Insatiable demand for mortgage trail books is pushing prices up, says the head of a leading mergers and acquisitions firm.
Radar Results has seen higher than usual demand from its clients for trail books, irrespective of where the book is based.
“Kalgoorlie, Alice Springs, Broken Hill or Townsville, buyers are paying cash 1.5x to 1.8x trail, no questions asked. And it doesn't matter who is the aggregator,” principal John Birt said.
He told Australian Broker
he has noticed the price go up at least 50% in the past year.
“I’ve always noticed a bit of a shortage, but recently the prices have just gone up. They used to sell for about 1 or 1.2x – pretty low multiples – but now you’d have to pay 1.6, 1.8, or 2x or probably even more to get the same book.
“I’ve had numerous enquiries over the past six to 12 months, and prices have been escalating. I spoke to someone yesterday who was tipping the prices are going to go past 2x the paying revenue for the trail.”
Birt said the active market and buoyant economy means people are “hanging on to their books more” – while banks are willing to lend so others can afford to buy mortgage trails.
“It’s demand. It’s just demand. We can’t find many mortgage books for sale, and when we do, there’s a bidding war on them. It’s like an auction, forcing the prices up.
“It’s probably an indication that things are looking up, even though unemployment levels are pretty high. These low interest rates… it’s unheard of. There’s a ‘dog eats dog’ competition between the lenders at the moment.”
Radar’s clients are predominantly financial planners and accountants who do mortgage broking too, and also want trail books to expand the amount of clients they can offer superannuation and life insurance to.
When a mortgage book becomes available Radar puts it to around 20 or 30 clients and it gets “snapped up straightaway”, Birt said.
“We have clients who have $1m just sitting there to spend today on a mortgage book. As long as it’s a reasonable price being asked – 2.5 or 3x would be too much – then they will say ‘right, let’s go to the checkout tomorrow’.”
All which means Radar has been seeing a lot more activity lately, with six transactions due to be settled at the end of this month.
“We’ll probably have a record revenue between now and June," said Birt.
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