Reading a loan due diligence pack: what New Zealand investors should check

A loan due diligence pack is the lender’s case for one loan: the property, the borrower, the exit and the terms. Read it in three passes. Check the headline figures, test how the loan will be repaid, then look at what protects you if repayment fails. Each page answers one question: what stands between my capital and a loss?

HomeSec Business Finance, a private business lender lending since 2004, with its New Zealand office in Auckland, checks every loan against a 50-point due diligence checklist before it emails a pack to co-funders. This guide goes wider than HomeSec’s own format. It covers what any pack on a New Zealand loan should show, and what to ask when it doesn’t.

Why does the pack matter so much?

Because it is the only document that describes the loan you are actually lending into. Investors in a pooled fund rarely see loan files; the manager reads them and reports back later in summary form. In direct mortgage investment the file comes to you before any money moves, and saying no costs nothing.

HomeSec has done the credit work by the time a pack reaches you. Your read is the check made by the person whose money is on the line, and it is worth doing properly. The steps from pack to settlement are set out in how private mortgage investment works.

First pass: which figures should you look at first?

Five figures tell you within minutes whether a loan deserves a closer read.

If any one looks wrong, stop and ask before going further. If they all look right, turn to the exit.

Second pass: how will the loan be repaid?

The exit is the heart of the pack. A credible exit is what keeps a loan out of default, and the equity buffer only matters if the exit fails. Start with the purpose, because the two should fit together.

Purpose. The pack should explain in a sentence or two why the borrower needs the money now: settling a purchase, taking up a business opportunity, or covering the gap until a sale settles or bank funding arrives. It should also confirm the loan is for business or investment purposes. For that kind of lending, only the oppressive-conduct protections of the Credit Contracts and Consumer Finance Act apply, and lenders may take a declaration from the borrower to that effect. A vague purpose, or one that looks like clearing overdue debts with nothing else changing, needs more questions.

Evidence. Most exits are a property sale, a new loan from a bank or another lender, or business proceeds. What separates a firm exit from a hopeful one is paper: a signed sale and purchase agreement or a campaign under way; a bank’s approval, or an up-to-date note on how the application is progressing; confirmed business receipts due before the loan matures.

Bank rules. If the exit is a bank loan against residential property, check it fits the Reserve Bank’s settings. Since December 2025 banks may make only 10% of new investor lending above a 70% LVR, and 25% of owner-occupier lending above 80%. Bank debt-to-income limits also cap how much lending goes to owner-occupiers above six times income and to investors above seven times.

Fallback. Finally, ask what happens if the exit is late. Would a sale work in today’s market? In August 2026 homes took a median 51 days to sell, and national inventory was 9.7% higher than a year earlier.

What should the Record of Title tell you?

Every pack on a New Zealand loan should include a current Record of Title search from Land Information New Zealand (LINZ). LINZ describes the record as proof of ownership of land and the rights and restrictions that apply to it. It shows the title type, the estate, the legal description and area, the registered owners and, at the bottom, the interests registered against the land, such as mortgages, easements, fencing covenants and land restrictions.

Three checks matter most:

• Owner. The registered owner should be the borrower, or a guarantor whose property is offered as security.
• Title type. LINZ lists types including freehold, leasehold, unit title and cross lease. Anything other than a plain freehold title deserves a line in the pack on how it affects value and saleability.
• Interests. Every existing mortgage should be identified and explained.

Caveats need particular care. A caveat provides notice of the interest claimed and will prevent registration of subsequent transactions until it is withdrawn or removed, subject to some exceptions. An unexplained caveat lodged by a third party must be resolved before settlement.

Who ranks ahead of you?

Ranking sets the order of repayment from a sale. If you are lending on a second mortgage, the pack should name the first mortgagee, state the balance owed and confirm the account is up to date. Ask, too, whether there is a cap on how much can be owed ahead of you. Under the Property Law Act 2007, a mortgagee serving a default notice must send copies to subsequent mortgagees and caveators it knows of, so a second-ranking lender hears early if the first mortgage runs into trouble. Our comparison of first vs second mortgage investments covers the trade-off in more depth.

Also confirm what you will hold. A registered mortgage is the stronger security; a caveat protects a claimed interest but is not a registered mortgage. A good pack says plainly which one applies.

Is the value current and realistic?

The pack should describe the property in plain terms (address, type, size, condition and use) and explain why it would find buyers readily if it ever had to be sold. HomeSec avoids unusual properties and anything that would be slow to sell. Then it should show how the value was reached, whether by registered valuation or HomeSec’s own assessment. Ask:

• When? Cotality put national values 18.2% below their peak in August 2026 and still edging down, so a figure from last month carries more weight than one from last year.
• On what basis? You want the value of the property as it stands today, not an ‘as if complete’ figure.
• With what evidence? Look for recent comparable sales and a clear account of any adjustments.

How much equity sits above the debt?

To get the LVR, add the loan to all debt ranking ahead of it and divide by the property’s value. The pack should show that working, not just the answer. Here is a made-up example:

REINZ’s national index fell about 16% from its November 2021 peak, a slide that played out over roughly 18 months. A fall that size would take this home to NZ$1,008,000, still NZ$168,000 above the total debt to cover selling costs and interest built up during a sale. A loan lasting a few months is exposed to only a slice of a downturn like that, which is why current values and short terms matter as much as the percentage. HomeSec’s ceiling is 80% on residential property, counting all debt ahead, and lower on commercial. Our LVR explainer for mortgage investors runs further stress tests.

Who is the borrower, and why a short term lender?

The pack should identify the borrowing entity, its directors and any guarantors, what the business does and how long it has traded. Useful checks include a Companies Office search, credit history, court and insolvency searches, and a search of the Personal Property Securities Register, the public noticeboard of security interests registered over personal property, which shows whether other lenders already hold security over the business’s personal property.

Ask about tax. In November 2025 the Reserve Bank reported that about 70% of company liquidations were initiated by Inland Revenue. A business that is up to date with IRD is a different proposition from one in arrears.

Then ask why the borrower chose a short term lender. The usual answer is timing: established businesses pay a premium for a loan that settles in days. That is normal. Unexplained defaults or litigation are not.

What will you sign and hold?

This part of the pack gives the loan amount, your share of it, the term and the rate. HomeSec co-funders earn 12% to 18% p.a., with each loan priced on its own facts, and a second-ranking position generally pays more than a first over the same property.

With HomeSec, the loan agreement is drawn up in your name, or your company’s or trust’s. The borrower signs with their own lawyer, you are named next to HomeSec on the mortgage registered with LINZ for exactly what you contribute (or on the caveat, where a caveat is the security), and you transfer your funds from your own bank account at settlement. Principal and interest are paid directly to that account.

If a borrower defaults, enforcement begins with a Property Law Act notice allowing not less than 20 working days to remedy, and a selling mortgagee must take reasonable care to obtain the best price reasonably obtainable. Our guide to what happens if a borrower defaults walks through each stage.

Which warning signs should make you pause?

One sign is a reason to ask. Several usually mean the loan is not for you.

How much of the checking is already done?

With HomeSec, most of it. Every loan passes the 50-point checklist before you see it, and both joint CEOs, Paul Stone and Jason Brockmuller, are involved in every loan decision. HomeSec then commits its own money to the loan it is offering you. For questions worth putting to any lender, see questions to ask a private credit manager.

Your read is still worth doing. If a page is unclear, call the Funding Manager on 09 888 6550, seven days a week. And the quickest way to learn is to see a real pack: register your interest, and HomeSec’s Funding Manager will be in contact.