Asset-Based

Yes, refinancing your asset-based mortgage can be strategic and beneficial in some circumstances.

The value of your assets may have increased since you took out your mortgage, for example. Refinancing can, therefore, allow you to borrow more if needed. Or you may decide that you prefer to change to a standard high net worth mortgage, having already had an asset-based one. As long as you meet the income criteria, you can refinance to this other type of mortgage. With this option, you’ve benefitted from the liquidity you needed with an asset-based mortgage. When you’re ready, you can take advantage of strategic refinancing to have a standard long-term mortgage while repaying your original asset-based one.

Whatever your reason for refinancing, our mortgage brokers can find the optimum deal for you that caters to your unique circumstances as a high net worth individual.

Asset-based mortgage lenders offer more flexibility when it comes to your credit rating than would be the case if arranging a mortgage based on your income. This is because you use your assets as security for the loan, which reduces their risk.

If you have a bad credit rating, they’ll assess the reasons for this, which will determine the mortgage deal you’re offered. You may, for example, be charged a higher rate of interest or be offered a lower LTV ratio.

The underwriting process for an asset-based mortgage is straightforward and quicker than that used for income-based mortgages. Manual underwriting is used, providing much more flexibility when it comes to complex financial situations.

The lender will check the assets you’re providing as security rather than assessing your affordability based on income. This will include checking the types of assets they are, their value and their liquidity. If your assets are listed, they will check which exchange they’re listed on and the industry they relate to.

You’ll need to provide proof of your asset ownership and valuations. The lender may also require a certificate to verify your status as a high net worth individual.

Lenders consider your liquid assets as security for an asset-based mortgage loan. These can include:

• Stocks, shares and bonds
• Cash, cash equivalents, bullion, jewellery and gems
• Art collections
• Life insurance policies
• Collectible cars
• Luxury yachts
• Private aircraft
• Antiques
• Collectibles
• Other assets, depending on the value

As long as an asset meets the required value, it’s likely to be considered by the lender.

As a bespoke type of lending, your application is assessed on an individual basis. If you have assets of cash and bullion, these are considered to be low risk and the lender will be more willing to offer you a higher loan-to-value (LTV) ratio. Stocks and shares, on the other hand, pose a higher risk to lenders. Whilst these have the potential to bring in higher returns, they are more volatile. Your lender may offer a more conservative LTV, depending on the diversity of your portfolio.

Asset-based mortgages take borrowers’ overall wealth into account rather than just their income. This makes them ideal for those who are asset-rich but income-poor, including:

• High net worth individuals who have minimal or irregular income or a complex income structure. Assets can be leveraged to buy property while maintaining liquidity.
• Investors with large portfolios who want to retain their assets and avoid capital gains tax, rather than liquidating them to buy property.
• Entrepreneurs and business owners who have a fluctuating income and/or don’t wish to tie up their business capital in property.
• Property investors who wish to expand their portfolios using the equity in their existing properties without having to sell them.
• International buyers who don’t meet UK affordability requirements but have significant assets.

This type of lending allows for flexibility when traditional income requirements and tax returns don’t allow for a genuine borrowing capacity. Assets remain intact rather than having to be sold.

Lenders’ deposit requirements for asset-based mortgages depend on their criteria, the asset types and the level of risk they pose. For low-risk assets, such as cash or bullion, a deposit of 5% to 10% is generally accepted. For more volatile assets, such as stocks and shares, a higher deposit is required to help mitigate the risk. This is typically between 25% and 50%.

A mortgage based on assets instead of income allows you to borrow a significant sum as a high net worth individual. Asset-based mortgage loans usually range from a 50% to 70% loan-to-value (LTV) ratio on the securities. This means that if your assets have a market value of £10 million, you can secure a loan of £5 million with an LTV of 50%. The LTV you’re offered may be higher or lower than these figures as the amount you can borrow is based on different factors.

