After nearly three decades in the business, we’ve outlived a lot in the New Zealand market. We take a conservative approach to all risks and always lend our own money first.

But there are still risks involved with the business we operate. Below we have outlined what we believe are the main risks.

New Zealand enjoys a strong and stable economy, but we are not immune to global challenges. Some of our key trading partners currently face fragile economic conditions, and major international financial institutions are also under pressure. These global vulnerabilities can influence New Zealand’s economy in ways that are difficult to predict, given the many factors at play.

The potential impact of global failures or recessionary forces should not be underestimated. While the exact reach of these effects is uncertain, they could negatively influence housing demand, property prices, employment levels, interest rates, and supply chains.

At Southern Cross Partners, our short-term lending model and the security we hold over every borrower’s property could help reduce exposure to these risks. However, economic downturns may still lead to borrower repayment shortfalls, which could affect your investment returns. While we take steps to mitigate risk, it’s important to understand that external economic forces can have an impact.

Property market movements are always a key topic in New Zealand, and shifts in this space can influence investment outcomes. Changes in the construction sector have added complexity over time, with rising construction costs, longer completion timelines, additional rental requirements, and higher interest rates.

Market sentiment also plays a role. Individual views on property trends affect investment decisions, but it’s important to consider both domestic conditions and global macro-economic forces when planning your strategy.

As an investor, you have the ability to choose investments that align with your comfort level and financial goals. However, remember that a downturn in the property market could lead to borrower defaults, renegotiated repayments, or mortgagee sales. These scenarios may result in a shortfall in loan repayments and could impact your returns.

Your investment returns come from the interest borrowers pay on their loans. Before approving any loan, we carry out thorough checks to ensure borrowers can meet their obligations without hardship, as required by law. 

However, future circumstances can change. Economic shifts or personal challenges may affect a borrower’s ability to make repayments. In such cases, we rely on the property security held against the loan – not only for the principal but also for outstanding interest and costs. As first mortgage holders, we have the legal right to issue a Property Law Act (PLA) notice and, if necessary, proceed with a mortgagee sale.

Despite these protections, if the borrower’s situation or property value changes significantly, we may not recover the full amount owed. This could result in a shortfall and impact your investment repayment.

Read more about PLA notices and how any shortfall is handled here.

Property valuation is not an exact science – it reflects an assessment of value at a specific point in time, influenced by prevailing conditions. While registered valuers and experienced providers have access to more data and trends, valuations can still vary and are subject to change.

Recent years have shown how dramatically property values can shift. Quoted statistics and market trends often overlook individual property factors, such as local developments or planning changes that could impact value. We monitor these issues closely and, where known, incorporate them into valuations and inform investors.

To provide a balanced view, we use multiple valuation sources. However, unknown factors may still affect a property’s value. It’s important to consider who performed the valuation, how recent it is, and what assumptions were made.

If a property’s value declines significantly, we may not recover the full loan amount in the event of borrower default or mortgagee sale. This could result in a shortfall and impact your investment repayment.

Interest rates play a key role in investment returns, and while New Zealand’s Official Cash Rate (OCR) is lower than recent years, it’s important to remember that we do not control the OCR. Changes in the OCR can influence market interest rates and, in turn, affect the relative attractiveness of your investment.

When selecting an investment, consider whether you’re comfortable with the interest rate you’re locking in. If rates continue to fall, your fixed return may look favourable compared to new opportunities. Conversely, if rates rise again, newer investments could offer higher returns.

We provide a secondary market service for investors who wish to on-sell their investment before maturity. However, we cannot guarantee a successful sale. If new opportunities offer more competitive rates than your current investment, selling may be difficult, and you may need to hold the investment until the loan is repaid. This may potentially be at a lower rate than the prevailing market.

No matter which company you invest with, there is always a risk that the business could be mismanaged, and this includes Southern Cross Partners and the Southern Cross Group. While this scenario is unlikely, it’s important to acknowledge the possibility.

At Southern Cross Partners, your investment is safeguarded. Mortgage security and associated funds are held separately in a Trust Company, independent of our business operations.

If there was a business failure, a business continuity plan is lodged with the Financial Markets Authority (FMA) to ensure the continuing management of the investments and loans until repaid. Your investment is secured by a registered mortgage over the borrower’s property, not by any Southern Cross Partners assets.

All lenders must follow specific legislation and regulations when assessing borrowers and managing ongoing relationships. If these requirements are not met, it could, in extreme cases, affect the enforceability of a loan agreement. Since your investment is tied to these loans, non-compliance could put your returns at risk.

To mitigate this risk, Southern Cross Partners and the Southern Cross Group have robust policies developed with legal experts and backed by decades of lending experience. We employ a full-time Compliance Officer who monitors adherence to these policies and reports directly to our Managing Partner and board. Independent auditors also conduct regular compliance checks, and the board performs its own oversight.

There is a risk that the property securing a loan could be damaged. Southern Cross Partners requires insurance cover to be in place, where applicable, when loans are made, but there are situations where an insurer may decline a claim. These include:

• The borrower failing to disclose important information when applying for insurance.
• Insurance lapsing because the borrower did not pay the premium.
• Damage caused intentionally by the borrower.

If the property is worth less than the amount owed after damage, the loan may not be repaid in full, and investors could suffer a loss.

To reduce this risk, some insurers allow Southern Cross Partners to pay overdue premiums on the borrower’s behalf. When we do this, the cost is added to the loan and refunded to us first when the loan is repaid, including in the event of a mortgagee sale.