• by
• Sarah Thompson
• Anthony Macdonald
• Joyce Moullakis

They've had twist and turns and 12 months of preparations, but giants KKR & Co and Oaktree are finally pushing the button on their controversial direct mortgage venture. 

Street Talk can reveal the business, which will start writing loans this month, will be domiciled in the Philippines and target lending for non residents to buy Australian properties.

It's a move the major banks and local regulators will be keeping close tabs on, after the large banks pulled back on lending to offshore based customers or those that have foreign income.

The retreat followed concerns by the Reserve Bank of Australia over the "significant and increasing" role of Chinese investors in the local property market, which presented "indirect risks" to the financial sector.

It's thought the KKR/Oaktree venture will comply with regulations and legislation in the Philippines and in the markets where its borrowers are based. It will target markets in Asia including China and Hong Kong. 

Sources said the venture, to be called Blue Lotus Loans, will see non bank lender Pepper Australia (now owned by KKR) service the mortgages through its existing operations. The loans will be funded by KKR and Oaktree, after the duo came up against several roadblocks in their attempts to get investment banks to tip in financing. 

The trustee for the venture is said to be Perpetual. 

Blue Lotus - which sources said will have several loan products - will go up against the likes of Fortress Investment Group, non-bank lender Columbus Capital and Blackstone-owned La Trobe Financial.

One thing is certain, the interest rates foreigners will pay for finance are markedly higher. Blue Lotus is said to be preparing to offer mortgage interest rates of 6.99 per cent to 7.5 per cent. 

This column first reported KKR and Oaktree were eyeing an entry into the sector in April.