AFG commences trading on the Australian securities exchange

Australian Finance Group (ASX: AFG) (AFG), is pleased to announce it has?been admitted to the Official List of the Australian Securities Exchange?(ASX) and that its ordinary shares will commence trading on a deferred?settlement basis at 10.00am (WST) today. AFG shares are expected to?commence trading on the ASX on a normal settlement basis on 26 May?2015.

AFG Managing Director Mr Brett McKeon said the demand for AFG shares?during the Initial Public Offer process had been well received and he?welcomed new shareholders to the company.

“I would like to thank shareholders for their investment in the future of?AFG and for the trust they have put in AFG management and staff,” Mr?McKeon said.

“We have been very happy with the calibre and quality of shareholders we?have attracted during the IPO process and we are particularly pleased to?welcome many brokers and staff to the register following the strong?support shown through the Priority Offer.

“We believe we are in a strong position to build on the strengths of our?core wholesale mortgage broking business and to expand our offering of?AFG products.

“We start life as a listed company in a strong financial position and a very?positive outlook. We are confident of delivering long term returns to our?shareholders.”

Further information:

Brett McKeon?
Managing Director
Australian Finance Group Ltd
+61 8 9420 7888

John Gardner
Managing Director
Citadel‐MAGNUS
+61 413 355 997

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AFG commence trading on the Australian Securities Exchange

Fixing for the future – making the most out of a fixed rate

One in five Australians taking out a home loan is now opting to fix their interest rate, according to a recent AFG Mortgage Index.

Not only are fixed rates proving popular in the midst of global economic uncertainty, many borrowers are cashing in on unprecedented, increased competition around fixed rate loans. Traditionally, lenders have set fixed rates a smidge above the average variable rate. At the moment, however, many institutions are offering fixed rates below others’ variable rates, prompting savvy borrowers to shop around.

The main benefit of a fixed rate is the certainty. Regardless of shifts in the economic sands, your mortgage repayments stay the same, allowing you to budget with more confidence. If official interest rates rise, your mortgage repayments are unaffected. On the flip side, of course, if interest rates drop, you won’t benefit.

With experts wavering on whether local interest rates will go up, down or nowhere over the next 12 months, now could be an opportune time to take advantage of special offers around fixed rates.

Some lenders, for example, are offering fixed rates at 0.8 per cent lower than the standard variable rate of other institutions. On a $300,000 loan, that equates to a $200 saving in interest each month.

Fixed rates are generally based on what the economy may do over the next three to four years, while variable rates are more aligned to the current cash rate, set by the Reserve Bank of Australia. At the moment, this is overlaid with the fact lenders are looking to drive movement in the market through competition. Although Australia’s economy is deemed very stable against the backdrop of the European debt crises and slow economic recovery in the United States, homeowners have been happy to sit on the sidelines to see how it all plays out before making any decisions about buying and selling. As a result, many financial institutions have been trying to entice us back in the game with competitive fixed rates.

As with all borrowing situations, your decisions should be based on your circumstances and financial goals. However, there are some basic pros and cons that apply to fixed rates that you should consider.

The biggest benefit of a fixed rate is knowing exactly what your repayments will be for a set period – usually one to five years. This can be a real advantage if you are considering a career change, starting or expanding a family or have kids moving into private education because it can ease the stress of budgeting.

On the downside, fixed rate loans tend to be more restrictive than variable ones. You usually can’t make additional payments, plus lenders generally charge high break fees if you want to exit the loan during the fixed period.

If you want to tap into the benefits of both a fixed and a variable rate, consider splitting your loan so a portion of your debt is exposed to shifts in official rates – up or down – and the rest is locked into a set rate.

With official interest rates sitting at affordable levels and question marks hanging over which way they will head over the next 12 months, it’s worth chatting with your broker about fixed rates and what the market has to offer. It may be just the move to help you face the future with some certainty.

AFG successfully completes bookbuild for Initial Public Offer (IPO)

Australian Finance Group Ltd (AFG) today successfully completed the institutional?bookbuild for its initial public offer (IPO) and is anticipated to be listed on the Australian?Securities Exchange on 22 May 2015.

The Final Price for shares acquired under the IPO?was determined at the conclusion of the bookbuild and has been set at $1.20 per Share.

AFG received strong interest from a range of domestic and international institutional?investors and retail investors in Australia, including under the Priority Offer to AFG staff,?mortgage brokers and others.

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AFG successfully completes bookbuild for Initial Public Offer

AFG Competition Index – April 2015

Major mortgage lenders have succeeded in winning back market share of new home loans which they lost during the closing months of 2014, according to new data published today by AFG, Australia’s largest mortgage broker. AFG’s Competition Index shows that the overall 67.7% of loans processed for major lenders last December, which represented an all-time low since the GFC, climbed back to 74.7% by April 2015. This figure is in line with the market share held by Australia’s Big Four banks and their subsidiaries for most of the past two years.

