SCP insider’s guide: investing with property without owning property, and everything else
Last month we held our second investor Q&A webinar. It’s great to have investors come along and regularly interact with our investor team and we hope you got some value out of it. If you couldn’t make it, or want to listen again, you can watch it anytime on YouTube here. Here we go through some of the key questions from the webinar:
How can I invest with property, without owning property?
There are many different investment types. One of the most common is KiwiSaver, with 64% of Kiwis having an account. For a quarter of Kiwis that’s the only investment they have. The other common investment is a term deposit, where you get a fixed interest rate on a lump sum with your bank over a period of time.
Then we of course have investing through property, either in a family home or with rentals on top of that, or investing in companies through the share market, through to government and corporate bonds, and cryptocurrency. These all require money to be invested in order to own a chunk of that thing, which could be a house, a bond, or a stock.
Peer-to-peer investing differs in that it brings together those who wish to loan money, either individually or collectively, with those who wish to borrow money. It could be achieved through small or large parcels of money, and the loan could be provided against varying levels of security.
We operate a slightly different model at SCP. Our target is short-term property lending, where we secure the property with a first mortgage and ensure the borrower has outlined a clear exit strategy with us. It means our investors can invest with property, without the hassle of actually owning property.
Lending our own money first before we place the loan on our investor platform for you to invest in, is a key element of SCP’s strategy, because investors choose which loans they want to invest in.
Can you explain what a first mortgage is?
A mortgage is a charge showing on the title of a specific property registering a financial interest. Every property in New Zealand is registered with Land Information New Zealand (LINZ) and designated an identifier number or title. Every loan we provide to borrowers is registered on this title as a first charge or first mortgage. That means we come ahead of anyone else that may claim to have subsequent financial interests in the property.
In this way we have the controlling position should anything untoward happen over the loan period such as if the borrower was to default on their loan and experience a mortgagee sale. For example, if the borrower owed us $500,000 and we sold the property for $800,000, we would take that $500,000 from the sale back to secure our position.
What is a credit score and what does a credit score mean?
At SCP the credit rating of loan is not about the borrower’s individual credit rating, it’s about the credit worthiness of the loan on the whole. It helps us to make lending decisions.
We use a formula which assesses the deal overall. It looks at information such as the purpose of the loan, the type of property, the location, the loan-to-value ratio (LVR) of the loan, how the borrower plans to service the loan, and what the borrower’s credit history is.
The formula will give us a number which determines the quality of the loan from one to five. Depending on that number and the verdict of our lending team, we’ll decide whether or not to lend.
What is our insurance policy for loans?
As we offer actual properties as security it’s important they’re fully insured. Our team always checks to ensure properties are fully insured.
We’re noted on the policy as an interested party. In the rare case of a premium going into arrears, the insurer would contact us and let us know. If the premium remains unpaid then we would pay on the borrower’s behalf and the borrower would pay us back directly. This also applies to payments such as council rates. But it is a rare occurrence.
