During the Global Financial Crisis, the mortgage trust sector was hit hard. Subprime mortgages on residential real estate in the United States was one of the causes at the heart of the GFC. So in 2008, many trusts in this sector had to suspend redemptions and distributions.

When the coronavirus outbreak struck, many were expecting a repeat of the GFC to occur in the mortgage trust sector.

But that has not happened. At least, not in Australia.

The sector, which recently surpassed fifteen billion dollars in funds under management, has not experienced any additional turmoil. Arrears are minimal, and there has not been an increase in bad debt.

A report by independent research firm SQM Research states that mortgage trusts have experienced growth over the last twelve months, with funds under management growing by thirty to forty percent.

Mr Louis Chistopher, Managing Director of SQM, stated that after the GFC, lending standards for mortgages had improved significantly. These improved standards are likely what has allowed the sector to continue unscathed this time around.

He also remarked that loan-to-value ratios are considerably lower compared to the major banks, and that in the event that challenges do start to occur, this would provide a buffer.

A key takeaway from this report is that exposure to real estate, particularly in a structure that offers fractional interest across a diversified portfolio of property, is a reliable strategy to ride out the current economic environment.

Despite the doomsday propaganda from the mass media, property markets in major cities continue to show signs of ongoing growth. And clearly with a 30-40% increase in funds under management, within the mortgage trust sector, it’s apparent that many clued in investors are backing the play.