As part of our ongoing commitment to transparency for our investors, we're sharing a couple of case studies about the type of lending we are doing in our new investing classes: Home Loans and Business Property Loans. We were confident in approving these loans and what their characteristics are, and by sharing this we hope to pass some of that peace of mind to our investors.
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 confident approving this mortgage 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 more about this investment class here, investing in home loans.
This loan also has protection offered by our Home Loan Reserve Fund, which helps protect investors from loan arrears and loan defaults.