Low interest rates from banks and "frustrated capital" are seeing investors looking to mortgage investments to get higher returns.
Olivia Fraser, director of Alpha First Mortgage Investments, says mortgage investments are becoming increasingly popular among investors who have significant money to invest but consider the returns from banks unpalatable, and Bay of Plenty investors are no different.
"We have seen a 65 per cent increase in the past eight months of investors wanting active, high-returning investments in the property mortgage field," she says.
"More and more, these are investors who are coming to us with 'frustrated capital', that is they have the money to invest but they're disappointed by the returns banks are getting for them."
Most banks are currently returning about 4 per cent over a two-year term.
"In comparison, we provide loans from $400,000 to $4 million over a 6-24 month period, and in the past year our investors have gained returns of between 8.5 and 9 per cent on average across all loans.
"And returns are paid out monthly, not annually, like most banks do."
Alpha First Mortgage Investments matches investors with high-quality loans and vets borrowers and the security offered to ensure risk aspects of each loan are thoroughly understood.
"Land and property is popular security with Kiwis and most investors we're seeing are attracted to the higher returns and the individualized investment opportunities we present them with," says Fraser. "It's not a one-size-fits all programme, we work closely with investors to match them to the right opportunity for them."
Fraser attributes the rising popularity of mortgage investments to the aftermath of the 2007 Global Financial Crisis and the urgent need to provide investors with transparency and surety that their money was secured against tangible and realisable assets.
Realising this opportunity, Alpha First was established to give investors better returns than they could get in banks and to provide a valuable source of capital to a wide range of developments throughout New Zealand.
"There was a big shortage of loan funding available for the sort of developers who are our typical clients. The major banks tightened up on lending significantly which meant viable developments were looking for capital, and many potential borrowers found themselves marginally outside the banks' criteria and were frustrated with their banking relationship," says Fraser.
"For example, land developers who are trying to meet rising demands for housing, are coming to non-bank alternatives for support and these are the high-quality developments that investors can be matched with through us."
Fraser says investors who choose Alpha First are commercially aware and know enough to make their money work for them.
"Our investors have typically accumulated cash and assets over their lives. They might have sold the farm for $2 million and thought they'd put their money back in the bank and get $80,000 to $90,000 return but in fact they're only getting about $30,000 minus tax – so that's only $20,000 on top of their guaranteed retirement income.
"That will affect their lifestyle. That's what they've worked hard for all their lives – to have a good, comfortable retirement lifestyle. Participating in these types of investment with a minimum of $50,000 is enjoyable for our investors too as they get to keep an eye on the market via the information we provide them via our stringent due diligence process.
A key factor separating Alpha First from other investment providers is the security of its investors' funds, ensuring that all loans to borrowers are registered as first mortgages against land and buildings, with investors encouraged to view those assets.
Fraser says they also take a conservative approach to investment in any borrower's project with a loan to valuation ratio of generally not more than 60%, and loans ranging from $400,000 to $4 million.
"We meet every borrower and visit every property to verify all the facts surrounding the borrower and the security of the property.
"Investment transparency and honesty is extremely important to us."
For more information about Alpha First Mortgage Investments, visit alphafirst.co.nz.