How self-funded retirees can offset the effect of interest rate cuts

Life became even more difficult for self-funded retirees when the Reserve Bank of Australia (RBA) cut the cash rate by 15 basis points to a record low of 0.10%.

With inflation running at 1.6% the cut will effectively result in a negative yield for all forms of cash deposits, including term deposits.

CanStar found the best Term Deposits ranged from 1.1% to 1.23% (Nov 2, 2020) creating a major income issues for hundreds of thousands of self-funded retirees.  

This was confirmed by a recent survey of over 1,000 Australians aged 40+ that showed 65% of retirees said they were concerned about their income in retirement and almost half (49%) of retirees say they don’t feel confident about their financial security over the next five years.

Add to this COVID-19’s effect on the share market that has seen blue chip dividends slashed and the search for high yielding investments becomes far more important. 

A secure alternative is to invest in mortgage funds that offer the types of yields to generate a living income.

Mortgage funds provide investors with first mortgage security and familiarity and everybody understands the principles of a mortgage and the multi-billion dollar sector is booming as the major banks withdraw from the commercial property sector.

The Windsor Capital Core Fund (WCCF)* is offering a forecast yield of 7% based on investments in the commercial mortgage sector.Investor’ funds provide mortgages in the retail, office, industrial and large scale residential sectors with terms ranging from 6-24 months.

The WCCF is a Pooled fund that minimises investor risk by spreading investor funds across a range of mortgages and offers returns paid monthly.

For further information on the WCCF go to www.windsorcapital.com.au/WCCFLP

* The WCCF is only available to sophisticated investors with a minimum investment of $50,000

The COVID-19 impact on Mortgage Trusts

The Australian property sector is facing uncertain times following the COVID-19 pandemic that has seen dramatic changes to our residential and commercial markets. 

The question is whether the changes will be short term, and snap back to pre-COVID, or result in a fundamental reshaping of one of the major drivers of the Australian economy? 

Concerns about the pandemic effect on office, residential and retail markets in particular are yet to wash through the market.  Will cities be left with empty office buildings as corporations rationalise office space through the use of working at home and hot desking? 

Will we have vacant shopping centres for years, as the huge uptake of online shopping is putting further pressure on bricks and mortar retailing? 

In addition, the fall in migration will have a long-term effect on the residential market as housing starts slow or will the billions in stimulus keep it active? 

Will these changes affect the Australian mortgage trust market and reduce the attractive yields that have been attracting billions of dollars in the past 12-24 months? 

At this stage it appears this uncertainty will not be an issue.  One of the key factors underpinning the mortgage sector is the withdrawal of the major banks creating an $80 billion funding gap for quality property projects into 2021. 

It is the established real estate investment trusts (REITs), with major pre-COVID holdings with high gearing that face the major challenges. 

Mortgage trusts are generally forward looking.  They finance new development (or refinance existing quality property) underpinned by mortgage security and have the ability to pick the sectors that are expected to perform the best.  

In addition, mortgages trusts are short term and nimble with mortgage periods typically from 6-36 months. 

Boutique mortgage funds, such as the Windsor Capital Core Fund (WCCF), manage investment risk in a number of ways. 

WCCF is a pooled fund that invests in a spread of quality mortgages to minimise volatility across a variety of property sectors. We take a conservative approach and follow strict in Due diligence guidelines. 

At present we are seeing an increase in deal flows and it is an excellent time to explore the opportunities of investing in mortgage trusts and diversify your current portfolio.  

Should you have any further questions or want more information on the Windsor Capital Core Fund please do not hesitate to contact us on 1300 346 782. 

Mezzanine Financing Pros

If you’re raising capital to fund your project development, you may want to consider using mezzanine loan as part of your financing solution.

Mezzanine financing is a useful tool to fund developments, expansions or property acquisitions or completing a construction project. You can use it in combination with equity financing, line of credit, term loans, or as a substitute for bank loans. In a capital structure, it sits above equity financing.

Here are the benefits of using mezzanine finance:

  • It is cash-flow based. While banks look into your collateral, mezzanine investors look into your cash flow.  Traditional lenders focus their evaluation on your assets and financial documents when evaluating your loan application, so when borrowers lack tangible collateral and proof of higher income, banks won’t approve their application. On the other hand, mezzanine financing lenders often lend money to businesses with sufficient cash flow available to pay the interest and principal payments when they fall due.
  • Interest only capital. Mezzanine loans are flexible. It requires no immediate principal payments. Its interest-only capital feature with balloon payment upon maturity, allows you to use the money that would have gone to making the payments and use it to complete your project.
  • It has a longer maturity than bridge loan and other short term loans. Developers looking for long-term with a maturity of five years or morecan enjoy this long term financing option. You don’t have to worry about paying this loan back in the short term.
  • It is a reliable alternative funding source for borrowers seeking to finance property development, especially those that do not qualify for traditional bank loans with tougher capital regulatory requirements.

Windsor Capital assists lenders facing lending problems, as bank lenders increase regulation on development loans. We help fill the void for developers looking for funds to start and complete their projects in Melbourne.