The LTV the lender agrees to will depend on how much you want to borrow, your situation and the types of assets you’re offering as security. If your assets are considered to be volatile, such as stocks and shares, you’re likely to be offered a lower LTV to help mitigate the lender’s risk. With low-risk assets, such as cash or bullion, however, the lender will be more willing to offer you a higher LTV.

Our asset-based mortgage specialists can discuss your situation and the assets you have to use as collateral to help determine how much you can borrow. Give us a call on 01322 907 000 with details of your asset portfolio to discover your borrowing options.

Just like the loan-to-value (LTV) ratio you’re offered, asset-based mortgage rates vary depending on the overall risk. They’re determined on a case-by-case basis, with lenders taking your financial profile, the liquidity of your securities portfolio and the potential risk into account.

These bespoke interest rates are usually lower than those offered for standard high net worth mortgages. This makes asset-based mortgages a cost-effective way to borrow. The interest rates offered are typically tied to the base rate, with a margin added to it by the lender.

The more liquid and diversified your portfolio, the better the rate you’ll be offered. For example, low-risk assets, such as cash and bullion, command lower interest rates than assets that are considered to be volatile, such as stocks and shares. You can usually benefit from a more competitive rate when you have a lower LTV as this lowers the lender’s risk.

Our specialist brokers will negotiate for the best asset-based mortgage interest rates on your behalf.

The term ‘asset-rich income-poor’ refers to someone who has a high net worth but limited income. They own valuable items – such as properties, luxury cars, artwork collections, bullion, business equity or stocks and shares – and their wealth is tied up in these assets. Their income, however, is limited or irregular, resulting in cash-flow constraints. This can make it difficult to cover monthly living expenses, let alone fund bigger expenses that may crop up.

This situation can make it challenging to be approved for a standard residential mortgage where lenders assess affordability based on a consistent income. An asset-based mortgage, however, gets around this issue, with lenders looking beyond your salary. Instead, they focus on your securities portfolio and provide a bespoke lending solution for you.  

An asset-based mortgage works differently from a standard residential mortgage. When you apply for a standard residential mortgage loan, your affordability is assessed by taking your income into account. Lenders prefer a consistent, stable income to an irregular one as this reduces the risk of non-payment of your loan. The amount you can borrow is calculated by using an income multiplier, such as 4.5 times your annual salary. Whilst this is fine if you’re in full-time employment, this approach isn’t suitable if you have a low-income stream, your income is irregular or it is considered to be non-standard.

As a high net worth individual, these income issues may apply to you. However, as you have wealth tied up in assets, you can use a mortgage that’s based on assets instead of income. As a specialised form of lending, an asset-based mortgage – which is also known as a securities-backed mortgage – uses your liquid assets as security rather than using income as the basis of your affordability.

For example, if you have assets with a market value of £10 million and the lender agrees to a 50% LTV, you can secure an asset-based mortgage for £5 million. This maximises your borrowing potential and means that you can keep your assets intact to benefit from future appreciation.

There are many advantages to taking out an asset-backed mortgage but there are also various considerations, as with any loan. These include:

The types of assets you use as collateral

Very liquid assets, such as cash and bullion, are favoured by lenders over volatile assets, such as stocks and shares. Whilst the latter is generally accepted by lenders, not all types of assets qualify for use. Private equity positions, for example, are rarely accepted by lenders. Therefore, it’s important to check with your specialist mortgage broker first to ensure that your assets are suitable for use as collateral. Lenders also favour diverse portfolios over those that lean towards one particular type of asset.

Market volatility

The values of assets can go up as well as down. This is especially the case with stocks and shares. Be aware that when using these as security for your loan, the lender may issue a margin call if their value drops below a certain level. In this case, you may need to provide additional assets as security or repay some of the mortgage loan.

Using all of your assets as security

You may not wish to secure the mortgage loan against all of your assets. In this case, a combined income and assets arrangement with a high net worth mortgage may be a better option for you.

