POINT BLANK -- Surviving the downturn

Australian First Mortgage (AFM) has emerged from the financial crisis stronger than ever, with a new value proposition to reflect its new found strength. But, as the mortgage manager’s founder Iain Forbes tells The Adviser, there have been some serious challenges along the way.

IN A MARKET STILL DOMINATED BY THE MAJOR BANKS HOW CAN THE NON-BANK SECTOR COMPETE?

There are many ways the non-bank sector can compete with the majors; providing excellent customer service is one such way. We currently offer a conditional approval time of 24 to 48 hours, while many other lenders can take days to approve a loan.

Similarly the big banks cannot compete with the smaller lenders on face-to-face service – this is one area we really focus on as a result.

In recent months I believe the competitive stance of the non-bank sector has actually been given a helping hand by the majors. When interest rates went up in December, three of the big four moved above the RBA’s 25 basis point increase. This allowed non-banks – for the first time since the onset of the global financial crisis – to compete with the majors on pricing.

As we now have the funding support of Advantedge we have been able to deliver competitively-priced products as well as high LVR products of 95 per cent through RESIMAC.

AFM HAS GROWN ORGANICALLY SINCE ITS INCEPTION IN 2003. IN A CONSOLIDATING INDUSTRY WILL AFM CONSIDER MERGERS OR ACQUISITIONS OVER THE COMING PERIOD?

AFM is a fairly conservative lender. While we wouldn’t rule out any mergers or acquisitions in the future, I can safely say that we are not looking at any at the moment. If, however, an opportunity was to present itself at the right price we wouldn’t hesitate to latch on to that with both hands.

While we are currently trying to ramp up the business, we aim to do so through organic measures rather than through purchases. The last couple of months have been surprisingly positive for us. Our business has grown in leaps and bounds and we have even been forced to recruit more staff in order to cope with the increasing demand.

We are a fiercely independent company and have managed to build a good brand throughout the seven years we have been in operation. As such, we are not inclined to look at any merger opportunities where we would not be the dominant partner.

WHAT ARE AFM’S BUSINESS GOALS FOR THE YEAR AHEAD?

Our overall business goal is to focus on what we do best: providing unparallel service and competitive rates for both commercial and residential lending. Our new mission statement ‘higher standards’ says it all.

The GFC had a significant impact on our business and it ultimately forced us to set ourselves conservative growth targets for the 2009-2010 financial year. However, we have defied the odds by beating our growth targets and continue to grow month-on-month.

After the first half of the financial year, we redefined our growth targets because we had simply outgrown them. And, in the first two months of this year, we have already managed to outdo our revised growth targets.

HOW HAS THE GLOBAL FINANCIAL CRISIS (GFC) HELPED REDEFINE THE NON-BANK SECTOR?

The GFC forced mortgage managers and non-bank lenders alike to review their business models.

During the crisis, there was simply no funding for low doc lending, which forced smaller lenders like AFM to focus on full docs. Of course, with the various funding constraints in place, it was obvious that as a smaller lender we would not be able to compete with the big four on price. So, AFM choose to compete with the majors in the one area we knew we could win – service.

By focusing on improving our general customer service and turnaround times we were able to maintain our position in the market.

That said, surviving the GFC wasn’t just about remaining competitive through sound service – far from it. It actually forced us to become more business savvy: we had to review our overhead costs and make changes where necessary. We did what we could to keep the AFM business alive and debt free. We took a long hard look at ourselves, reviewed our business structure and overhead costs, and reduced these in order to stay in business. Thankfully we have managed to come out of the other side of the GFC in a very strong position. February was a record month for AFM, and the future is looking very bright.

FIRST HOME BUYERS WERE THE DRIVING FORCE BEHIND MARKET ACTIVITY IN 2009. WHAT WILL BE THE KEY MARKET SEGMENTS THIS YEAR?

First home buyers were obviously the dominant market last year, thanks to all the various government incentives. While there are still incentives available to first home buyers, they have – in recent months – been significantly reduced. I believe we will see investors pick up where first home buyers left off – they will replace them as the dominant market segment.

That said I think we will also continue to see a high level of refinancing activity. Whether borrowers want to consolidate their credit cards, or free up equity in order to upgrade their property, we are starting to see a lot of activity in this market segment and I think this will continue to increase as interest rates climb.