Redemptions from mortgage funds have slowed and may plateau in the next few months, allowing fund managers to focus on building liquidity and investments, according to Australian Unity.
“Redemptions have freed up, the investors who wanted to get out are mostly out and the ones still there are the ones who want to be there,” said Australian Unity’s general manager of property, mortgages, and capital markets Mark Pratt (pictured).
The flood of redemption requests resulted from a liquidity squeeze in mortgage funds during the global financial crisis and was exacerbated by the Government’s bank guarantee, but some liquidity was coming back into the sector and the bank guarantee is due to expire in October this year, Pratt said.
“Redemptions are still greater than inflows, but we are hoping that will stabilise in the next few months and we’ll get back to a point where inflows are greater than outflows,” he said.
The manager was aiming to get to a level of 3 per cent liquidity in its mortgage fund in order to be able to pay all redemption requests as they arrived, he said.
This would also mean advisers and investors would have more confidence putting money into a mortgage fund, and wouldn’t be rushing to redeem funds in the event of another liquidity crisis, Pratt said.
Mortgage funds were still competing with elevated bank term deposit rates of around 6.5 per cent, but with global funding agreements due to expire soon and the cost of funding likely to increase it would be interesting to see how this affects term deposit rates, Pratt said.
“We imagine they will settle down to the low 6 per cent range, which would work in our favour,” he said.
Banks can’t keep offering term deposits at 6.5 per cent and home loans at 7.5 per cent, because shareholders would start demanding improved returns, he added.
With liquidity and investments returning to the sector and some great lending opportunities available, mortgage funds should be able to get their headline rates back up to 6.5, 6.6 per cent in the next few months, he said.
People had been going to income products and seeking lower volatility, and that’s where there would be more interest in mortgage funds down the track, he said.
“If we can convince advisers and investors that the risk is low, they will come back,” Pratt said.
