15th August 2007
Can you trust mortgage trusts?
Over the past 30 years, mortgage trusts have become an established investment product for people seeking regular
Today, managers of mortgage trusts handle about $22 billion, virtually all of which comes from small retail
When Perth-based Westpoint got into trouble, it sent a chill up the spine of the thousands of small investors who have
placed their money into property development mortgages and now, three more Sydney based development originated funds,
Fincorp, Australian Capital Reserve and Bridgecorp have collapsed. Although there is a danger in lumping all mortgage
trusts together, it is important to remember some have been established for decades and present no problems.
La Trobe repeatedly stresses the need to differentiate between conservative mortgage trusts and other forms of
high-risk investments like debentures and promissory notes offered by development companies.
Even among mortgage trusts, few carry independent ratings or provide a safe investment to the small investors.
The key points to note are:
- Choose an approved manager with a good track record;
- Look for a transparent structure with a responsible entity behind it;
- Ask questions when the return offered is more than 1.5 percent higher that the prevailing cash rate (currently 6.5 per cent);
- Compare the annual management fee, called the Indirect Cost Ratio (ICR). Fees can range from 0.7 to 1.5 per cent a year for mortgage trusts; and
- Ensure they are an established mortgage trust investing in registered first mortgages, requiring the borrower to put up equity of 35 to 40 per cent, and not solely a development lender.
Randal Williams, Head of Funds Management at La Trobe says its mortgage fund, which has 3,500 investors,
has returned an average of 10.06 per cent a year since inception. The La Trobe Fund had been rated **** four stars
out of a possible five stars by Property Independent Research (PIR), and *** three stars out of a possible 5 stars
from Standard & Poor’s (S&P)
Some $400 million is invested in mortgages with the balance in cash and fixed interest securities in the La Trobe
Fund, making the La Trobe Fund one of the largest in Australia.
The annual management fee is 1.25 per cent of the investment. The minimum investment is $1,000 and there are no entry
Mr. Williams said "We realise retirees chasing higher incomes will be attracted to riskier products, such as
investments in construction development funds which offer 3-4 per cent above cash rates. However, it is important
investors understand that not all property investing is "safe" and development finance is not for everybody."
When used properly a mortgage trust has the following benefits for investors:
- increased potential for return at an appropriate level of risk;
- reduced reliance on market performance for consistent returns; and
- flexibility resulting in an innovative investment solution which focuses on providing more consistent results to help you.
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Head of Funds Management
t +61 3 8610 2811
Chris Andrews is the Head of Funds Management for the La Trobe Group and has responsibility for the La Trobe Australian Mortgage Fund.
Read full profile here.
La Trobe is one of Australia's leading independent specialist mortgage Financiers. Its business includes residential mortgages, commercial mortgages, and investment services operating one of Australia's largest Mortgage Funds under AFSL 222213. It employs over 115 staff and has raised over AUD$10Billion to assist over 100,000 customers since inception in 1952.
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