Margin lending: Growth and volatility equals increased demand

Canstar releases results of annual margin lending provider ratings.

Post-GFC, margin loans have been out of favour with many investors. From a peak of 248,000 margin lending client accounts in December 2007, the most recent Reserve Bank of Australia (RBA) statistics indicate that client account numbers are now back to late 2005 numbers, with approximately 144,000 margin lending accounts in existence. While account numbers are off their peak though, institutions advise that they are seeing increased demand.

“The Margin Lending industry saw demand for margin loans slow in the years following the Global Financial Crisis, however due to a combination of growth and volatility that presents investors with potential buying opportunities, we have seen demand for margin loans slowly increase since late 2013,” said CommSec  Senior Product Manager, Commsec Product and Development, Niven Cattanach.

Suncorp Bank and nabTrade have also seen investor demand rebound in recent months.

“Over the next 12 months, Suncorp Bank will remain focused on sustainable growth in its margin lending portfolio. We are continuing to see new customers cautiously investing in margin lending, and exploring new ways to gear their portfolios,” said Adrian Buckley – Head of Product & Pricing

Adrian Hanley, nabTrade’s Head of Investment Lending, expects this growth to continue thanks to low interest rates and improved product development.

“Margin lending interest rates are still tracking at historical lows, reducing the required performance hurdle (dividends plus price growth) for any target investment,” he said.

“We have (also) worked hard to expand the range of asset types that an investor can use as loan security; specifically internationally listed securities and unlisted corporate bonds. This vastly increases the investment opportunities to contemplate for a margin lending investor.”
 

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Avoiding the margin pitfalls

According to the providers, it’s about managing margins.

“There will always be a demand for borrowing to invest, however these days investors are generally more cautious, keeping gearing levels low in order to more effectively manage periods of increased volatility,” said CommSec’s Niven Cattanach.

“By keeping gearing levels at more moderate levels, an investor is more likely to avoid the burden of margin calls, yet maintain the capacity to act when the right opportunity arises,” said nabTrade’s Adrian Hanley.

“As there are no account keeping fees associated with a standard margin loan, it can make sense to have one in place as a ready source of funds.”

CANSTAR’s Margin Loan Ratings

Canstar’s Margin Lending Star Ratings is a consumer-friendly benchmark that compares both the price, including both the interest rate and fees and charges, and features, including the maximum LVR, the number of shares/managed funds offered, repayment options and other account features. Five-star lenders are considered to offer outstanding value for money. This year Canstar has awarded three five-star products in each of the Share Investor, and the Managed Fund Investor profiles. You can download the Margin Loans Star Ratings Report here.

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