Is private credit safe? A 10-point test for 2026

Private credit is neither safe nor unsafe as a category. It is lending, and lending carries risk. What separates a sound private credit investment from a fragile one is structure: what secures the loan, whether it funds construction, whether you can see it, whose name is on the mortgage and whether the manager has money at stake.

That distinction matters more in 2026 than at any time since the GFC. Several Australian funds limited redemptions in August, a major Sydney developer collapsed, and the regulator has moved from warnings to enforcement. This article gives you a ten-point test you can apply to any private credit offer, including ours.

Why is everyone asking whether private credit is safe?

Because the regulator is asking too. In June 2026 ASIC warned managers about valuations lagging economic reality, noting that weaker borrower conditions increased the risk that reported values did not reflect what loans were really worth.

Then, in August, Centuria Bass, MA Financial, CVS Lane, Merricks and Longreach all restricted redemptions. ASIC Deputy Chair Sarah Court described it as “the first significant cracks” in Australian private credit.

On 22 September 2026, Commissioner Simone Constant went further: “We’re now beyond warnings. The sector should prepare for enforcement action.” Of 28 funds ASIC reviewed, only four disclosed the rates charged to borrowers, and only two wholesale funds stress-tested their liquidity.

None of this means every fund is in trouble. It means investors can no longer assume a fund’s label tells them what they own.

Is there a private credit bubble?

Nobody can call a bubble with confidence, and we won’t try. The facts are these. ASIC’s REP 814 put the Australian market at around $200 billion. More than half of it is real-estate debt, mostly lending to developers. Much of that sits in pooled funds that promise monthly or quarterly withdrawals.

When Bathla Group entered administration on 25 August 2026, with its parent group carrying about $3.2 billion in liabilities mostly owed to private credit, the weak points showed quickly: construction and land loans that cannot be repaid until projects finish, held in funds whose investors want cash now.

Whether that becomes a wider problem depends on property sales, costs and confidence. Your own exposure depends on the structure you choose. That is what the test below measures.

What is the 10-point private credit test?

Score one point for each question you can answer “yes” with evidence, not a brochure. A pooled fund that scores three or four is not necessarily bad, but you should know exactly which risks you are carrying in return for the yield.

1. Is the security registered in your name? If the fund or custodian holds the mortgage, your claim is against the fund, not the property.
2. Is there no construction, land or development exposure? Unfinished projects are the riskiest collateral in property lending.
3. Can you see each loan before your money goes in? Portfolio averages hide individual problem loans.
4. Do the redemption terms match the loan terms? Monthly withdrawals funded by multi-year loans is the classic gating recipe.
5. Is the manager’s own money in the same loans? Alignment is strongest when the manager loses first or alongside you.
6. Is what the borrower pays disclosed? ASIC found managers keeping borrower fees investors never saw.
7. Is the valuation independent of the people who approved the loan? REP 820 found the same committees approving loans and then valuing them.
8. Are related-party dealings absent or fully disclosed? Money flowing to the manager’s associates is how the worst collapses happened.
9. Is the loan term short? Short terms return capital regularly and limit exposure to market shifts.
10. Is the LVR conservative, and defined clearly? An equity buffer is what protects capital if a property must be sold.

How does a typical pooled fund compare with HomeSec co-funding?

The table below compares a typical pooled mortgage or private credit fund with co-funding a loan alongside HomeSec Business Finance, an Australian private lender founded in 2004. Funds vary, so treat the middle column as a common pattern, not a verdict on any single fund.

Two honest points. First, rows 7 and 8 depend on your own review: HomeSec gives you the pack, and you should read it with those questions in mind. Second, a strong score does not remove risk. Borrowers can default and properties can take time to sell. The structure changes what is at risk and how clearly you can see it.

Why does whose name is on the security matter most?

It decides where you stand if something goes wrong. In a pooled fund you own units. The mortgages sit with the fund. If the fund freezes, fails or is mismanaged, you wait behind the manager, the receiver or the liquidator.

When you co-fund with HomeSec, the loan agreement is prepared in your name, the borrower signs with their own solicitor present and you are registered on the mortgage for your exact contribution. Principal and interest are paid directly to your own bank account, not to HomeSec and not into a pool. Your outcome depends on your loan and its property, not on what thousands of other unitholders decide to do.

Why are construction and development loans the weak point?

Because the security is unfinished and the repayment depends on a future sale. Costs can blow out, approvals can lapse and buyers can disappear. The Bathla collapse is the 2026 case study, and we cover it in detail in what the Bathla collapse means for private credit investors.

HomeSec does not lend on development or construction. It lends short term business loans of 1 to 12 months secured by first and second mortgages over existing Australian real estate, and avoids unusual properties or anything that would take a long time to sell. The full set of rules is on our lending rules page.

Why do redemption terms trip up so many investors?

Because a fund can be solvent and still lock you in. If a fund offers monthly redemptions but its loans take two or three years to repay, it relies on new money and loan repayments to meet withdrawals. When requests jump, the manager limits or pauses them. We explain the mechanics in what is a redemption freeze.

With co-funding there is no pool to gate. Your principal comes back when the loan is repaid. If you need to exit early, HomeSec will buy out your share and repay your principal.

How do LVR and loan term work together?

An LVR (loan-to-value ratio) is the loan as a share of the property’s value. A maximum 80% LVR leaves at least a 20% equity buffer before your capital is exposed. A short term matters because the valuation that set the LVR stays relevant. On a three-year loan, a lot can change; on a six-month loan, far less.

ASIC’s REP 814 flagged that terms such as “LVR” and “senior debt” are not always used consistently across funds, so ask how any manager defines them. Our guide to LVR for mortgage investors explains what to look for.

So, is private credit right for you?

It can be, if you choose the structure deliberately. Private credit is not a bank deposit and is not covered by the Financial Claims Scheme, whichever vehicle you use. The ten questions above will not take the risk out of any investment, but they will tell you what you are really buying.

HomeSec has lent its own money since 2004 and co-invests in every loan it offers. Returns are 12% to 18% p.a. on the loans you choose, set loan by loan and shown in each pack. If you’d like to run a real loan pack through this test, register your interest and our Funding Manager will be in touch.