Is private credit safe in NZ? A 10-question test for investors

Is private credit safe in NZ? Not as a category. It is lending, and lending carries risk. What separates a sound private credit investment from a fragile one is structure: what secures each loan, whether it funds development, whether you can see it, whose name is on the title and whether the manager has money at stake.

The question has sharpened in 2026. Bank deposits pay around 4%, investors want more income, and offshore private credit has had an uncomfortable year. This article looks at what New Zealand’s own history teaches, then gives you ten questions you can put to any private credit offer, including ours.

Why are New Zealand investors asking whether private credit is safe?

Partly because income is harder to find. The Official Cash Rate is 2.75% after a rise on 2 September 2026, and the big banks’ 12-month term deposits sit at about 4.00% to 4.05%. Money that used to sit comfortably in the bank is looking for a better return, and private credit is where much of it looks.

Partly because of what is happening overseas. In its May 2026 Financial Stability Report the Reserve Bank noted that declining investor sentiment, particularly in the US, had contributed to more withdrawals from private credit firms. It said private credit “appears to play a relatively modest role in New Zealand”, but warned of “a risk of contagion, given the opacity of the sector”.

And partly because local reminders keep arriving. In July 2026 the High Court put the Rangiora-based Chance Voight group into liquidation on the FMA’s application, finding the companies depended on continuous new investor funding to meet existing obligations. Its interim liquidators had already said investors faced a “substantial shortfall”.

None of this means every private credit offer is in trouble. It means the label tells you very little about what you own.

What does New Zealand’s own history tell us?

New Zealand learned about private credit the hard way. Between 2006 and 2012, 51 finance companies went into receivership or liquidation or froze payments. In 2016 RNZ reported that around 200,000 investors were still owed about $3 billion.

Those companies were private credit in all but name. They raised money from the public through debentures and lent it on, much of it to property. Reviewing the period in 2011, the Office of the Auditor-General described many of them as suffering from “large amounts of lending to related parties, low levels of capital, and high concentrations of lending to one sector, organisation, or individual”, alongside weak governance and risk management.

Pooled mortgage funds froze too. The Guardian Trust Mortgage Fund stopped withdrawals in July 2008, and AXA New Zealand froze three mortgage funds that October. In August 2024 Du Val Group went into statutory management, and its mortgage fund investors are now unlikely to benefit from recoveries.

The full period is covered in New Zealand’s finance company collapses, and the most recent case in what happened at Du Val. The common thread is that the weaknesses were visible in the structure well before they showed up in the losses.

What is the 10-question private credit test?

Give an offer one point for each question you can answer “yes” with evidence in writing, not a brochure. A low score doesn’t make an offer dishonest. It tells you which risks you are being paid to carry.

1. Is the security registered in your name? If a fund, trustee or custodian holds the mortgage, your claim is against the vehicle, not the property. A mortgage in your own name can be checked on the title.
2. Is there no construction, land or development exposure? Unfinished projects sat at the centre of New Zealand’s worst finance company losses.
3. Can you see each loan before your money goes in? Portfolio averages hide individual problem loans.
4. Do the withdrawal terms match the loan terms? Quick withdrawals funded by long loans is how funds end up frozen.
5. Is the manager’s own money in the same loans? Alignment is strongest when the manager stands to lose alongside you.
6. Can you see what the borrower pays and what the manager keeps? The FMA found Du Val had advertised its mortgage fund as having “no fees” while keeping all profits above the fixed 10% return paid to investors.
7. Are related-party dealings absent, or fully disclosed? Lending to the manager’s own associates was a recurring feature of the finance company failures.
8. Was your wholesale status handled properly? In October 2022 the FMA formally warned seven wholesale property firms over eligible investor certificates resting on grounds such as owning KiwiSaver or term deposits. A careless process there is a warning about everything else.
9. Is the loan term short? Short terms return capital regularly and limit exposure to a changing market.
10. Is the LVR conservative, and does it count all debt ranking ahead? The equity buffer is what protects capital if a property must be sold.

