High value finance available for purchasing property – how should I structure my loan?
23 June 2022
In the search for high value property finance, there are multiple ways you can structure your facility. Whether you are considering a capital repayment or interest only mortgage, a loan with or without assets under management, or securities-backed lending, we outline below what you can expect from each facility.
High loan to value mortgages
An increasingly attractive proposition for private clients is a high loan to value (LTV) mortgage whereby liquid funds can be persevered within your wealth portfolio.
By utilising a smaller deposit, high-net-worth individuals are borrowing a greater percentage of the property’s value as a loan, on an interest only or capital repayment basis. In contrast to the rigid eligibility criteria of mainstream lenders and high street banks, the private banks and alternative lenders we can access adopt a holistic view of your financial profile, considering assets and wealth to assess affordability. With a healthy financial portfolio, confidence is then in place for lending.
Often private clients will have alternative methods to repay the loan. For example, an impending asset sale or bonus income. As a result, a higher loan to value interest only loan is often seen as an appealing proposition, often set up on an interest only basis, lowering initial monthly payments, with lenders understanding that these alternative repayment methods will be used to pay down the loan.
Loans with or without assets under management (AUM)
Traditionally, high net worth individuals looking to secure a large property finance loan with a private bank are requested to place AUM as security. However, as the market has become saturated and more competitive, many lenders now offer large mortgages without AUMs – basing applications on the client’s overall profile and not just the deal in question or with a set aim to secure AUM.
A mortgage without AUM, also known as dry lending, is when existing assets are not required to be transferred to the bank in order to secure a mortgage. Instead, the private bank assesses each client’s affordability by taking their wider wealth, income and asset profile into account – no matter where the assets are held.
Securities-backed lending is a facility whereby securities are used as collateral, rather than other types of assets.
When purchasing property, securities-backed lending can often be appealing for HNWIs because underwriting can, in some cases, be limited to the collateral used as security for the loan. With this flexibility, it can be an efficient underwriting process that makes securities-backed lending a popular choice when arranging property finance. Liquidity can be created quickly and relatively easily.
When exploring facilities for HNW mortgages, getting advice from experts who are well-versed in sourcing finance for complex situations is vital in ensuring clients make the right decision. The experience and knowledge that an adviser can provide is invaluable.
With thanks to Anthony Rose, Co-Chief Executive Officer at LDNfinance, who co-authored the article alongside the Lewis Silkin team.