Mortgage Funds in Australia 2026: Understanding Risks, Returns and Policy Changes

Mortgage funds are pooled investment schemes that lend money secured by mortgages over real property, such as residential or commercial real estate. Investors contribute capital, which is then used by the fund manager to provide loans. The interest paid by borrowers forms the basis of returns to investors, after fees and expenses are deducted.

Key Features of Mortgage Funds

• Structure: Most mortgage funds are managed investment schemes regulated by the Australian Securities and Investments Commission (ASIC).
• Returns: Mortgage funds typically aim to deliver higher returns than traditional savings products, reflecting the additional risks involved. Actual returns vary depending on the fund’s strategy, the types of loans provided, and prevailing market conditions.
• Liquidity: Access to your investment can differ between funds. Some offer regular (monthly or quarterly) withdrawal opportunities, while others may require you to commit your money for a set period.

Mortgage funds may focus on different types of lending, such as first mortgages (generally lower risk) or include higher-risk loans like mezzanine debt. The risk and return profile will depend on the fund’s lending criteria and the quality of its loan book.

The mortgage fund sector has seen several regulatory and market developments in 2026. Regulatory bodies have responded to past liquidity challenges and changing property market conditions by introducing new requirements for fund managers and greater transparency for investors.

Enhanced Disclosure Requirements

ASIC now requires mortgage fund managers to provide clearer and more detailed information in their Product Disclosure Statements (PDS). This includes:

• The proportion of loans in arrears
• Average loan-to-value ratios (LVRs)
• The types of property and sectors the fund is exposed to

These changes aim to help investors better understand the underlying risks and make more informed decisions.

Withdrawal and Liquidity Rules

Following previous periods of market stress, new guidance restricts open-ended mortgage funds from offering daily redemptions unless the underlying loans can be liquidated quickly. This is designed to reduce the risk of funds facing a rush of withdrawal requests that cannot be met without selling assets at a loss.

Shifts in Lending Focus

With the Australian property market experiencing stabilisation in residential prices and ongoing challenges in some commercial sectors, many mortgage funds are adjusting their lending strategies. Some are increasing their focus on residential lending or diversifying across different property types to manage risk.

Mortgage funds can offer attractive income, but they come with risks that are different from those of cash or government-guaranteed deposits. Understanding these risks is essential before investing.

Liquidity Risk

Unlike term deposits, mortgage funds may not allow you to access your money immediately. Withdrawal terms vary, and in times of market stress, funds may suspend or delay redemptions to protect all investors.

Credit and Property Market Risk

If borrowers default or property values decline, the fund’s returns and even your invested capital can be affected. The risk level depends on the types of loans the fund makes, the quality of the underlying security, and the manager’s lending standards.

Manager Risk

The expertise and integrity of the fund manager play a crucial role in the performance and safety of your investment. A manager’s track record, transparency, and approach to risk management should be carefully reviewed.

No Government Guarantee

Mortgage funds are not covered by the government’s deposit guarantee. This means that, unlike savings accounts or term deposits, your capital is at risk if the fund’s loans perform poorly or if there is a liquidity crisis.

Mortgage funds may suit investors seeking regular income and diversification, particularly those who do not require immediate access to their capital. They are often used by retirees and self-managed super funds (SMSFs) looking for alternatives to shares and bonds. However, they are not a substitute for cash or government-guaranteed deposits.

Before investing, consider the following:

• Type of Mortgages: Does the fund focus on first-ranking mortgages (lower risk) or include higher-risk loans?
• Geographic and Sector Exposure: What types of properties and locations does the fund lend against?
• Redemption Terms: How often can you access your money, and what notice periods apply?
• Manager’s Track Record: How has the fund performed through different property cycles, and how transparent is the manager about risks and processes?

Mortgage funds can play a role in a diversified investment portfolio, particularly for those seeking income and willing to accept some risk. They may offer higher returns than traditional savings products, but this comes with the potential for capital loss and liquidity constraints.

It is important to review fund disclosures carefully, assess your own risk tolerance, and stay informed about regulatory and market developments. If you are unsure whether mortgage funds are suitable for your circumstances, consider seeking independent financial advice.

For more information on other investment and finance options, see our finance section or learn about protecting your property with home insurance.