lender, the higher their rate will be, so many home owners are paying much more interest than the market currently requires (the “loyalty tax”), and home owners are increasingly aware of this. 

A record 363,978 properties were refinanced in 2021 according to the latest data from property settlements platform PEXA (an increase of 27.9 per cent from 2020). For other borrowers, the perceived hassle of changing lenders to keep up with the market hasn’t been worth the effort, but after an interest rate rise, that will rapidly change. 

Mr Haron said Connective’s data found brokers who use a marketing program and regularly communicate with clients “generate higher volumes”.

“Connective members who use our marketing platform had a median annual settlement volume of $38.9 million last year compared to $14 million for those brokers who didn’t engage with the technology,” Mr Haron said.

“It doesn’t have to be Connective’s marketing solution, it could be any marketing tool – the bottom line is, if you’re communicating regularly with your clients, you will write more business.”

Meanwhile, Westpac senior economist Matthew Hassan said while brokers are operating in a challenging inflation situation consumer spending had remained strong – up 9 per cent above pre-pandemic levels.

In terms of property, Mr Hassan said: “The housing market is entering a significant correction phase, which we expect will stabilise late in 2023. Rising interest rates reduce borrowers’ capacity and means buyers can’t stretch to meet the market in the same way.”

[Related: Client retention should be a daily activity, especially now]