Educational Guide
How Private Credit & Private Mortgage Investing Works
Private credit is lending that happens outside the banks — investors fund loans, usually secured by registered mortgages over Australian property, through licensed operators. This guide explains the structures, the mechanics and the risks in plain English, and the questions to ask before committing a dollar.
Educational information only — not financial advice
This page contains general, factual information about how private credit and private mortgage investing works. It is not financial product advice, does not recommend any product, structure or operator, and does not offer any investment. Andorra Private Advisory Group Pty Ltd does not hold an Australian Financial Services Licence and does not pool or manage investor money. Private credit involves significant risk, including the loss of your capital. Obtain independent financial and legal advice before making any investment decision.
What is private credit?
Private credit is lending provided by non-bank investors rather than banks. In Australia, the most common form for individual investors is private mortgage investing: funding loans to businesses and property developers that are secured by a registered first or second mortgage over real property.
The investor's money funds the loan; the borrower pays interest; the property stands as security if things go wrong. Between those two parties sits an operator — a mortgage manager, private lender or fund — which originates the loans, holds the licences, manages the documentation and enforces the security. Who that operator is, and how well they do those jobs, matters as much as the loans themselves.
The four common structures
Same underlying asset class — very different risk, control and liquidity profiles.
Pooled mortgage funds
A registered managed investment scheme that spreads investor money across a portfolio of property-secured loans. Investors hold units in the fund and receive distributions from the pool, rather than choosing individual loans. Diversification is built in; loan-level control is not.
Contributory (select) mortgage schemes
Investors choose the specific loans they participate in, and returns depend on those loans alone. Disclosure is loan by loan — the property, the valuation, the LVR, the borrower purpose and the term — and so is the risk.
Private credit funds
Broader credit strategies that may lend against property, businesses or other assets, offered mostly to wholesale investors. Structures, fees and redemption terms vary widely between managers, which is why fund-level due diligence matters more here than anywhere.
Direct lending arrangements
A single investor (or small group) funds a specific loan directly, documented by a facility agreement and registered mortgage. These arrangements depend heavily on the quality of the legal documentation, the valuation and the enforcement plan — usually arranged through a licensed operator or law firm.
The mechanics that decide outcomes
Security and ranking
Private mortgage investments are secured by a registered mortgage over real property. A first mortgage ranks ahead of every other claim on the property; a second mortgage is repaid only after the first is cleared. Ranking is the single biggest driver of both risk and pricing.
Loan-to-value ratio (LVR)
LVR measures the loan against the value of the security property. A 65% LVR means the property would need to sell for less than 65% of its assessed value before the principal is at risk — which is why valuation quality and independence matter as much as the number itself.
Interest and distributions
Borrowers pay interest — often monthly, sometimes capitalised to the loan and paid at the end. Operators pass this through to investors after fees. Advertised rates reflect risk pricing: a higher offered rate is compensation for higher risk, not a free lunch.
Term and liquidity
Private loans typically run months to a few years, and investor money is generally locked in for the term. If a loan extends or defaults, the investment usually extends with it. There is no ready secondary market — illiquidity is a structural feature, not an edge case.
Valuations
The valuation is the foundation of the LVR and therefore of the whole risk position. ASIC’s 2025 surveillance of private credit funds specifically flagged valuation practices as an area of weakness across the sector — ask who values the security, how often, and how independent they are.
Default and enforcement
If a borrower defaults, the mortgage is enforced and the property realised. Recovery depends on realised value versus debt and costs, and on ranking. Enforcement can take many months, during which distributions typically stop.
Regulation, and what ASIC has been finding
Operators offering these investments generally need an Australian Financial Services Licence, and pooled retail offerings are typically registered managed investment schemes with disclosure and design-and-distribution obligations. Wholesale-only offerings carry fewer built-in protections — the due diligence is largely yours.
The sector is under active regulatory attention. ASIC's private credit surveillance (Report 820, November 2025) reviewed 28 funds and reported weaknesses in governance, conflict-of-interest management and valuation practices across parts of the sector, with further supervision of real-estate lending funds flagged for 2026. None of that makes the asset class uninvestable — it makes operator selection and documentation review the core of the decision.
