Rising margin lending costs in line with general interest rates have made it tougher for investors to extract real value from leverage, according to a report.
“Investors now need a bigger return in order to make a profit after factoring in the rising cost of borrowing,” Cannex financial analyst Frank Lopez said.
A Cannex report found many lenders charged over 10 per cent for the facility.
This means the underlying investments would have to deliver at least a 5 per cent return on a portfolio with 50 per cent gearing just to cover the interest expense.
The study also found more investors considered using capital guaranteed loans to give them a greater level of comfort in the current market with characteristically high levels of volatility.
However, these loans were found to be charging interest of around 15 per cent, placing even greater emphasis for investors underlying assets to perform strongly.
Overall Cannex awarded a “superior value” rating to the ANZ bank, Colonial Margin Lending, Leveraged Equities, Macquarie Private Wealth, and St.George Margin Lending.
The ratings house only awarded the highest rating to four lenders in the past.
The fact that five had achieved this accolade demonstrated the margin lending market was evolving to cater to the needs of different investor types.
All loan facilities were assessed on 248 features including the interest rate options available for investors and the variety of underlying investments on offer.
