30th October 2008
The finance industry has witnessed another hectic week, with mortgage funds being in the spotlight for most of this period. La Trobe operates one of only three (3) mortgage funds out of the seventeen (17) rated by Standard and Poor’s that have not been placed on hold, as reported in the Australian Financial Review on October 29.
What is Private Lending?
Private lending is commonly referred to as "the oldest form of mortgage lending". It is a type of financial intermediation where the borrower and the investors have a more direct relationship than usually applies with a bank or similar financial institutions. In the usual banking relationship, the investor deposits funds with the bank and the borrower obtains finance from the bank. The investor is paid a conservative rate of return and has no knowledge of the particular loans that the deposit is funding.
Traditionally, private lending has operated in a non-bank environment, where individual investors provide the capital for specific loans. And in its simplest form, there may be one investor providing the capital for one borrower.
Both private lending and traditional banking are regulated prudentially in Australia, but by different government regulators. Private lending is regulated by the Australian Securities & Investments Commission ("ASIC"), while the banks are regulated by the Australian Prudential Regulation Authority ("APRA").
How do these investors and borrowers come together?
The La Trobe Australian Mortgage Fund ("the Fund") operates as a catalyst for investors and borrowers by bringing them together in an appropriately structured legal vehicle - a managed investment scheme, registered under the Corporations Act. This private lending is facilitated predominantly through the Fund's Select and Special Situation Mortgages Options.
Why do borrowers use this type of lending?
Funds sourced though private lending offer a particular and efficient method of borrowing. This form of lending offers the borrower quick decision-making by the lender and allows the transaction to be tailored to suit the borrower's situation. La Trobe as a non-bank lender offers services like speed, flexibility, diversification and privacy. By taking a flexible approach to lending, the Fund is able to process loans more efficiently. A good example of this is with borrowers who are self employed, as they can often find it difficult to obtain finance from a bank due to restrictive guidelines that do not accommodate the needs of the self employed. La Trobe aims to provide an equal playing ground for all borrowers.
Why do investors use this type of investment?
Private lending is suited to investors who are seeking a higher fixed interest type return, and who recognise that this may involve a higher risk. Investors wishing to obtain a higher return than offered by traditional bank deposit utilise private lending to achieve higher fixed returns while mitigating risk. This is because every investment offered through the Fund has the benefit of being secured by a registered mortgage over real property. The Fund's Select and Special Situation Mortgages Options provide investors with the ability to choose the individual mortgages in which they want to invest. This also gives investors the ability to create a diversified portfolio of mortgages. By selecting their own investments, investors have the ability to decide what areas they would like to be exposed to and the amount of risk they are willing to undertake. For those investors who like the benefit of a diversified portfolio of mortgages but who do not wish to create their own, they can invest in the Fund's Pooled Mortgages Option.
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Head of Lending
Iain Pepper is a Vice-President and the Head of Lending for the La Trobe Group.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 145 staff and has raised over AUD$10Billion to assist over 100,000 customers since inception in 1952.
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