$300 million RMBS deal for AFG

AFG is pleased to announce it has successfully priced its second Residential Mortgage Backed Securities (RMBS) transaction. The AFG 2013-2 Trust priced today with 14 investors both onshore and offshore participating.

This is the second RMBS transaction for AFG this year following on from a successful $275 million deal in March.

AFG CFO David Bailey explained the process; “We aimed to complete two RMBS transactions in calendar 2013 and what is particularly pleasing is for us to welcome a number of new investors to our program and to also complete a slightly larger overall transaction size.”

The $300 million pool of home loans were originated through the AFG network and are managed by the AFG Home Loans and Securities teams. AFG has 10% of Australia?s total mortgage market. For the past twelve months the company?s 1,800 members have processed an average of $3.1 billion in home loans per month, of which approximately 5% have been own label mortgages.

AFG Competition Index October 2013


Non-major lenders doubled their share of new fixed rate loans between March and September this year, according to AFG, Australia’s largest mortgage broker. The latest AFG Competition Index shows that non-major lenders accounted for 15.5% of fixed rate loans in March 2013, but this figure rose to 29.2% during September.

Fixed rates spearheaded a broader-based increase in market share by non-majors, who accounted for 26.3% of all new home loans at the end of September, compared with 24.5% in June and 20.6% in March this year.

Mark Hewitt, General Manager of Sales and Operations says: ‘Competition in the mortgage market is as strong as it has ever been, and it’s the non-major lenders who have been fuelling this. They are continuing to put pressure on major lenders, who have been compelled to respond. This has resulted in unprecedented levels of discounting with the clear winner being the borrower.’

Across different buyer categories, non-majors made strongest headway among borrowers looking to refinance, increasing their share from 29.6% of the market in June, to 33.1% in September. This trend may well be related to the increase in fixed rate loans, with borrowers looking to refinance able to secure competitive deals from non-major lenders.

Major lenders are still by far the greatest beneficiaries of current high levels of investor activity, with a 76% market share, although this is somewhat down from 79.9% in March. Non-major lenders further grew their penetration of the first home buyer market, which has traditionally been their greatest support base, from 25.6% in June to 26.8% in September.

ING took the lead among non-majors for fixed interest products, achieving an 8.2% market share in this category during September – and a double-digit 11.0% in July. Macquarie Bank accounted for 10% of refinancing deals in September, consolidating its sustained growth this year. Suncorp continues to show strength across all buyer categories.

AFG Competition Index – October 2013

The big four – banking on smaller lenders

Whether we realise it – or care to admit it – Australians are very loyal to our big banks. In fact, more than 80 percent of home loans in Australia are held by one of the big four or their subsidiaries. But there are other options out there in the form of non-bank lenders. We take a look at how non-bank lenders work and what they can and can’t offer home owners.

What is a non-bank lender?

The term non-bank lender is a little confusing because it implies any financial institution that isn’t a bank, such as a credit union or a building society, falls into this category. The term broadly covers financial institutions that only deal in loans and do not hold deposits. A building society, for example, where you can have a loan product and a savings account, is technically lumped in with banking lenders. However, most consumers would consider a credit union or a building society to be bank alternatives.

How do they work?

Because non-bank lenders don’t hold deposits, they have to rely on other sources of funding for their loans. While all lenders borrow money on the wholesale market, non-bank lenders have to rely solely on this funding stream. Banks, credit unions and building societies, on the other hand, are able to prop up their lending to some extent with the funds from customers’ savings. This distinction is important because it affected non-bank lenders’ ability to weather the GFC, and why their market share fell from around 12 per cent before the crisis to around just 2.5 per cent afterwards.

But non-bank lenders have bounced back and are being sought by many consumers as an alternative to traditional lenders, largely due to the post-GFC support of the

Australian Office of Financial Management. Realising the importance of creating competition in the home loan market, the Federal Government decided to invest in home loans, creating a safety net for non-bank lenders. So supportive is the government of this increased competition, Treasurer Wayne Swann last year declared non-bank lenders the fifth pillar of our financial system.

Are they safe?

The GFC raised concerns about the flow-on effects of financial institutions who went belly up because they failed to manage their loan portfolios. Here in Australia, banks and other institutions that take deposits are regulated by the Australian Prudential Regulation Authority, while non- bank lenders come under the scrutiny of the Australian Securities and Investments Commission, which can intervene if you feel a lender has acted illegally.

