Non-bank lenders gain ground in Australian property finance
Australia’s non-bank lending sector is attracting more mortgage borrowers and investor capital even as the broader property market weakens, with Pepper Money, Australian Finance Group and MA Financial all reporting stronger activity across parts of their businesses.
Pepper Money said home-loan demand had strengthened as major banks tightened lending rules and reduced branch networks, directing more borrowers towards mortgage brokers. The lender reported an 11 per cent rise in inquiries since Labor’s changes to property tax concessions in May, while major banks had reported a decline in new applications over the same period.
Pepper’s first-half profit increased 15 per cent to $54 million. Mortgage originations rose 43 per cent to $4.5 billion compared with the six months to December 31. The company has also recently secured agreements to service the RAMS and HSBC loan books.
Brokers and non-banks capture more borrowers
Pepper chief executive Mario Rehayem attributed part of the growth to stronger broker support for non-bank lenders. He said non-banks had improved their product ranges and approval turnaround times as they competed more directly for borrowers.
Australian Finance Group also reported stronger earnings, with full-year profit rising 39 per cent to $49 million. AFG chief executive David Bailey said non-bank lenders were becoming increasingly popular because they could often offer greater flexibility.
Bailey said non-banks had been particularly effective at attracting borrowers seeking to upgrade to larger homes. According to Bailey, some non-bank lenders were applying serviceability buffers of between 2 per cent and 2.5 per cent, compared with the 3 per cent buffer banks were required to apply above market rates.
AFG’s profit growth was driven by broker fee income despite softer overall mortgage applications following the budget’s property tax changes. The company also operates as a non-bank mortgage lender.
The Australian Prudential Regulation Authority has reserve powers over non-bank lenders, although many bank rules relating to loan buffers do not apply because non-banks do not hold deposits. The regulator said it would review bank lending standards to ensure stronger competition in a falling property market did not lead to weaker standards.
Private credit growth continues at MA Financial
Separate results from MA Financial showed continued growth in private credit and asset management despite investor concern about defaults and construction-sector exposure.
MA Financial’s assets under management increased 44 per cent over the 12 months to June 30 and exceeded $15.5 billion. Its shares rose almost 20 per cent to $7.20 after the company reported results ahead of forecasts and issued a positive outlook for the second half, although the shares remained about 35 per cent lower for the year.
Underlying EBITDA rose 43 per cent to $68.2 million, while underlying net profit increased 59 per cent to $35.9 million. Asset management revenue rose 32 per cent to $121.3 million, supported by higher average assets under management and increased transaction and performance fees.
MA Financial said fund inflows excluding institutional money were expected to increase materially in the second half, helped by improving core real estate fund inflows. Joint chief executive Christopher Wyke acknowledged that real estate private credit was among the areas facing the greatest pressure from Australia’s weaker housing market and said it required more careful management through the cycle.
For property investors and borrowers, the results point to a mortgage and credit market in which non-bank lenders are playing a larger role, while regulators and fund managers continue to focus on lending standards and risk as property conditions soften.
SOURCE ATTRIBUTION:
Based on reporting by The Australian Financial Review.
