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Investors look to mortgage funds as alternative investment amidst low return rates elsewhere – Financial Services


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With the share market and many other traditional forms
of investment seeing rapid decline in returns over the last
twenty-four months, investment in the lending sector has become a
hot topic, our finance director, Nadia Sabaini, explains.

‘Many of our accountant and financial adviser referrers are
expressing their clients’ concerns at dropping rates of return
in traditional investment options such as share market investments.
This has triggered a lot of interest in a slightly less-known
sector of the market that has seen a surge in activity recently, non-bank finance.’

‘Private lenders and mortgage funds have been happily
filling the gap left behind by the banks and credit unions since
they began tightening their credit terms some time ago.’

‘Many borrowers, such as real estate developers, are struggling to
obtain traditional bank finance or extend existing bank finance
terms in the present market, and are looking to alternatives, such
as second mortgage finance from a non-bank lender, to complete
projects, or even as a full finance option on some cases.’

‘Many privately owned mortgage funds are presided by persons
experienced in the industry in which they lend, who can conduct due
diligence in a much more business-minded fashion, and can see a
good opportunity when it arises, without lengthy application
periods and tick-box requirements.’

‘There are also a number of very reputable finance
businesses that provide short-term and long-term business finance,
again aiding businesses who can’t wait for or might not qualify
for bank finance.’

‘This has led many investors to consider if they should
diversify and invest in a mortgage fund as part of their strategy.
Some of these funds are returning in the double digits and present
a lucrative investment opportunity, but, as with any kind of
investment, it requires some careful thought.’

‘Investors looking to enter the lending game will need to
decide whether to lend in their own right, invest in a small fund,
or park their investment with a much larger fund.’

‘An existing mortgage fund will typically want to know the
size of the proposed investment and the extent of the
investor’s proposed involvement in the management of the fund.
There is no one size fits all.’

‘The investor should carry out due diligence on the fund
they are proposing to invest in. Make sure it has good reporting
practices, check the financials, visit the office. Conversely,
mortgage funds wanting to welcome new investors should ensure that
they have an Information Memorandum ready, their financials are in
order, and can demonstrate though official reports their lending
strategy and track record, not only the rate of return but also
their internal policies and procedures, percentage of defaults,
complaints etc.’

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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