How does a typical pooled fund compare with co-funding with HomeSec?

The table compares a common pattern among pooled mortgage and private credit funds with co-funding a loan alongside HomeSec Business Finance, a private business lender lending since 2004, with its New Zealand office in Auckland. Funds differ, so read the middle column as a pattern, not a verdict on any one fund.

Two honest points. Rows 6 and 7 rely partly on your own reading of the pack, so read it with those questions in mind. And a strong score doesn’t remove risk. Borrowers can default, and properties can take time to sell. Structure changes what is at risk and how clearly you can see it.

Why does whose name is on the title matter most?

It decides where you stand if something goes wrong. In a pooled fund you own units. The mortgages are held by the fund or its trustee, and if the fund freezes, fails or goes into receivership, you wait with every other unitholder while someone else works through the book.

When you co-fund a loan with HomeSec, the loan agreement is prepared in your name, or your company’s or trust’s. The borrower signs with their own lawyer, and the mortgage is registered on the title for your exact contribution. Principal and interest are paid directly to your own bank account. Your outcome depends on your loan, its borrower and its property, not on how many other investors want out in a nervous month.

Why is development lending the weak point?

Because the security is unfinished and repayment depends on a future sale. When Strategic Finance failed, 62% of its loan book was development lending, and 58% was secured by second mortgages behind $544.4 million of debt ranking ahead. Its investors were expected to recover between 10% and 25%.

The pressure hasn’t gone away. In November 2025 the Reserve Bank noted that company failures were rising, led by construction, and that some developers were turning to non-bank and offshore lenders because they often have less stringent presale requirements than banks. That is precisely the kind of loan to ask any manager about.

HomeSec does not lend on construction or development. It lends short to medium term business loans of typically 1 to 12 months, up to NZ$1 million, secured by first and second mortgages over existing New Zealand residential or commercial property, and it avoids unusual properties or anything that would be slow to sell. The full set is on our lending rules page.

Why do withdrawal promises matter so much?

Because a fund can be solvent and still lock you in. If it offers regular withdrawals but its loans take a year or more to repay, it relies on new money and repayments to pay leavers. When requests jump, the manager limits or suspends them. In October 2008 AXA New Zealand froze three mortgage funds after withdrawals had risen for three months and it expected investors to switch to investments covered by the government’s new deposit scheme. The mechanics are in what is a redemption freeze.

With co-funding there is no pool to freeze. Your principal comes back when your loan is repaid, and if you need to exit early, HomeSec will buy out your share and repay your principal on request.

How do LVR and loan term work together?

An LVR (loan-to-value ratio) is the debt as a share of the property’s value. With a maximum of 80% on residential property, counting any mortgage ranking ahead, at least a fifth of the value sits between the debt and a loss.

New Zealand’s recent history is a fair test of that buffer. The REINZ house price index fell about 16% from its November 2021 peak before moving broadly sideways, and by June 2026 Auckland was 22% and Wellington 26% below their 2021 peaks in nominal terms. That is why the buffer and the term work together. The national fall took around 18 months to play out. A loan set at no more than 80% of a current valuation and repaid within 1 to 12 months is exposed to a slice of a downturn, not the whole of it. A three-year loan written on a valuation from the top of the market is a different proposition. More on this is in LVR explained for mortgage investors.

So, is private credit safe enough for you?

It can suit you, if you choose the structure deliberately. Private credit is not a bank deposit. The Depositor Compensation Scheme, in force since 1 July 2025, protects up to $100,000 per depositor at each licensed deposit taker, and the Reserve Bank is clear that it does not cover investments such as bonds and shares. Every private credit structure, ours included, sits outside it. That makes the ten questions more useful, not less.

HomeSec co-invests its own money in every loan it offers. Returns are 12% to 18% p.a. on the loans you choose, set loan by loan and shown in each pack. If you’d like to run a real loan pack through this test, register your interest and our Funding Manager will be in touch.