All consumer credit products, including home loans, are governed by the Uniform Consumer Credit Code, which ensures lenders make borrowers aware of their rights and obligations and put sufficient checks and balances in place to ensure borrowers can repay their loan.

At the end of the day, if a lender folds, there is minimal risk to borrowers because the mortgage will be taken up by another lender. If you’re not happy with that lender, the ban on exit fees means you can take your business elsewhere.

Advantages of non-bank lenders

Better rates

Despite what many consumers may think, non-banks are usually able to offer lower standard rates. This is because they are looking for ways to claim market share and generally operate with lower overheads than banks. They are also usually not publicly-listed entities, so are not under the scrutiny of investors anticipating dividends or increased share prices.

Traditionally, non-bank lenders offered lower rates and then relied on exit fees to deter borrowers from jumping ship. But since July 1, 2011, exit fees on consumer loans have been banned, curbing one of the competitive levers for non-banks.

Even though the new role was designed to drive competition, market watchers were concerned non-bank lenders would have to hike their rates if they could not charge exit fees. But any negative impacts of this change appear to have been offset by a boost to the wholesale funding market, allowing non-bank lenders to access funds at a competitive rate, which in turn benefits their customers.

More flexibility

Being leaner, non-bank lenders are often more nimble when it comes to service and responsiveness, although this can be difficult to measure. They are also often more open to consumers who have been knocked back by one of the banks due to previous credit issues or self-employment.

Disadvantages of non-bank lenders

Limited products

If you are looking to house all of your financial products with one institution, a non-bank lender may not work for you. Although they tend to offer a solid range of mortgage products, they are unable to hold deposits, so you won’t be able to set up a transactional account and credit card with the same lender. Some non-banks do offer offset accounts by setting them up with a banking partner. The offset account acts like a savings account, where the funds reduce the balance on the loan and the amount of interest charged.

Inconsistent offerings

Because non-bank lenders have no deposits to support their loans, they often rely on a range of wholesale loans to source their funding, increasing their exposure to market fluctuations. This means the interest rate and terms offered to one customer with a non-bank lender may differ from what’s offered to another.

The simplest way to work out if a non-bank lender is right for you and your circumstances is to talk to your broker. Brokers act as a one-stop shop, with access to a wide range of lenders, including banks and non-banks, and hundreds of home loan products.

Mortgage Index October 2013


New mortgages processed in September were for an average of $418,000 – a leap of $17,000 from two months ago, but borrowers are not proportionally taking on any more debt according to AFG, Australia’s largest mortgage broker. AFG’s latest Mortgage Index shows that the average LVR (Loan to Value Ratio – the value of a loan expressed as a proportion of the value of a property) has remained consistently around 68% since the start of the year. The growth in loan size but unchanged LVR reflects growing confidence in property among investors and other borrowers with higher equity levels.

Average loan sizes varied widely from state to state. NSW has the highest average home loan of $507k, having broken through the half a million dollar mark in August. WA is next on $421k, with VIC on $397k, NT on $374k, QLD on $357k, and SA on $324k.

Mark Hewitt, General Manager of Sales and Operations says: ‘What these figures show is that whilst borrowers are becoming more confident they haven’t forgotten the lessons of over-gearing learned during the GFC. With the election now behind us and a sense of greater policy certainty, borrowers are responding to the combination of historically low rates, good affordability and rising property values with a strong, but sustainable momentum. Talk of property bubbles, including those driven by SMSFs, is overstated at this point.’

Across the nation, different states reflect very different characteristics. Almost half of all home loans processed in NSW were for investors, with only 4% for first home buyers. By contrast, in WA 25% of new loans were for first home buyers and 28% for investors. SA is seeing a rise in investors from 27% in July to 35% last month, while in Queensland there has been a gradual creeping back of first home buyers (7% of new home loans) after the withdrawal of first home buyers grants reduced their share to just 4.5% last December.

AFG recorded another record-breaking month in September for mortgage volume, processing $3,624 million in home loans.

Mortgage Index – October 2013 NATIONAL
Mortgage Index – October 2013 QLD
Mortgage Index – October 2013 WA
Mortgage Index – October 2013 VIC
Mortgage Index – October 2013 NSW
Mortgage Index – October 2013 SA