Non-banks winning prime mortgages as majors tighten

“A lot of that is narrowing what is prime credit for a bank,” Fitch Ratings’ head of APAC, Ben McCarthy, told the group’s 2018 Credit Insights Conference in Sydney on Wednesday.

“As the bank prime market gets smaller, things that were prime last year will end up in the non-bank space.

“Talking to some of the issuers just recently, some of them have commented on the potential outcomes for them as an individual lender. Non-banks are telling me that their volumes are increasing, but not in the areas that you might think. Interest-only volumes are falling and investor loans are relatively stable.”

Australia’s RMBS market is dominated by the non-banks, which rely on securitisation and warehouse funding to grow their books and continue lending.

In 2017, securitisation issuance was at its highest since the GFC. Last year saw $36.9 billion of RMBS issuance, of which $14.7 billion came from the non-banks. Only $8 billion of issuance was made up of non-conforming loans.

The strength of the non-bank sector has attracted US investors. Last year, KKR snapped up the Pepper Group, Blackrock purchased an 80 per cent stake in La Trobe Financial and private investment firm Cerberus Capital Management, L.P. acquired the APAC arm of Bluestone Mortgages.

With a bolstered balance sheet, Bluestone was recently able to edge closer to the prime mortgage space by lopping up to 225 basis points off its rates.

Last month, the non-bank lender entered the near-prime space and made significant rate cuts to the Crystal Blue portfolio, which comprises full and alt doc products geared to support established self-employed borrowers (with greater than 24 months trading history) and PAYG borrowers.

Speaking of the move, Royden D’Vaz, head of sales and marketing at Bluestone Mortgages, said: “The recent acquisition of the Bluestone’s Asia Pacific operations by Cerberus Capital Management has enabled a number of immediate opportunities to be realised — most notably the assessment of our full range of products and to ensure they fully address market demands.

“We’re now in an ideal position to aggressively sharpen our rates based on the new line of funding and pass on the considerable net benefit to brokers and end users alike.”

With many anticipating a significant slowdown in bank credit growth, driven by the evidence given during the Hayne royal commission, non-banks look well positioned to capture a greater slice of the prime and near-prime markets.

“Non-banks are becoming a bigger part of the market,” Fitch Ratings’ Mr McCarthy said. “That trend will increase.”

[Related: Bluestone enters near-prime market]