Why foreign private credit wants into Australian mortgages

Global private credit giants are buying up Australian mortgage books at a scale the local market has never seen.

Blackstone Credit & Insurance is officially purchasing HSBC Australia's entire $36 billion loan book – a deal that had been the subject of speculation in recent weeks before it was confirmed on Friday.

A separate consortium involving KKR and PIMCO has completed its purchase of Westpac's $21.4 billion RAMS portfolio.

Nick Procter (pictured), managing director for Australia and New Zealand at loan servicer IQ-EQ, says the scale of foreign appetite behind these deals is not a one-off.

It comes as banks look to shed capital-heavy loan portfolios just as offshore funds are more hungry than ever to hold them.

"They've all got this insatiable appetite for Aussie mortgages," Procter told MPA. "They do it in the US, they do it in Europe, they want to do it here in Australia… they just want to hoover this stuff up."

These players have only been actively present in Australia for around five years, but the size of the deals now in play shows the trend accelerating.

The deals are a massive step up from what we’ve seen previously, like Cerberus Capital’s acquisition of Westpac’s equipment finance business or Bain Capital-backed Allied Credit acquisition of Macquarie’s car finance arm (for around $500 million and $1.5 billion respectively).

And while there is a degree of caution creeping in given property price softness in Melbourne and Sydney and incoming tax changes, sophisticated foreign investors pay close attention to the data and make informed decisions based on a range of factors – credit quality chief among them. It’s here that Australia wins out.

Procter recounted a conversation with a contact at a major US bank who described financing deals there with loss rates of 25%. "In Australia, the worst I've seen is about 5%... although we shouldn't be complacent, and I don't think we are”.

The stability of the Australian economy, combined with consistently low arrears and strong house price appreciation over the long run – even accounting for the current dip – is providing fertile ground for foreign interest.

Why are banks selling their mortgage books?

Even a high-quality Australian mortgage requires a bank to hold a meaningful slice of its value in Tier 1 capital under Basel III risk-weighting rules.

Regulators aren't shy about tightening the screws further when they see fit. In April 2025, APRA raised ANZ's operational risk capital add-on to $1 billion, up from $750 million, after concluding the bank's non-financial risk management and "reactive risk culture" hadn't sufficiently improved – a reminder of how directly, and unpredictably, prudential regulators can add to a bank's capital burden.

Margins on portfolios like HSBC's are very thin, making the capital allocation sometimes hard for a regulated bank to justify.

Private credit funds, however, sit outside the banking regulatory perimeter and don't face the same capital adequacy constraints, so returns that look mediocre on a bank balance sheet can look attractive inside a private credit fund structure.

What about regulation?

The likes of Blackstone or KKR aren’t regulated like banks because they aren't taking deposits from the public – instead, they're raising capital from their own institutional and wholesale investors and using that money to buy an asset. Since there's no depositor to protect, the rationale for requiring a banking licence doesn't apply.

But consumer protection doesn't just disappear.

The National Consumer Credit Protection Act (NCCP Act) and the requirement to hold an Australian Credit Licence (ACL) attach to whoever is engaging with the borrower, which is why Pepper Money was appointed loan manager on the HSBC deal.

From a borrower's point of view, essentially nothing about their legal protections changes – they're still dealing with a regulated servicer under the same consumer credit law.

Large asset purchases by foreign entities go through the Foreign Investment Review Board (FIRB), and RAMS' sale to the KKR/PIMCO consortium was explicitly subject to FIRB and ACCC clearance.

ASIC's reviews of the private credit sector, including the 28 funds it examined between October 2024 and August 2025 and the standards it's now pushing the industry to lift, are about fee transparency, conflicts of interest and valuation practices for the super funds, wholesale investors, and retail investors who put money into these private credit vehicles – not about protecting mortgage customers, who are already covered by existing credit law regardless of who owns the loan.

Securitisation also gaining foreign interest

Whole-book sales aren't the only place foreign capital is showing up – this year's run of RMBS pricings shows offshore investors taking an increasingly visible share of the notes themselves.

Firstmac priced a $2 billion RMBS in June, the largest Australian RMBS deal since the outbreak of the Iran War rattled global capital markets, after institutional demand pushed the issue well beyond its initial $750 million target. Foreign investors were well represented in the deal.

Firstmac chief financial officer James Austin said foreign investors were well briefed on the Australian market and asked detailed questions about how Federal Budget changes might affect property investors and lenders – and invested regardless, which Austin called a strong vote of confidence in the loan book and the broader RMBS market's resilience.

That deal followed a run of similarly strong offshore engagement. Firstmac's previous record-breaking RMBS attracted 2.4 times its initial launch volume, driven largely by substantial interest from Japanese investors. It included a Yen-denominated tranche reflecting a decade of relationship-building with Japanese institutional investors.

Australian Finance Group's $1.2 billion RMBS in February drew engagement from more than 30 domestic and offshore investors, including four entirely new investors to the program – demand that supported upsizing the transaction from its original size and helped it price competitively.

In the same month, MA Money priced a $1.25 billion RMBS that included the lender's first-ever foreign currency tranche, a structural first specifically designed to appeal to offshore capital.

Liberty's $2 billion RMBS – its largest capital markets issue ever – was also priced in February after doubling in size from an initial $1 billion launch, arranged by BofA Securities alongside a syndicate that included Deutsche Bank and SMBC Nikko Capital Markets, both firms with substantial Asian and offshore institutional distribution networks.

Brokers should be 'excited'

Procter described the funding market today as "a far more sophisticated, nuanced market than it's ever been", compared with five to eight years ago when "in order to be a lender you had to somehow find a way to get a bank warehouse".

The diversification of capital in the Australian mortgage market should be keenly watched by mortgage brokers.

"If I was a broker, knowing all this around the changing landscape, I think I'd be excited," Procter said. "The non-banks – they know where their bread's buttered. They absolutely know that the brokers are crucial to all that."

A healthier, better-capitalised non-bank sector means more room to innovate on specialist products distributed through the broker network, rather than competing head-on with the majors for prime mortgages. With more capital chasing the non-bank sector, there should be more room for product innovation and competition at the margins.

Could Australia go down the US model?

In the US, ‘originate-to-sell’ is a well-established business model in its own right: a lender writes a loan with little intention of holding it, instead manufacturing mortgages specifically to package and sell on – to, say, a Blackstone private credit fund – almost as a conveyor belt.

Australia hasn't developed a pure version of that model yet, though "I would suggest that's highly plausible in the relatively near future”, Procter said.

Theoretically, a new entrant or an existing non-bank could run an originate-to-sell business alongside its traditional balance-sheet lending.

It's not entirely without precedent here, either – just not yet in mortgages. Bank of Queensland's equipment finance book, won by Challenger, combined a portfolio sale with an ongoing origination stream rather than a one-off legacy exit, showing the structure can work in Australia for other asset classes.

The reason it hasn't taken hold in mortgages comes down to how the loans themselves are built. US mortgages are overwhelmingly fixed-rate for the life of the loan – a locked, predictable coupon that makes cash flows easy to forecast, and portfolios easy to package and trade repeatedly, no matter how many times ownership changes hands.

Australian mortgages are mostly variable, nominally tracking the Reserve Bank of Australia (RBA) cash rate but ultimately reset at the lender's discretion. That means someone has to keep actively managing rate decisions on the loan long after it's sold – a job a buyer with no servicing capability can't simply inherit.

That's why the HSBC and RAMS deals have been one-off trades, not a systemic pipeline. Buyer appetite clearly exists; whether enough sellers want to run this on an ongoing basis remains the open question.