Warnings Fillip For Fringe Lenders
Sydney Morning Herald
Tuesday October 8, 2002
Alistair Jeffery has dismissed last week's regulatory warnings about the housing bubble and banks' aggressive lending practices as mild but his Bluestone Mortgages operation is seeing the fallout first-hand.
Mr Jeffery said referrals and phone calls to his two-year-old ``non-conforming" mortgages operation spiked noticeably during the week, suggesting some big banks had decided to reject prospective borrowers that they might otherwise have lent to.
He said the Reserve Bank of Australia and the Australian Prudential Regulation Authority were definitely trying to ``talk down" the housing market, and this had rattled mortgage insurers and the credit approval teams of leading banks: ``I think it's quite appropriate. People would be well advised to be cautious in this market."
Bluestone lends to those who are unable to secure a mortgage from the big banks, usually because they are self-employed (without a regular pay packet), are migrants or have a black mark on their credit history.
But the nature of Mr Jeffery's business doesn't necessarily mean he is more exposed should the housing bubble burst.
Unlike the ``linear" mortgage pricing of the banks, Bluestone's loans are priced to reflect the risks, with annual interest rates from 7.6 per cent to 10.5 per cent.
``This is a secured loan and the reason it's not a credit card or personal loan interest rate is that it is secured," Mr Jeffery said.
The loans are not mortgage insured. Bluestone's portfolio generates about 10 times the arrears levels of banks' mortgage portfolios (which are traditionally 1 per cent or less), but this is budgeted into rates.
Bluestone also steers clear of lending against risky property types, including vacant land, rural properties, development properties and serviced apartments, insisting that traditional suburban residential property is very stable.
Borrowers, he said, should work out the weighted average cost of their debt burden, including credit cards and personal loans, and build in a buffer or cushion to ensure they are able to service the mortgage.
But Mr Jeffery, who also worked in the mortgage industry in the UK, said Australian property prices had lower levels of volatility than the UK and therefore would not come off as much.
There are now four players in the non-conforming market Bluestone, GE Capital, Liberty Financial and Pepper Home Loans but in representing only about 2 per cent market share, the sector is not big enough to greatly concern the banks.
Bluestone has just raised more money from investors, accepting $5 million of private equity funds from Crescent Capital Partners, who join Nomura and Rand Merchant Bank as shareholders.
It is also looking at a float further down the track, provided it is sizeable enough by then to make the exercise worthwhile.
The latest equity injection enables more funds for expansion, but also allows for the exit of one of the company's founding shareholders, former FAI chief executive Rodney Adler.
© 2002 Sydney Morning Herald
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