Mortgages and private credit: What investors need to know
Chris Paton, chief investment officer of La Trobe Financial reveals everything you need to know about Real Estate Private Credit - one of the fastest growing asset markets in Australia and globally.
Chances are, you've heard about 'private credit'.
That's not surprising. Globally, the private credit market is worth $US3.5 trillion ($4.87 trillion). The Australian market is valued at around $200 billion and growing fast.
And we all know what a mortgage is: A loan secured against real estate, provided either by a bank or a non-bank lender.
And that brings us to real estate private credit. It's increasingly familiar to most Australians. But what is it, and how can you get involved? Let's take a look.
What is real estate private credit?
Just like any home loan, the underlying property acts as collateral against the loan.
In real estate private credit, your money is pooled with other investors and then used by the lender to provide mortgages to eligible borrowers. And those loans are secured by a mortgage over real estate.
In much the same way that banks make money on home loans, investors in mortgage credit can expect to receive regular income earned from the interest charged on the loans.
This can make mortgage credit especially attractive to those looking for dependable income such as retirees. But it can also play a role for investors who simply want above-inflation returns, regular cash flow, low capital volatility, and a chance to add extra diversity to their portfolio.
Why has mortgage credit become so popular?
Real estate private credit has existed in various forms for decades. La Trobe Financial, for example, has been giving investors opportunities to diversify into mortgage credit for more than 70 years.
However, the market has seen substantial growth in the last decade.
In any competitive environment, competition serves to meet the needs of a wide range of borrowers. Quality borrowers whose employment is contract-based, other self-employed borrowers, people looking to borrow via their SMSF, and even people undertaking smaller construction projects, can all benefit from a competitive non-bank sector.
It benefits investors, too.
Aussie investors have been long-term supporters of mortgage credit.
It's not just about the regular, attractive returns and lower volatility. Mortgage credit is an investment backed by property - an asset that Australians understand deeply and feel comfortable with.
How has real estate private credit performed?
As with all investments, the returns you can expect to earn will depend on the quality of the underlying assets and the expertise and experience of the manager.
For more than two decades, La Trobe Financial's 12 Month Investment Account has delivered consistent outcomes: 100% return of capital, and all income paid at the advertised rate.*
Manager selection matters
The rising popularity of private credit has driven an increase in the number of providers that investors can select from.
It pays to choose carefully.
Not all private credit funds are the same. They have different underlying assets, different approaches to lending and borrower assessment, and importantly, varying degrees of transparency.
At La Trobe Financial, our lengthy track record has been built on a conservative approach to lending, a commitment to providing stability for our investors across all economic cycles, and a philosophy of openness and transparency.
All Australians - whether they are a current investor or not - can visit the La Trobe Financial website and look at our monthly portfolio reports detailing how investor funds are being put to work.
The bottom line
Investing across Real Estate Private Credit can deliver reliable income, above-inflation returns, and low volatility.
Partner with a manager such as La Trobe Financial, with a proven record for disciplined, long-term investing, and mortgage credit can be a useful tool to build a resilient portfolio that is responsive to changes in inflation.
Disclaimers: *Past Performance is not a reliable indicator of future performance.
La Trobe Financial Asset Management Limited ACN 007 332 363 Australian Financial Services Licence No. 222213 Australian Credit Licence No. 222213 is the responsible entity of the La Trobe Australian Credit Fund ARSN 088 178 321. It is important that you consider the Product Disclosure Statement (PDS) when deciding whether to invest or continue to invest in the fund. The PDS and Target Market Determination is available on our website. To find out more about La Trobe Financial, contact the Investor Centre on 1800 818 818 or visit latrobefinancial.com.au.
Any advice is general and does not consider your personal circumstances.
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