Higher costs

Whilst you can usually benefit from a lower interest rate with this type of mortgage, other costs can be higher. As a tailored product, you may have to pay a higher arrangement fee as well as higher valuation fees and legal costs.

Risk to your assets

If you default on the mortgage, you risk losing your assets. As they are collateral for the loan, the lender has the right to seize and sell them. This is often done at a lower price than can be achieved on the open market. If the sale proceeds don’t cover the outstanding loan amount, you are still liable to pay the shortfall. You also have to cover any legal costs incurred by the lender.

Lenders vary in their eligibility criteria for asset-backed mortgages as this type of loan is offered on a bespoke basis. Whilst each case is assessed individually, some general requirements usually apply. These include:

• A minimum portfolio value. Your portfolio must usually have a minimum value of £100,000, although some lenders may require a much higher value.
• A deposit. You need to pay the minimum deposit amount required by the lender. This is usually between 5% and 10% when you have low-risk assets, such as cash and bullion. More volatile assets, such as stocks and shares, increase the lender’s risk and, therefore, command a higher deposit. This tends to be between 25% and 50%.
• A certificate of high net worth. Some lenders ask for a certificate that confirms your status as a high net worth individual. You’re classed as having a high net worth if you have at least £3 million in net assets or an annual net income of at least £300,000.

Asset-based mortgages are beneficial for a number of reasons. The main advantage is that you can still arrange a mortgage if you’re asset-rich but income-poor. This arrangement allows you to use your assets as security for the mortgage rather than using the property you’re buying, as would be the case with a standard residential mortgage.

Even better, you don’t need to sell those assets to raise the capital you need. Instead, you retain them and use them as collateral for the loan. This enables you to benefit from their long-term growth and also saves you from having to pay any potential capital gains tax.

Having significant assets enables you to secure a higher loan amount than would be possible with an income-based mortgage. The manual underwriting process used for this specialist lending is more efficient than for a standard high net worth mortgage. This means that it’s faster to arrange so you can get quicker access to the capital you need.

The ability to secure a loan despite having a limited or irregular income means that you don’t have to worry about missing any investment opportunities. As well as that, the interest rate payable is usually lower than a standard high net worth mortgage. This makes it a more cost-effective option. Another huge advantage is that because your case is assessed on an individual basis, you have a funding solution that is carefully tailored to your financial needs and situation.

There are some limitations that you need to be aware of before taking out an asset-based mortgage. One of these is the loan-to-value (LTV) ratio offered by the lender. This is the percentage of your assets’ total market value that they’re prepared to offer you as a loan. As your assets are used as security and these can go up or down in value over time, lenders have to set a realistic LTV that allows for changes in value without risking a loss. Bear in mind that if the value of your assets falls below the outstanding balance of your loan, it still has to be repaid.

In some cases, where volatile assets like stocks and shares are used, lenders will impose a margin call if the value of those assets drops below a certain level. Should this happen, you’ll have to either provide other assets to use as security for the loan or repay some of the loan. If you’re unable to do this, you risk the lender liquidating your assets.

Some lenders set limitations on the types of assets you can use. For example, if your portfolio has a concentration of a particular asset, the lender may be more conservative in the loan they offer you. Some assets, such as private equity holdings, may be refused altogether.

Our specialist mortgage brokers will go through all of these details with you to ensure that you’re fully aware of what an asset-based mortgage entails.

There are many reasons to choose an asset-based mortgage instead of a standard mortgage. As an asset-rich but income-poor borrower, it enables you to unlock a high-value loan using your assets rather than having to rely on a traditional salary-based underwriting process.

There’s no need to liquidate your assets to qualify for a loan. This allows you to leverage your portfolio as collateral while retaining your assets to benefit from potential future returns. This, in turn, avoids triggering potential charges for capital gains tax.

The amount you can borrow is calculated as a percentage of the market value of your assets. This means that you can usually borrow a higher amount than you could with a standard high net worth mortgage. At the same time, you can usually benefit from a lower interest rate than for that type of mortgage.

