No area of lending was completely untouched by the effects of COVID-19, whether the result was a substantial decrease in volume or a substantial increase. On the commercial side, several factors impacted Australian businesses.
The lockdowns meant that retailers across the country had to close doors; and continued social distancing restrictions required caps on the number of people on a business premises when they reopened. Spending dropped, but only briefly. ABS figures show that retail spending soared in March due to panic-buying, plummeted in April as many shops closed their doors and people stayed inside, and then sales bounced back up to above pre COVID levels in May, where they have remained ever since.
This does not reflect the entire picture, however. Figures from ACA Research’s Business Sentiment Tracker show that 54% of SMEs reported lower revenue due to COVID-19 in March 2021. That figure has remained above 50% since its first report in April last year.
The effect on business was different depending on the sector. While some traded incredibly well, like those in the industrial sectors, others struggled, like hospitality and tourism. White-collar businesses were also affected by the fact that many employees were sent to work from home. This had a huge impact on the commercial real estate sector.
By March 2021 Sydney’s CBD was only 50% occupied, according to the Property Council of Australia. Melbourne’s occupancy rates were much lower, due to its extended lockdowns, with only 35% of CBD office space occupied.
While this means office vacancies are on the rise, brokers and lenders have also reported that many businesses that previously rented space are now able to buy commercial property, thanks to low interest rates.
The figures for this year’s top commercial brokers reflect the market in 2020. The types of loans written by MPA’s Top 10 demonstrate the different needs of businesses in 2020, compared to 2019.
Almost 35% of loans written by the Top 10 in 2020 were for commercial property. This is almost a 10% increase on loans written for this purpose in 2019. The share of loans for development finance has also increased, from 33% to 41%
With the rise in these areas comes a substantial drop in the share of SME loans. Twenty-one per cent of the loans written in 2019 by last year’s top commercial brokers were for SME lending, but this year SME loans make up just under 3% of loans written.
These figures are not entirely unusual, however. They reflect much more closely the share of loans written in 2018, when SME finance made up almost 4% of loans, commercial real estate made up just over 35%, and development finance 43%.
This is the biggest year for the ‘Other’ category. One hundred per cent of one of the Top 10’s loans were for goodwill finance. This type of finance is used by businesses such as pharmacies and medical and dental practices, where the lender is able to lend based on a business’s goodwill and equipment rather than having to use their home as security.
Diversifying during COVID-19
Mortgage brokers have been busier than anyone expected during COVID-19, with high refinancing numbers, an influx of first home buyers, and customers needing help with deferred repayments or any other assistance in dealing with the economic impact of the pandemic. Despite that, the number of mort-gage brokers also writing commercial loans has increased.
The 11th edition of the MFAA Industry Intelligence Service report shows that year-on-year for the six months to September 2020 there was an increase of almost 24% writing commercial.
There has been a continual rise in mortgage brokers expanding into commercial loans since the MFAA began reporting these figures. In the April to September 2015 period, there were just over 1,600 diversified mortgage brokers, but the figure now stands at 4,539.
In its report, the MFAA comments that the challenging home loan market has encouraged brokers to expand their portfolios in response to uncertainty, fluctuations and instability in this area due to the impact of COVID-19.
For several years brokers have been learning the importance of a diversified business, but more recently there has been a real push to educate more brokers on its benefits and how to go about offering wider solutions.
Aggregators, lenders and industry associations like the MFAA have been working with brokers who are interested in diversifying.
With restrictions limiting in-person events, they have turned to digital training sessions, which have made them much more accessible.
“It is important for lenders to support brokers who are not familiar with certain products or situations and to encourage them to explore these options, assisting them with growing their business,” says La Trobe Financial’s chief lending officer, Cory Bannister.
The non-bank has a 140-strong loan underwriting team on hand to support brokers, so if something comes up during the process that the broker is not familiar with, they can help them along the way.
Particularly helpful for those mortgage brokers who have not previously ventured into any form of commercial lending is the highly personalised relationship service model provided by La Trobe Financial’s 44 client partnerships managers across the country. The partnership team also helps new-to-commercial brokers find opportunities and solutions they may not yet have solved or capitalised on.
Adaptability crucial to success
Mortgage brokers who have already diversified into commercial lending are seeing the benefits. This year’s list of commercial brokers is a mix of those who only offer commercial lending, as well as those providing both residential and commercial solutions.
Offering a customer more than one type of service also helps them compete against other brokers in the market. Residential mortgage brokers risk losing their clients to those who can offer both home loans and SME loans.
Speaking to MPA Online recently, Specialist Finance Group’s Victoria state manager Marcus O’Brien said embracing change was crucial to success, and that meant being adaptable. “What I’ve seen over the last year and a half is brokers who have been more adaptable to change, who have been quite resilient, particularly through COVID-19, have actually done quite well,” he said.
“The brokers onboard quicker have had very successful results and maintained their momentum, if not actually increased it during the last short period.”
The number one broker in this year’s list, Adrian Lee, offers a complete service, from home loans to commercial loans, alongside financial advice and debt funding services. With his ability to help such a wide range of clients, from individuals to families, to small businesses and large corporates, it’s no wonder he wrote almost double the volume of the broker in second place.
After a whirlwind year, it is incredible to see the 2021 numbers, and particularly impressive to see brokers returning with bigger and better results.
Congratulations to everyone who made it into this year’s list of MPA Top 10 Commercial Brokers.
