31/10/2014 - 13:42

AFG hits new high water mark

31/10/2014 - 13:42

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Mortgage broking wholesaler Australian Finance Group is set for a record run into Christmas, with expectations its new loan applications will soar beyond $5 billion as early as this month.

AFG hits new high water mark
NO STRESS: Brett McKeon says the risk profile of AFG’s loan book has been stress tested for double the current interest rate. Photo: Attila Csaszar

Mortgage broking wholesaler Australian Finance Group is set for a record run into Christmas, with expectations its new loan applications will soar beyond $5 billion as early as this month.

AFG wrote loans totalling $4.8 billion in October capping a record 12-month run for the group’s mortgage division.

The result partly reflects the heated residential property markets in Sydney and Melbourne, as well as AFG’s success in expanding its mortgage broking business through partnerships with allied operations, such as financial planners, real estate agents and developers on the east coast.

AFG expects to finalise at least six new partnerships of this nature in the next quarter as it pushes to secure a 15 per cent share of the national mortgage market.

Just how much further this record run has to go will depend largely on the federal government’s response to the volume of investment money flowing into residential property, according to AFG.

If it moves from “talking down” the market to adjusting policy, managing director Brett McKeon said it could narrow the new loan pipeline.

And he warned there were always unintended consequences to these types of policy changes.

“There are precedents in places like New Zealand, where they have tried to cool markets by tinkering with different (lending) criteria, and recently in Canada they put a tax on foreign investors,” Mr McKeon said.

“Having said that, the government knew there was going to have a big hole in (employment) numbers as the mining industry came off and they deliberately looked to the housing sector to fill that.
“Now that they have it in spades they are starting to get antsy about it, but they don’t want to put rates up, not with the broader economy still a little bit soft, so they are just trying to talk down a segment.”

AFG writes about 20 per cent of new loan applications in Western Australia and it regularly accounts for more than 10 per cent of this business in NSW and Victoria.

The mortgage flow from Sydney and Melbourne has increased by as much a 40 per cent in the past 18 months, partly driven by investors out of Asia.

These buyers have attracted the attention of the Reserve Bank of Australia and have come under scrutiny for their role in house price rises, but Mr McKeon has a different take on this slice of the market.

He said the Chinese investors often put down a significant deposit, as high as 40 per cent, and paid off their loans faster than the average, domestic borrower.

Residential loans still account for the lion’s share of AFG’s mortgage applications and Mr McKeon said he was comfortable with the book’s risk profile, which he said was stress tested for double the current interest rate as well as for significant falls in property values.

Looking to the future, the unlisted public company expects mortgage volumes to grow by about 10 per cent over the next year unless the government alters policy to restrict investor activity.

Its ownership structure is stable and still dominated by its founding members. Macquarie Bank acquired a 10 per cent stake in 2001 and Allianz and Tower both have a 5 per cent interest, dating back to 2004.

Would-be suitors regularly approach AFG, but for now it’s business as usual; and in the current market conditions any plans to take the business public are on the back burner.

 

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