The underwriting process is faster than that for a standard high net worth mortgage as it focuses on your securities portfolio rather than a complex income structure. This gives you quicker access to the funds you need. It’s also more flexible, with terms that are specifically tailored to your cash-flow situation.

As a niche mortgage product, asset-based mortgages are offered by specialist lenders and private banks. They have the flexibility to meet your needs as a high net worth individual, offering a bespoke mortgage solution that is specifically tailored to your situation. This is achieved with a manual underwriting process that isn’t constrained in the way that mainstream lenders are restricted by their underwriting processes. These lenders assess each case on an individual basis. They can approve higher loan amounts and you can benefit from a tailored interest rate and terms.

Lenders offering asset-based mortgages tend to do so exclusively through brokers. As specialist brokers, we have formed good relationships with a wide range of lenders offering this type of mortgage. This puts us in an advantageous position to negotiate the terms and rates they offer you.

One of the risks associated with an asset-based mortgage loan is what happens if the assets drop in value. Should the value drop significantly, the lender is likely to issue a margin call. This means that you will then have to provide additional assets or repay some of the loan to bring the loan-to-value (LTV) ratio back up to the required level.

Lenders take market fluctuations into account when agreeing to an LTV so there will already be a slight buffer to mitigate their risk. If a margin call takes place, however, and you’re unable to address the shortfall, the lender may have to sell some or all of the assets you’ve provided as security.

One of the main risks of an asset-based mortgage is market volatility. Whilst lenders include a buffer when setting their loan-to-value (LTV) ratio, there’s always a risk that your portfolio can suddenly drop in value. A significant drop can lead to a margin call. In this instance, you’ll be required to either provide more assets as security or repay some of the loan. If you’re unable to do this, the lender has the right to liquidate your assets.

Another risk is the difference in pricing between lenders. Each application for this type of mortgage is assessed on an individual basis, with the loan amount, terms and interest rate tailored to meet your specific needs and the lender’s requirements. Our specialist mortgage brokers will negotiate the mortgage terms and rate on your behalf to help ensure you secure the most suitable deal.

There’s also a risk that the concentration of your assets may be too heavily weighted in one sector. If this is the case, the lender may reject them or offer a lower loan amount than you had hoped for. If you have a concentrated asset of stocks and shares, you’re at greater risk of being exposed to a margin call. Should you default on the mortgage and the lender has to seize a concentrated asset, you stand to lose a significant amount of liquidity. It’s best to provide a diverse portfolio of assets, if possible, helping to reduce the risk for both you and the lender.

Specialist mortgage brokers, like Trinity Finance, give you access to lenders offering asset-based mortgages. These are specialist lenders and private banks who almost exclusively offer this niche type of mortgage through brokers. They allow you to leverage your assets as collateral for the loan instead of basing your affordability on income. This is ideal for you as a high net worth individual with low income or a complex income structure. Without the need to liquidate your assets, you can retain your portfolio and continue growing your wealth with potential future returns.

A mortgage broker can find the lenders most suited to handling your case. As a high net worth individual, you are likely to have a complex scenario and a broker can help you navigate the complexities, saving you time, stress and potentially a lot of money. They understand how your portfolio will be assessed as well as your need to protect it while gaining the flexibility and liquidity you need. Using their knowledge and expertise, a mortgage broker will negotiate on your behalf to try and secure a higher loan-to-value (LTV) ratio, better terms and a more competitive interest rate for you.

Another aspect of obtaining a mortgage as a high net worth individual is the level of privacy and confidentiality you can expect. We work with specialist lenders and private banks who offer a higher degree of privacy than may be offered by those who work directly with the public.

Our experts can help you secure a bespoke mortgage solution

As specialist mortgage brokers, we can help unlock the possibilities available to you, no matter how complex your circumstances. Whether you have a non-standard income, you don’t wish to tie up your business capital in property, you’re already retired or you’re an international buyer, we can find a tailored solution for your financial situation and mortgage goals as a high net worth individual.