Credit Unions Get Into Mortgages

Sydney Morning Herald
12 April 2002
Anthony Hughes

Fast-growing mortgage broking network Mortgage Choice has secured $9 million in equity from an unlikely source three of Australia's largest credit unions ahead of a possible public listing next year.

Mortgage Choice's controlling shareholders, Peter and Rod Higgins, have sold down their stake to 70 per cent and intend to reduce it to 50 per cent ahead of the planned float.

The credit unions, Australian Central Credit Union, Australian National Credit Union and Credit Union Australia, will also join Mortgage Choice's panel of 20 lenders.

The chief executive of Sydney-based Australian National, Rob Nicholls, said the credit unions hoped to account for about 10 per cent of Mortgage Choice's $500 million in monthly home loan approvals, reflecting their natural market share.

This level of market share would translate into an approximate doubling of the credit union's current combined monthly lending volumes through their existing branch and online marketing channels, Mr Nicholls said.

The investment of $3 million each marks another attempt by the credit unions to find a place in the crowded financial services landscape.

``We can't afford the big-buck advertising in the big cities so we need alliances to grow," Mr Nicholls said.

``Consolidation of a number of credit unions will continue. What we are arranging to do here is an alliance that allows us to grow without merging."

Ironically, they have considered mortgage broking a growing threat to the personalised service that credit unions are renowned for.

Once the loan is signed, the credit union will be able to cross-sell other products to the customer including credit cards, personal loans and insurance.

While lacking the financial might of the banks, credit unions have been known as aggressive competitors, offering attractive honeymoon rates and low-fee products.

The credit unions have undertaken the investment without the peak industry body, Credit Union Services Australia, because it would have been unworkable for Mortgage Choice to try to offer loans from the 200 different credit unions in Australia.

Mortgage broking, whereby advisers select the best loan from a panel of lenders in exchange for a commission, is rapidly replacing fixed-cost channels such as bank branches and mobile lenders as the preferred distribution channel for new lending.

Mortgage Choice's joint executive chairman, Peter Higgins, said the equity stake valued Mortgage Choice at $110 million. Depending on market conditions, Mortgage Choice would probably float in the first half of 2002, helping the group to fund acquisitions of smaller mortgage brokers.

``The unknown factor in an IPO is always what the capital markets are like," Mr Higgins said. Either way, Mortgage Choice would continue to grow via its franchised model, with 300 of its 350 brokers being franchised.

Mr Higgins said one in two loans in Western Australia were now written by brokers but he expected this to be the case nationwide by 2005.

St George Bank is another equity investor in Mortgage Choice.

Back to News Index | Back to Home