The fight-back by major lenders has been more successful in some sectors than others. Their share of refinancing loans bounced back from 58.6% in December 2014 to 69.3% in April 2015. Among investors there was a rise during the same period from 73.3% to 77.3%. But fixed rate loans processed for non-majors have continued to perform strongly with their market share of 38.7% in December 2014 rising to 46.6% last month.

Mark Hewitt, General Manager of Sales and Operations says: ‘We’re seeing a keener and more diversified market than ever before. Many borrowers are well aware of this and are increasingly using brokers to help them find the best deal. The growth of white label products is starting to become a competitive factor, and we expect this trend to grow in coming months.’

Commonwealth Bank of Australia had the largest single market share of new mortgages in April of 20.8%, followed by ANZ (17.2%) and Westpac (12.1%). Among non-majors, the largest market shares in April were held by Macquarie Bank (5.6%), ING (2.8%) and Suncorp (2.7%).

AFG processed more loans for ANZ than any other lender last month for borrowers arranging refinancing loans (19.2%) and investors (18.5%). In the fixed rate loan sector, 14.6% of all loans were processed for ME Bank – the next highest figure was ANZ (14.0%).

Among first home buyers, more loans were processed for Commonwealth Bank of Australia than any other lender (24.5%) followed by Westpac (13.5%), ANZ (10.5%) and Keystart (9.1%)

Download full report

Competition Index – April 2015

 

Mortgage Index – May 2015

Record for the month of April driven by Melbourne & Sydney property investment

The housing market’s strong 2015 performance continued during April with AFG?processing total mortgages of $4,380 million for the month. This compares with?$3,674 million in April 2014 and is a record for the month of April. In keeping with?seasonal trends, the figure is somewhat lower than the $5,236 million recorded for?March, because of the Easter holidays, when property markets are typically more?subdued.

The result reflected increasing Victoria investor activity, combined with already?strong NSW investor activity. AFG processed a higher proportion of home loans for?investors in Victoria last month than ever before at 40.9%, up from 36.7% in?March 2015, and 36.9% in April 2014. In NSW, the proportion of investor?mortgages remained around its all-time high of 52.8% of applications.

Mark Hewitt, General Manager of Sales and Operations says: “Investor activity in?both Sydney and Melbourne is now at the highest levels we have recorded in 21?years. Elsewhere it’s a different story – for example in Western Australia, where?first home buyers comprise a much larger proportion of buyers than elsewhere,?property investment cooled somewhat last month.”

Queensland property investment rose to 36.7% in April from 33.3% in March, in?South Australia there was an increase from 37.7% to 38.2%, and in WA figures?softened from 33.6% to 32.8%.?First home buyer figures remained at low levels across all of Australia, except for?WA, comprising just 2% of new mortgages in NSW, 6.4% in SA, 7.7% in QLD,?8.9% in VIC and 18% in WA.

The proportion of new borrowers choosing fixed home loans was 13.6%, continuing?an overall decline since October 2014 when 18.2% of borrowers chose to fix their?rates.

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AFG lodges prospectus with ASIC

Australian Finance Group Ltd (AFG or the Company) today lodged a prospectus (the Prospectus) with the Australian Securities and Investments Commission (ASIC) for an initial public offer (IPO) and listing on the Australian Securities Exchange (ASX). The IPO is expected to raise between A$121.3 million and A$140.1 million, based on an indicative price range?of A$1.20 to A$1.38 per share. Based on the mid-point of this range of A$1.29 per share, approximately A$35 million will be raised by the issue of new shares by AFG (before costs) and approximately A$95.9 million will be raised by the sale of shares by existing shareholders.

Defined terms in this release have the same meaning as in the Prospectus.

The IPO includes an institutional offer, a broker firm offer and a A$10 million priority allocation to AFG staff, mortgage brokers and others. Macquarie Capital (Australia) Limited (Macquarie Capital) is the Lead Manager and Morgans Corporate Limited is the Co-manager to the IPO.

AFG was founded in 1994 and has grown to become one of the biggest mortgage broking groups in Australia, with more than 2,300 AFG Brokers distributing over 1,400 mortgage products supplied by AFG’s panel of over 30 lenders. The AFG Loan Book currently sits at more than $100 billion, the largest Australian loan book outside the major banks.

AFG co-founder and managing director Mr Brett McKeon said funds raised in the IPO would be used to purchase the equity of certain existing shareholders and to provide funding for operations and growth. Existing shareholders will continue to own approximately 52.7% of AFG, with shares owned by the co-founders and certain other existing shareholders escrowed until the release of the Company’s FY2016 results.

“We have received a number of offers for the company since we started operations more than 20 years ago, but we believe listing on the ASX is the best avenue to ensure AFG’s sustainable growth and to retain and attract brokers to our network,” Mr McKeon said.

“We are a significant player in a growing market and we are confident of delivering long term returns to shareholders.”

“We have shown a consistent ability to generate profits through the residential property cycle and with almost 50 per cent of our revenues being generated through trail commission on the existing AFG Loan Book, we believe we have an attractive mix of recurrent earnings and growth.”

