Case study 1
Investing class: Home Loans
A mortgage for an experienced property investor
The first loan on our platform is for $1.4m and is secured over two properties in Point Chevalier, Auckland with $1.1m in security over each. It has a 70% loan to value ratio.
Our credit policy:
Maximum loan to value ratio of 80%
Maximum loan of $1m per property and a total limit of $2m
With our first Home Loan on the platform, the borrower owns $31m in property and has $12m in lending.
The funds borrowed from Squirrel are for working capital and the client is holding $3m in cash. The customer’s property portfolio is diversified and generates over $1m p.a. of income. He has also provided a personal guarantee on the loan. This means that there is someone standing behind the loan who can guarantee the payments at a personal level, similar to when a parent acts as a guarantor on a home loan for their children.
The reason the client borrowed from Squirrel is that banks treat them as a commercial client and will only lend against the income of the property they have security over and with too many covenants. He was prepared to pay a bit more for a simpler borrowing solution.
We felt this mortgage was low risk because:
The client has strong underlying income from a diversified property portfolio
They are carrying a low level of gearing (low LVR)
The security is a first residential mortgage with a loan to value ratio on the properties of 70% and a personal guarantee from the borrower
The borrower holds significant working capital and undrawn revolving credits (meaning he has cash available to him)
You can invest into this mortgage now. The investor return is 4.0% p.a. variable, and you can find out lots more about this investment class from our investor handbook here.
This loan is also protected by our Home Loan Reserve Fund, which protects investors from loan arrears and loan defaults.
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