Yellow Brick Road eyes offering interest only loans

Financial services company Yellow Brick Road boss Mark Bouris says “very, very big demand” exists for interest-only loans since the new limits were placed on the banks.

And Bouris wants to step in and fill the gap in the market left by the banks.

The financial services company doesn’t have the ability to provide interest-only loans, instead sending inquiries off to other non-bank lenders while clipping the ticket on the way.

“We don’t have the funding lines to do those particular interest-only loans. We are looking to create the capacity, we’re more than looking,” Mr Bouris told The Australian.

"There are unregulated institutions from around the world and locally that are talking to various people about funding these asset classes that the regular banks don’t want or are unable to lend to."

Interest-only loans accounted for 30 per cent of all new mortgages last quarter, down from 36 per cent in the March quarter, according to figures released by APRA earlier this week.

The company swung to a $1 million after tax profit for the financial year ended June 30 from a $9.5 million loss in the previous year, with executive chairman Mark Bouris saying the smaller lender was well placed to cope with a property market slowdown than bigger rivals.

The strong result was achieved through cost cuts and an increase in loan volumes. 

“The work we’ve done in recent years to expand distribution, increase efficiency and diversify revenue has paid off and allowed us to deliver our maiden profit, even in the face of a tough lending environment,” Bouris said.

He added that despite the volatility of the sector, both loan volumes and revenue had grown. 

Full-year revenue was up 1.6 percent to $218.6 million.

“With these fundamentals in place, we are extremely well-positioned to win in this market,” he said. 

Commenting on the outlook, Bouris said he saw “opportunities for non-bank lenders in the current, tighter credit conditions, and we are considering ways to increase margins in this environment”. 

The group is working on a learning and development platform, which Bouris said was “unlike anything else in the industry”. 

It will boost business skills, technical knowledge and – ultimately - professional standards in the sector, he added.

The 16.7 percent loan growth YBR achieved could be lower due to a slowing residential market but Bouris said the residential market's move to a "healthy, sustainable" level of growth would be good for the whole lending industry.

Only recently, he had said in a column that there was no need to get spooked out by the recent talk about Australia’s housing market bubble set to burst, especially after CoreLogic data pointed to prices dropping, but rather it maybe that the market is taking a breather.

"We're young and new so we will continue to grow – maybe not at the same pace but at a similar sort of pace as we've grown before, so we're not too worried about that," he told The Australian Financial Review after the results announcement.

"I'd be worried if I had a $500 billion book – I'd be starting to get concerned about that – but I don't have that at this stage."

The lender’s underlying loan book picked up to $44.1 billion from $37.8 billion a year earlier, with  wealth management revenue growing 6.9 per cent to $10.4 million.

Bouris said cost cuts had helped profitability. YBR said expense costs narrowed to $18.9 million from $25.7 million the previous year.

The company did not declare a dividend.

Earlier this month, Yellow Brick Road appointed former Macquarie banker Frank Ganis to its board. Mr Ganis, who recently left Macquarie after 28 years, was a pivotal player in building the mortgage securitisation sector in Australia in the 1990s.