Download full media release

AFG – Media Release – May 4th 2015

Budgeting beyond the boom

As the investment phase of the mining boom ends, we look at what Australian business needs from the budget to carry the economy forward.

All eyes will be on Canberra next month for one of the most pivotal budgets of recent times. It comes against a backdrop of economic and political instability as ructions within the Liberal party continue to grab headlines.

The Government and business recognise hard decisions need to be made as Australia transitions through the third phase of the mining boom. But will the Government hold its nerve in the face of dissent?

Treasurer Joe Hockey’s first budget, in 2014/15, outlined a range of much-needed saving measures but was roundly seen as a sales disaster.

Deloitte Access Economics partner Chris Richardson told the ABC’s Four Corners: “The Government had the courage – and credit to them – to attempt budget repair in Australia (last year). It turned into major political difficulties.” 1

This year, Hockey’s task is even trickier. The need to rein in spending is greater than ever, but several planned reforms have been scrapped or defeated.

“The politics of this (budget) are a disaster,” Richardson said. “Any political advisor would now be telling the politicians ‘don’t annoy the punters because you’ll lose their votes’ but at some stage this problem still has to be addressed.” 2

Prime Minister Tony Abbott’s recent talk of a boring budget 3 does not bode well for those hoping to see fiscal belt-tightening. But business and industry groups have urged the Government to hold the line on tough reforms in pre-budget submissions. In doing so, key groups – the Australian Industry Group (Ai Group), the Business Council of Australia (BCA) and the Australian Chamber of Commerce and Industry (ACCI) – have stressed the importance of communicating the need for change to the public; something they feel has not been done effectively.

The BCA writes: “The starting point for community support for this program of reform will be to properly explain the compelling need for action.” Echoing that sentiment, Ai Group underlines the need to “build understanding in the broader community.” 4

In simple terms, the first step to fixing a problem is to get the public to recognise that one exists.

To put the current situation in context, the BCA points out that when the GFC hit in 2008, Australia was well positioned to weather the storm with a $20billion surplus and no debt. Today the country is carrying a $40billion deficit and net debt that is 15 per cent of GDP, leaving us exposed to future shocks in uncertain times. Debt is growing each year, indicating a structural deficit, not a cyclical blip that will right itself. And the outlook is not promising. GDP growth is below trend, national income is flat, employment growth sluggish and unemployment on the up.

The reality is – with falls in iron ore and coal prices – Australia can no longer rely on terms of trade windfalls to deliver the economy back to surplus as it has done in the past. The way forward is to cut unsustainable spending and invest in areas that will boost productivity and skills.

The BCA calls for a major “renegotiation of what governments (taxpayers) can be expected to pay for,” with health and aged pensions first up for review. Greater privatised service delivery and user-pays options should be examined.

Industry groups agree this budget should be about repositioning the economy to allow small and medium business to flourish as mining investment contracts. As Treasurer Hockey said in March: “The biggest driver of job growth in the future unquestionably is going to be small business.” 5

Ai Group calls for a focus on incentives for business to innovate and invest and a greater role for Government in helping SMEs access international markets. 6

The Abbott Government has signed several Asian trade deals in the past 12 months and both Ai Group and ACCI want the Government to invest in proactive schemes to tell businesses how they can benefit.

Domestically, ACCI also wants the Small Business Entity Test threshold lifted from $2million annual turnover to $3million (and to further investigate raising it to $5million) to allow more businesses to access tax concessions and simplified reporting. ACCI also calls on the Government to implement the Henry review recommendation that small businesses be able to write off up to $10,000 in new assets each year. 7

On more general tax issues, ACCI also urges the Government to commit to a maximum tax-to-GDP ratio of 23.9 per cent, with indexed thresholds to eliminate bracket creep. And business groups are pushing to see a 1.5 per cent levy on larger businesses dropped now the Paid Parental Leave scheme has been scrapped.

The construction sector has seen mixed blessings in the past year, with slowed mining investment, but the strongest growth in residential building since the early 2000s. Public sector infrastructure investment has fallen and business is urging targeted spending. Certainty at State and Federal levels is vital to avoid a repeat of Victoria’s on-off East West Link. Ai Group and ACCI recommend independent bodies such as Infrastructure Australia play a central role in selecting and prioritising projects to stop them becoming mired in partisan politics.

1 M Wilkinson and K Michelmore, ‘House of Cards’ Four Corners, ABC-tv,16 March 2015.
2 Wilkinson and Michelmore.
3 Staff writer, ‘Tony Abbott says Federal Budget in May to be ‘pretty dull’’ news.com.au, 18 March 2015.
4 Business Council of Australia, BCA Budget Submission 2015-16: A 10-Year Plan For Growth, February 2015.
5 Joe Hockey, Intergenerational Health and Wealth, Q&A, ABC-tv, 16 March 2015.
6 Ai Group, Ai Group Submission to the Federal Government’s 2015-16 Budget, February 2015.
7 Australian Chamber of Commerce and Industry, 2015-16 ACCI Pre-Budget Submission, February 2015.