“This is quite the contrast to 2008 when there was a run on the sector with many trusts suspending redemptions and distributions. In this downturn we are not seeing any significant outflows and so far distributions have not been cut.”
Mortgage trusts use unitholders’ capital to invest into property loans through a variety of methods.
A contributory mortgage fund allows investors to acquire a fractional interest in a specific mortgage of their choosing.
A mortgage trust can come in the form of a residential mortgage backed securities fund where the underlying assets are a basket of tradeable mortgages, typically issued by banks and financial lending institutions.
The lending book of mortgage trusts is usually dominated by interest-only loans.
Mr Christopher lending standards in the sector had improved considerably since the GFC.
“While the strict lending criteria applied by mortgage trusts reduces negative refinancing risk, we do believe there has been some pick-up in forced refinancing by borrowers,” he said.
“That said, arrears still remain low at below 2 per cent overall for the rated sector and loan-to-value ratios are considerably lower compared to the major banks, providing a good buffer for the sector should real trouble arise.”
Arrears were higher on elevated risk-oriented funds such as funds with a high construction loan exposure, the SQM report noted.