The risks are real and structural: capital loss if security realises below the debt, illiquidity for the term and beyond, operator failure, valuation error, concentration in single loans, and regulatory change. Our investor introductions page sets these out in more detail.
Questions to ask any operator
- 1.Is the operator licensed? Search the AFSL and credit registers on ASIC Connect — and check the scheme is registered where it is offered to retail investors.
- 2.How are valuations done — by whom, how independent, how recent, and on what basis (as-is versus on-completion)?
- 3.Where does the investment rank — first mortgage, second mortgage, or unsecured — and what is the LVR against a current valuation?
- 4.What are the fees, and does the operator take a spread between the borrower rate and the investor rate? How are conflicts of interest managed?
- 5.What is the arrears and loss history across the operator’s book — not just the loan being offered?
- 6.What exactly happens on default — who enforces, who pays the costs, and how long has enforcement taken historically?
- 7.Can you afford the money to be locked up for the full term, and for longer if the loan extends?
ASIC's Moneysmart website publishes independent, plain-language guidance on mortgage schemes and how to check licences — worth reading alongside anything an operator gives you.
Frequently Asked Questions
Is private credit regulated in Australia?
Yes. Operators that offer private credit or mortgage investments to investors generally need an Australian Financial Services Licence (AFSL), and pooled arrangements are typically registered managed investment schemes with additional obligations to retail investors. ASIC actively supervises the sector — its Report 820 (November 2025) reviewed 28 private credit funds and flagged governance, valuation and conflict-of-interest practices as areas of concern. You can check any operator’s licence on ASIC’s professional registers.
Do I need to be a wholesale or sophisticated investor?
Not always, but it changes what you are offered and what protections you have. Retail investors must generally receive a Product Disclosure Statement and are covered by design and distribution obligations; wholesale investors (for example, those meeting the Corporations Act tests certified by an accountant) can be offered products with fewer disclosure protections. Many private credit offerings are wholesale-only, which places more of the due-diligence burden on you.
What is the difference between a pooled mortgage fund and a contributory scheme?
In a pooled mortgage fund your money is spread across a portfolio of loans and you receive a blended return; in a contributory (or select) mortgage scheme you choose specific loans and your outcome depends on that loan alone. Pooling diversifies borrower risk but removes loan-level choice; contributory schemes concentrate your exposure in the loans you select.
What happens if the borrower defaults?
The security property is what stands between a default and a loss. The operator (or its security trustee) enforces the mortgage, which can mean appointing agents, taking possession and selling the property. Recovery depends on the property’s realised value against the debt, the costs of enforcement, and where the investment ranks — a second mortgage is only repaid after the first mortgage is cleared. Enforcement takes time, during which funds are typically not accessible.
How do I check an operator before investing?
Search the operator and its key people on ASIC’s professional registers (AFSL and credit licences), read the scheme’s disclosure documents including how valuations are done and how conflicts are managed, ask who the borrowers typically are and what the arrears history has been, and take independent financial and legal advice before committing. ASIC’s Moneysmart website also publishes plain-language guidance on mortgage schemes.
Does Andorra Private manage private credit investments?
No. Andorra Private does not hold an AFSL, does not provide financial product advice, does not pool or manage investor money, and does not offer investment opportunities. Our role is limited to introducing investors to third-party operators — mortgage managers, private lenders and credit funds. Verifying any operator’s licensing, credentials and track record is your responsibility, and any arrangement is then between you and that operator.
Where Andorra Private fits
We arrange development and private finance daily, so we know the operators in this market. Our role with investors is introductions only: if you want to meet mortgage managers, private lenders or credit funds, we can make the connection. Verifying an operator's licensing, credentials and track record remains your due diligence — and the relationship, the documents and the decision are then yours and theirs.
About Investor IntroductionsFor general enquiries, contact nicholas@andorraprivate.com.au
Andorra Private Advisory Group Pty Ltd does not hold an Australian Financial Services Licence (AFSL) and does not provide personal or general financial product advice. This page contains factual, educational information only and does not constitute financial, legal, or tax advice, nor an offer or recommendation of any investment. We facilitate introductions to mortgage managers, private lenders and credit funds only; any investment or lending arrangement is between you and the operator you choose to work with. Private credit investments involve significant risk including the risk of losing your capital. Past performance is not indicative of future results. You should seek independent professional advice before making any financial decisions.