First Mortgage Funds in New Zealand: Options for Wholesale Investors

First mortgage funds offer wholesale investors exposure to property-secured lending with regular income distributions. This guide provides factual information about first mortgage investment options available in New Zealand—it is not financial advice, and you should verify all information directly with fund managers before making investment decisions.

What are First Mortgage Funds?

First mortgage funds pool investor capital to provide loans secured by first-ranking mortgages over property. As "first mortgage" lenders, these funds have priority claims over the property if a borrower defaults—they are repaid before any subordinate lenders.

Key characteristics:

• Security: First-ranking mortgage over real property (residential, commercial, or industrial)
• Income: Regular distributions from borrower interest payments
• LVR management: Funds typically lend at conservative loan-to-value ratios (often 65-80%)
• Diversification: Pooled funds spread risk across multiple loans and properties

First Mortgage vs Other Property Lending

Loan Type	Security Position	Risk Level	Typical Returns
First Mortgage	Priority claim on property	Lower	6-9% p.a.
Second Mortgage	Subordinate to first mortgage	Medium	9-14% p.a.
Mezzanine/Development	Often unsecured or subordinate	Higher	12-18%+ p.a.

Note: Return ranges are indicative only and vary based on market conditions, fund strategy, and risk profile. Past returns do not indicate future performance.

First Mortgage Funds in New Zealand

The following provides factual information about first mortgage funds available to investors in New Zealand. Funds are listed alphabetically. Some funds offer both retail and wholesale options—wholesale options typically have higher minimums and may offer different terms.

First Mortgage Trust (FMT)

Overview: One of New Zealand's largest first mortgage fund managers

• Established: 1996 (approaching 30th anniversary in 2026)
• Funds under management: Over $2 billion (as reported)
• Investors: More than 7,000
• Offices: Auckland, Wellington, Christchurch, and Bay of Plenty

Fund Options:

• Retail Fund: Available to retail investors with lower minimums
• PIE Fund: Portfolio Investment Entity structure for tax efficiency
• Wholesale Fund: Minimum $500,000 investment, minimum 2-year term

Investment Characteristics:

• Security: First mortgages over residential, commercial, and industrial NZ property
• LVR approach: Described as "conservative loan-to-value ratios"
• Risk management: Diversified portfolio and reserve fund
• Manager: First Mortgage Managers Limited (licensed manager under FMCA)

Recent Performance (as publicly reported):

• Pre-tax annualised quarterly return: 6.76% (as of reported data—verify current)
• Note: This compares to average 1-year bank term deposits of 3.92% at that time

Performance data is historical. Current rates and terms should be verified directly with FMT.

NZ Securities First Mortgage Fund

Overview: Newer entrant to the first mortgage fund market

• Established: 2022
• Focus: First mortgages primarily over NZ residential property
• Return structure: Fixed interest return (reported as 6.5% p.a.—verify current)
• Terms: Maturity dates from 12 months to 3 years

Note: As a newer fund, track record is limited. Verify current terms and fund size directly.

Norfolk Mortgage Trust

Overview: Licensed managed investment scheme offering property-backed securities

• Established: 2006 (19 years track record)
• Total security: $120 million
• Current investment pool: $52 million
• Minimum investment: $5,000
• Fees: No entry or exit fees

Investment Characteristics:

• Security: Property-backed loans across New Zealand regions
• Lending: Non-bank lending including short-term bridging finance and working capital
• Approach: Relationship-first with emphasis on transparency and communication
• Manager: Norfolk Mortgage Management Limited (licensed under FMCA)

Leadership:

• CEO: Glenys Holden (7+ years, NZ Mortgage Awards judge)
• Chair: Jack Porus (9+ years)
• Executive Director: Stuart Smith (9+ years)

Recent Growth (as publicly reported):

• 40% increase in fund size during 2022
• 17% increase in investor count over 12-month period

Note: Norfolk Mortgage Trust is available to both retail and wholesale investors. Verify current terms, rates, and availability directly with Norfolk.

Southern Cross Partners

Overview: First mortgage investments with relationship-focused approach

• Philosophy: "Lend their own money first" alongside investors
• Approach: Personal relationship with direct access to investment team
• Focus: First mortgage secured investments
• Values: Emphasis on transparency and family values

Note: Southern Cross offers various investment options. Contact directly for current offerings, terms, and minimums.

