Traditionally, many legal firms sourced mortgage
investments for their clients who had surplus funds to invest. This
practice has continued, and the amount of money in this market has grown
enormously over the past few years.
Solicitors have always had a strong presence in the
private mortgage lending industry because until a few years ago they
were exempt from many of the restrictions applied by the Australian
Securities & Investment Commission (ASIC) regarding the offering of
investments to the public without a prospectus. While private mortgages
are now regulated by ASIC, companies providing these facilities are
still usually associated with a legal firm and the basic loan product is
in many cases little changed.
Prior to the 1990's interest rates were very high (by
today's standards) and many retirees etc simply put their money with
banks or purchased bank or government securities. With the recession
there came a dramatic fall in domestic interest rate and many investors
found their incomes cut by 50%. Naturally enough many looked to
alternative sources for secure investment and with Bank deposit rates
around 5% and mortgage investments returning 7% to 8% it is easy to see
the attraction.
Most private investment lending goes into residential
properties, but many investors have sought the higher returns that are
available from lending against commercial properties, second mortgages
and equipment finance (leasing and Hire Purchase). For example an
investor could expect to receive 7% on a loan secured a mortgage over
residential property, 8% for commercial property, and up to10% for
construction finance, higher risk first mortgage securities, equipment
finance and second mortgages.
Since 1st January 1997 loan for non-business purposes
come under the control of the Credit Code. Prior to that date private
lenders would advance loans against residential securities, however most
have now moved away from offering loans for other than business purposes
(because of restrictions and conditions the Credit Code imposes on loans
for non-business purpose). For example, a loan to buy a house to live in
is regulated by the Code, however a loan to buy a house to rent (an
investment), or a loan against an owner occupied residence to purchase a
business or investment are not regulated. While a few larger private
mortgage practices will consider regulated loans, most private lenders
now concentrate exclusively on residential investment and commercial
properties.
