12 questions to ask before investing in a mortgage fund in NZ (and our answers)

Before investing in a mortgage fund in NZ, ask about structure before returns. Is it a registered scheme or a wholesale offer? How will your eligibility be checked? Who holds the mortgages, and can you see each loan? How much goes to related parties or developers? And when, realistically, can you get your money back? Good managers answer in writing.

Kiwi investors earned these questions the hard way. The Guardian Trust and AXA mortgage funds froze in 2008, 51 finance companies collapsed or stopped repayments between 2006 and 2012, and Du Val Group entered statutory management in 2024. Along the way the FMA warned wholesale property firms over invalid certificates, then took the eligible investor rules to the High Court in 2025.

It seems only fair to answer our own list. HomeSec Business Finance, a private business lender lending since 2004, with its New Zealand office in Auckland, invites wholesale investors to co-fund individual loans alongside its own money; the steps are laid out in how co-funding works. Our reply follows each question.

1. Is this a registered scheme or a wholesale offer?

Why ask. It determines your protections. Under FMA rules, managers of registered managed investment schemes (restricted schemes aside) need a licence and a licensed supervisor, and the supervisor or an independent custodian holds scheme property on trust. As a wholesale investor you give most of that up: there’s no product disclosure statement, the firm may not be FMA-licensed, and ongoing performance reporting isn’t required.

HomeSec’s reply. A wholesale offer under Schedule 1 of the Financial Markets Conduct Act 2013, and not a fund. Instead of a product disclosure statement, you get a complete due diligence pack on each loan before deciding.

2. How will you confirm I’m a wholesale investor?

Why ask. The certificate is the switch between retail and wholesale protections. In October 2022 the FMA formally warned seven wholesale property investment firms, including Du Val entities, over eligible investor certificates that fell short. It rejected grounds such as belonging to KiwiSaver, holding term deposits, owning a rental or making money on a house sale. The 2025 High Court ruling confirmed that offerors must check a certificate is valid, and that where it can’t be relied on and the investor has no other wholesale status, retail disclosure applies.

HomeSec’s reply. Most of our co-funders are eligible investors. You certify in writing that your experience with financial products equips you to judge an offer’s merits and the adequacy of the information, give your grounds, and have a financial adviser, qualified statutory accountant or lawyer confirm it in writing. The certificate runs for two years. Others qualify under the investment activity or large tests. Our guide to the eligible investor certificate goes step by step.

3. What will I actually own?

Why ask. Fund units give you a claim on the fund, not on a particular loan. If it freezes or fails, you wait on the manager, a receiver or a statutory manager.

HomeSec’s reply. A share in one loan you selected. The loan agreement is drawn up in your name, or your company’s or trust’s, and your money is recorded against that loan and no other.

4. Whose name goes on the mortgage?

Why ask. In a fund, the mortgages are held by a supervisor, custodian or nominee. Being named yourself gives you a direct interest in the property, and one you can verify.

HomeSec’s reply. Yours, beside HomeSec’s, for the exact amount you contribute. The mortgage is registered with LINZ (or a caveat is lodged, where that is the security), and once it is registered you can look up the Record of Title yourself.

5. Will I see each loan before committing?

Why ask. Averages across a portfolio can bury the loan that’s going wrong, and you can’t assess a loan you’ve never seen.

HomeSec’s reply. Yes. Every loan goes through HomeSec’s 50-point due diligence checklist first. The pack you then receive by email covers the property, the borrower, the loan purpose, the exit, the LVR, the term and the rate, and you are free to decline. Our guide to reading a loan due diligence pack shows what to check.

6. Do you lend to related parties?

Why ask. When a fund lends to its own group, directors or associates, your money rides on that group, and nobody independent is testing the loan. Du Val Group’s statutory management in August 2024 covered around 70 entities; by September 2025 RNZ reported that Mortgage Fund investors were unlikely to benefit from recoveries. Ask what share of the book is related-party lending and who signs it off.

HomeSec’s reply. Each pack names the borrower, the property and the purpose, so you know who you are lending to before you commit. HomeSec’s own money sits in the same loan, on the same terms as yours.

7. How much goes to construction, land or development?

Why ask. Development security is unfinished, hard to value and slow to sell. The Reserve Bank noted in November 2025 that company liquidations were running above average, particularly in construction, and that some developers are turning to non-bank and offshore lenders.

HomeSec’s reply. Nothing. HomeSec writes straightforward business loans secured by first and second mortgages over existing New Zealand homes and commercial property, and steers clear of unusual properties or anything likely to be slow to sell.

8. Is your own money in the same loans?

Why ask. A manager earning upfront fees with no capital at risk is paid for volume, not for loans that repay.

HomeSec’s reply. Always. Every loan HomeSec offers to co-funders carries its own capital too. Most of its loans are funded solely from its own balance sheet, and it earns mainly when loans are repaid.

9. What is your maximum LVR, and what does it include?

Why ask. The loan-to-value ratio measures the equity cushion beneath a loan. Lenders define it differently, so check whether prior-ranking debt is counted.

HomeSec’s reply. 80% on residential property, including any debt ranking ahead, and lower on commercial. Terms are short too. The REINZ index took around 18 months to fall about 16% from its 2021 peak, so a 1 to 12 month loan is exposed to only a slice of any downturn.

10. Do the withdrawal terms match the loan terms?

Why ask. A fund that promises regular redemptions while its money is lent out for longer can be forced to freeze. The Guardian Trust Mortgage Fund, holding $249 million for about 3,700 investors, froze in July 2008; that October AXA New Zealand froze three mortgage funds holding $225 million. Check too whether some investors enjoy better exit terms than you.

HomeSec’s reply. Loans typically run 1 to 12 months, and at maturity principal and interest go straight to your own bank account. Need out sooner? HomeSec will buy your share and return your principal on request. To stop, simply decline the next loan. With no pool, there’s no queue and nothing to freeze.

11. What does the borrower pay, and what do you keep?

Why ask. Without the borrower’s rate you can’t tell what the manager keeps. In 2021 the FMA directed Du Val to stop advertising its mortgage fund, finding the material likely to mislead investors about risk and fees.

HomeSec’s reply. Your rate, between 12% and 18% p.a., is fixed for each loan and written into its pack before you commit. HomeSec earns mainly when loans are repaid. For the economics of a particular loan, talk to our Funding Manager.

12. What happens if a borrower defaults?

Why ask. Some borrowers pay late. The real question is how enforcement works, who runs it and how much equity stands behind the loan.

HomeSec’s reply. The mortgage is enforceable through the New Zealand courts under the Property Law Act 2007, starting with a default notice giving at least 20 working days to put things right. A selling mortgagee must then take reasonable care to obtain the best price reasonably obtainable. HomeSec runs the process with specialist lawyers, with its own money in the same loan. See what happens if a borrower defaults.

How do you get the most from these questions?

Send the list to each manager you’re weighing up and lay the replies side by side. Ask about losses as well: the way a manager talks about its bad loans is revealing. HomeSec doesn’t publish loss or default figures on this site, so ask us and we’ll talk it through.

No answer removes risk altogether, but clear ones let you pick the risks you accept. For a scoring version, try our private credit test.

Want to put the list to us? Register your interest; our Funding Manager is available seven days on 09 888 6550.