Thinktank CEO Jonathan Street
Non-bank lender Thinktank is working on a funding deal with a global bank that will allow it to more than double the maximum size of its residential property mortgages and it hopes to have a new product in the market by the end of June.
Currently, Thinktank offers a maximum of A$2 million on residential loans but is aiming to increase that to $5 million, with its new funding in place.
Thinktank chief executive Jonathan Street said investors don’t like their exposure to individual loans to be too high and they have been slow to recognise the increase in property values.
Street said: “You won’t see a loan bigger than $2.5 million in an RMBS or a warehouse. Banks have the market for loans bigger than that.
“We are working through an alternative funding source, a global bank. It recognises that standards here have been overly conservative.”
Product innovation has become a focus for the non-bank lending sector over the past year. Funding costs for the sector have risen much more than they have for banks, putting them at a disadvantage in the prime mortgage market.
Like Thinktank, groups including Pepper, Resimac, Liberty and RedZed are moving into new areas, such as asset finance and lending to self-managed superannuation funds.
They have also been looking to diversify their funding beyond warehousing and asset securitisation, looking for funders that will enable diversification and bring down transaction and funding costs.
Street said conditions in the residential and asset-backed securities markets have improved a great deal this year, with strong demand leading to tighter spreads. But he thinks the move to diversify will continue.
“A number of our peers used to write a lot of prime mortgage business. It is difficult to see them getting back to that,” he said.
Earlier this month, Thinktank priced its first RMBS for the year, upsizing from $500 million to $750 million, with a margin of 90 basis points over the one-month bank bill swap rate on the A1-S notes and 135 bps on the A1-L notes. The A2 notes were priced at a margin of 150 bps.
Thinktank’s borrowers are self-employed, SMEs and SMSFs.
Street said the company will finish the financial year with a $6 billion loan book, up from $5.5 billion at the end of December. He expects originations for the year to be around $2.6 billion.
“We have been able to grow, although that has been at the cost of a reduction in net profit. Some sub-scale operations may be collateral damage from the events of the past couple of years, if they can’t get capital to continue growing,” he said.