Australian property values have risen strongly over the past two to three years, fueled by a combination of factors including low interest rates, equity market volatility, Australia’s reputation as a ‘safe’ jurisdiction and investors seeking yield. As concerns grow that valuations are due for a correction, a more defensive way for investors to allocate capital to the property sector is through first mortgage lending.
First mortgage lending, at sensible Loan-to-Valuation Ratios (LVR) and secured against quality real estate, provides a significant cushion in the event that property values fall. The legal framework in Australia ensures that first mortgage lenders are in a strong position to take appropriate action to protect the value of their investments.
Various Australian and international studies have shown that returns on first mortgage lending have a low correlation with other asset classes (ie equities, bonds, etc), further enhancing its defensive properties.
The exciting opportunity for investors is that, given the current state of the banking market in Australia, first mortgage lending is able to deliver attractive returns in addition to these defensive properties.
Simon Tozer
CEO – Debt Management
