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Frustrated investors deserting bank deposits for mortgages

Frustrated investors deserting bank deposits for mortgage investments

Investors frustrated by low interest rates are increasingly turning to investments via property mortgages to secure higher income.

That’s the view of Alpha First Securities, which says it’s seeing an increase in the number of investors who have “frustrated capital” – they have money to invest but consider the returns from banks unpalatable.

Director Olivia Fraser says the firm has seen at least a 25% increase in the past six months of investors wanting active investments in the property mortgage field.

And she says two years of tight bank credit means there’s now a large number of very good property investors and developers banks are no longer extending credit to.

Fraser says land developers, who are trying to meet rising demands for housing, are flocking to non-bank alternatives for support and there are some very high-quality developments that investors can be matched with. Bank credit has been incredibly tight for the past two years, she says, and the banks are turning away what have previously been excellent lending opportunities for them.

“Part of the housing crisis we are currently seeing is caused by this incredibly tight credit market – the demand is there for these homes to be built, but not the loan funds for these developers and house builders. The flow-on effect for us is that there are some really sound mortgage investment opportunities now available.”

Alpha First’s typical investors are early retirees who have been business, or land owners, who travel regularly, have accumulated reasonable wealth and are savvy about investment. “However, they know that the $1 million they might have in the bank is not earning them anywhere near enough income to live on at 3%, and rates aren’t about to rise markedly any time soon.”

Investors are increasingly opting for property mortgage investments from the likes of Alpha First Securities which return 8-9%, with interest paid out monthly, rather than the average 3% banks are offering on term investments, often paid annually.

Fraser says her organisation has noticed an increase in the number of investors who qualify as “wholesale investors” and who have this “frustrated capital” and who are tiring of the previous 4-5 years of very low returns from banks.

“The investors we work with are commercially aware but are only getting modest returns from investments such as term investments, and then only getting paid the interest accrued at maturity. Our clients are actually quite discouraged to have worked all their lives to amass a significant cash asset and are then getting meagre returns.”

Alpha First Securities offers active investments, with investors choosing which high-quality property loans they want to be matched with. “We stringently vet our borrowers and the security offered to ensure that we understand the risk aspects of each loan,” Fraser says.

Investors at Alpha First Securities can invest any amount upwards of $50,000 and the investment opportunities range from $500,000 to $2 million and have loan terms of 6-24 months. Investors don’t pay any fees.

Fraser says land and property is popular security with Kiwis and most investors they’re seeing at Alpha First Securities are keen to help the many good borrowers who are turned away from traditional sources such as banks.

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