Challenger expanding its home mortgage business in New Zealand

Expansion creates added opportunity for advisers

Challenger expanding its home mortgage business in New Zealand

Challenger Investment Management (CIM) is in expansion mode. 

Recently, the Sydney-based alternative credit provider – which is a fixed income funds management business housed within parent company Challenger Group – quietly bought Bluestone Home Loans' New Zealand loan book for $597 million, as it doubles down on the whole loans asset class in New Zealand. 

"The investment is part of a broader strategy for CIM to acquire pools of residential mortgages from non-bank lenders in Australia and New Zealand," Andy Armstrong (pictured above), head of whole loans at CIM, told the New Zealand Adviser. Armstrog added that the asset class offers compelling returns. 

Armstrong said that Challenger does not have plans to act as a primary originator of home loans in New Zealand, but instead plans to expand its network of existing lenders who want to explore different financing options for their portfolios.

"The New Zealand residential mortgage market is an attractive market to Challenger, as it has historically exhibited very strong and stable performance regardless of the underlying macroeconomic conditions," he said. 

Armstrong declined to provide a forecast for New Zealand's property market. "Our focus is particular niches where we can provide capital at attractive risk adjusted returns,” he said. “CIM invests in global developed markets. In terms of its investments into portfolios of residential mortgages, our sole focus is Australia and New Zealand."

Challenger grows in New Zealand

Challenger – which was established in 2005 to provide senior and mezzanine financing in both public and private markets – has been investing in whole loan portfolios by buying mortgage loans directly from nonbank lenders for the last 10 years. In 2017, the firm began offering residential mortgage whole loans in New Zealand, in addition to commercial real estate and acquisition finance in New Zealand. 

As part of the new deal with Bluestone, Challenger has established Challenger NZ HoldCo1, a New Zealand subsidiary, which will allow Challenger to secure the necessary paperwork to service the loans. The subsidiary is majority owned by investors in Australia and North America. 

"With a servicing capability in place, there is a significant opportunity to make whole loan investing a core part of our overall allocation," Armstrong said. "We are looking at both forward flow opportunities (ongoing arrangement where the loan goes straight onto the balance sheet of the nonbank lender and Challenger services the loans) and block portfolio opportunities."

Opportunity for Advisers

Armstrong said that the majority of borrowers in New Zealand are still inclined to go to a bank for their financial needs. 

"However we think there is a valid role for non-bank lenders who can provide more timely access to funds, more tailored solutions for borrowers and have more flexible terms for lending," he said. 

This could create added opportunities for advisers. In 2024, about half of borrowers used a mortgage adviser to secure their home loan. The numbers went up for first-time home buyers.