Yellow Brick Road books maiden full-year profit

Mark Bouris’s Yellow Brick Road wants to fill the gap left by big banks after APRA’s crackdown on interest-only loans.

Yellow Brick Road chairman Mark Bouris.

Mark Bouris’s Yellow Brick Road is clambering to get a slice of the interest-only loan market in a bid to fill some of the gap left by the big banks in the wake of the regulator’s lending crackdown.

The financial services company (YBR) currently doesn’t have the ability to provide interest-only loans, and is instead forced to send inquiries off to other non-bank lenders, 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.

“A year ago every inquiry we received could be placed into our own products. Now we can’t place them in our own products because we don’t have those funding lines. We get a clip from the inquiries we place with other non-bank lenders, the question is should we be holding (the loans),” Mr Bouris said.

The Australian Prudential Regulation Authority (APRA) earlier this year targeted interest-only loans in a bid to de-risk the financial system. In March the regulator reduced the cap on interest-only loans to 30 per cent of new lending, prompting the banks to lift rates on those loans.

Mr Bouris says there are plenty of non-bank lenders ready to step in and fill the gap in the market left by the banks.

“It’s actually happening right now. 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.”

“They need distribution, they need inquiries … and clearly we’re a brand with big distribution and our customers want this so we’re definitely looking at building that capacity as we speak,” Mr Bouris said.

“Right now we’re measuring the appetite for funding. We’re assessing what the level of inquiries are and what rate can those particular borrowers pay and what sort of volume could we generate if we produced some other solution for them. We’re trying to work out if there’s a business case for that type of move.”

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

Mr Bouris says there is a “very, very big demand” for interest-only loans since the new limits were placed on the banks.

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.

Mr Bouris says pockets of Sydney, Melbourne and Brisbane “may be in a bubble” but that regulatory changes are working.

“There has been a frenzy over the past couple of years but the regulator has been doing its job. There’s been a number of changes and they need time to gain momentum. I think they’re just starting to kick in and you can feel it. You can feel the appetite is just slightly changing.”

One of the risks, he says, is there may be a dip in supply in the near term, as developers take stock of the new environment, which could drive prices higher. But he doesn’t see double digit growth in Sydney and Melbourne for the foreseeable future.

Yellow Brick Road posted a full-year profit for the first time since listing on the ASX, sending the share price higher, to 14c.

For the year through June, the company booked a net profit of $1 million, compared with a $9.5 million loss the prior year. Revenue rose 1.6 per cent to $218m.

“It’s a massive turnaround from last year. We were able to grow our revenue with fewer people,” Mr Bouris said.