Squirrel Wholesale Funds

Overview: Mortgage-focused funds from peer-to-peer lending pioneer

Squirrel Wholesale Home Loan Fund:

• Focus: Residential mortgages up to $2 million
• Property types: Owner-occupied or investment properties
• Security: First mortgage
• Target return: 1-year bank term investments plus 1.75% p.a., after fees before tax
• Wholesale only: Yes

Squirrel Wholesale Construction Loan Fund:

• Focus: Construction lending
• Risk profile: Higher than home loan fund due to construction risk
• Wholesale only: Yes

Squirrel Monthly Income Fund (Retail):

• Structure: Invests in the wholesale funds
• Composition (as of mid-2025): ~79% Construction Loan Fund, ~21% Home Loan Fund
• Historical performance: Reported 3-year annualised return of ~7.2% with no negative months (verify current)
• Loans: Diversified across 297 loans at reported date
• Track record: Platform launched 2015, manages over $500 million
• Historical losses: Reported as no investor losses to date (verify current status)

Note: Past performance and loss history do not guarantee future results. Verify current fund composition and terms.

Other Options

Additional first mortgage or property-secured lending options may be available through:

• Contributory mortgage schemes (e.g., Obsidian)
• Property syndicate structures
• Direct mortgage participation arrangements

These structures vary significantly in how they operate and the protections available. Conduct thorough due diligence on any option.

Key Factors When Evaluating First Mortgage Funds

1. Loan-to-Value Ratios (LVR)

• What is the maximum LVR policy?
• What is the average LVR across the portfolio?
• How are property valuations conducted and how recent are they?
• Is there a buffer if property values decline?

2. Property Types and Diversification

• Residential vs commercial vs industrial mix
• Geographic concentration (Auckland, regional NZ)
• Single borrower/property concentration limits
• Development vs completed property exposure

3. Default and Loss History

• What is the historical default rate?
• What is the actual loss rate after recoveries?
• How long does the recovery process typically take?
• How did the fund perform through past property downturns?

4. Liquidity and Redemption Terms

• What notice period is required for redemptions?
• Are there lock-up periods?
• Can redemptions be suspended or gated?
• What is the fund's cash/liquidity buffer?

5. Fund Structure and Governance

• Is the manager licensed under the FMCA?
• Is there an independent supervisor or trustee?
• How are conflicts of interest managed?
• What reporting do investors receive?

6. Fees

• Management fees (typically 0.5%-1.5% p.a.)
• Entry/exit fees
• Any performance fees
• Underlying costs passed through to investors

Risks Specific to First Mortgage Funds

Property Market Risk

If property values decline significantly, the security buffer may be eroded. While first mortgage holders have priority, recoveries may be less than expected in a severe downturn.

Interest Rate Risk

Rising interest rates can stress borrowers' ability to service loans, potentially increasing defaults. Conversely, falling rates may compress fund returns.

Concentration Risk

Some funds may have significant exposure to particular property types, geographic areas, or individual borrowers.

Liquidity Risk

Unlike bank deposits, first mortgage funds may have limited liquidity. In stressed market conditions, redemption requests may exceed available cash, leading to delays or suspensions.

Manager Risk

Returns depend on the manager's skill in loan origination, credit assessment, and collections/enforcement.

Wholesale vs Retail Options

Many first mortgage fund managers offer both retail and wholesale options:

Feature	Retail Funds	Wholesale Funds
Minimum investment	Often $1,000-$10,000	Often $100,000-$500,000+
Disclosure	PDS required	No PDS required
Dispute resolution	Access to disputes scheme	May not have access
Returns	May be lower due to compliance costs	May be higher
Lock-up periods	Often more flexible	May have longer lock-ups

Questions to Ask Before Investing

1. What is your current average LVR and how has it changed over time?
2. What percentage of loans are currently in arrears or default?
3. What is your largest single loan as a percentage of the fund?
4. How do you value properties and how often are valuations updated?
5. What happened to the fund during past property downturns (if applicable)?
6. What is your current cash/liquidity position?
7. Have you ever suspended or limited redemptions?
8. What insurance do borrowers carry and who is the loss payee?
9. How are development loans managed differently from completed property loans?
10. What is the process and typical timeline if you need to enforce a mortgage?

Tax Considerations

Interest income from first mortgage funds is generally taxable:

• PIE funds: Tax paid at your PIR (capped at 28%)
• Non-PIE funds: Income taxed at your marginal rate (up to 39%)
• RWT: Resident Withholding Tax may apply to distributions

Consult a tax adviser for your specific situation.

Conclusion

First mortgage funds offer wholesale investors an income-focused alternative to bank deposits and bonds, secured by New Zealand property. However, they are not term deposits—they carry credit risk, property market risk, and liquidity risk that requires careful evaluation.

Key points:

• First mortgage security provides priority but doesn't eliminate risk
• Manager track record and underwriting discipline are critical
• Understand liquidity terms—these are not at-call investments
• Compare funds on LVR, diversification, fees, and historical performance
• Verify all information directly with fund managers before investing