How DFNZ identifies, manages and mitigates risk
- When a loan is first assessed, we undertake due diligence on a borrower to ascertain if we want to lend them funds.
- Credit checks are undertaken to ensure the borrower does not have prior credit defaults.
- Projects can face build-price escalation and for each loan we add a suitable contingency to the building contract price to mitigate possible price increases.
- For each project, we are relying on a contractor to satisfactorily complete the project on time and within budget, so as part of our due diligence we review the contractor’s past projects to ensure that they have necessary experience.
- DFNZ uses an external specialist to satisfy all of its Anti Money Laundering (AML) requirements (in compliance below)
- Supply chain – Delays in sourcing materials.
- On any development project a potential risk is that the contractors find unforeseen underground issues which could add to the cost of a project. If required, DFNZ will request a geotechnical review to be undertaken.
- 223 & 224 certificates – part of the pre titling process.
- LINZ delays – Delays in the council generating new titles.
- Presales not performing (presales can’t settle)
- To reduce the risk of time overruns on projects, DFNZ closely monitors all its projects to ensure that the timeline is being achieved.
- Pandemic or other natural disasters.
- If a borrower is unable to meet their interest payments, we do have the property security to fall back on (not only for the principal that is owed, but also for all outstanding Interest and Costs)
- All of the properties we lend against have valuations conducted by registered valuers, who are more qualified to have an opinion as to a property value, and have access to far more data and trends.
- As part of our assessment, we consider the value of a property and always physically inspect every property we lend on. However, placing a value on a property is not an exact science and is an expert’s opinion at a given date.
INTEREST RATE RISK
- You need to consider if you will be happy with the interest rate that you are locking into when you select the loan to invest in.
- All lenders are obliged to follow specific legislation when dealing with borrowers, both in the assessment phase, and in the ongoing management of the relationship.
- Getting this wrong, in extreme cases, could put the validity of the lending at risk. As it is this lending that you are investing in, errors at this level could place your investment at risk.
- To mitigate this, we have extensive policies governing all stages of the lending process, with these policies formulated in conjunction with our solicitors.
- In addition, we have been lending for 30 years, so have a vast pool of experience to call on.
- To ensure that we do follow our policies, we have a Compliance Officer who continuously checks this.
- In addition to lending compliance, there are also procedures that must be followed when dealing with investors, as well as regular compliance reports that are required to be filed with our Regulators.
- DFNZ does not lend on CCCFA categorised loans.
- There is a risk that the property which is mortgaged to support your investment, is damaged to a small or large extent.
- At the time that a loan is made to the borrower, DFNZ ensures that there is insurance cover in place with us noted as an interested party on the insurance certificate.
- However, there are circumstances in which an insurer may decline a claim in respect of damage to a mortgaged property including:
- A failure by the borrower to make adequate disclosure at the time of applying for the insurance.
- The insurance cover has lapsed because of a failure by the borrower to pay the premium.
- The damage is intentionally caused by the borrower.
- If the borrower owes more than the damaged property is worth then there is a risk that the loan will not be repaid in full and you will suffer a loss.
- Some insurers will allow DFNZ an opportunity to pay the insurance premium where the borrower has failed to do so.
- Should we pay the insurance premium, then this will be added to the loan and will be refunded to us when the loan is repaid.
- Initially we contact the borrower to arrange payment, but it is possible we will be obliged to make these payments, with the cost added to the loan.
- Where DFNZ has paid these rates, then DFNZ will be refunded these amounts, plus interest, when the loan is repaid.