For high-net-worth (HNW) individuals seeking to purchase property in the UK, traditional mortgage options may not always be the most efficient or accessible form of financing. Instead, securities-backed lending offers a flexible and strategic way to secure funding for high-value properties without liquidating valuable investments.
In this guide, LDN Finance explores how HNW individuals can use securities-backed lending to secure a mortgage, exploring its benefits, key considerations, and how it compares to traditional mortgage lending.
What is Securities-Backed Lending?
Securities-backed lending allows individuals to borrow against their investment portfolio, including stocks, bonds, mutual funds, and other liquid financial assets, without having to sell them. This type of financing enables borrowers to access liquidity easily, whilst maintaining their investment strategy and avoiding potential capital gains tax from selling assets.
For HNW individuals purchasing high-value properties, securities-backed lending can be used as security for mortgage finance, or as a deposit, offering HNWIs a flexible alternative to traditional mortgage borrowing.
How Securities-Backed Lending works for HNW mortgages
In order to obtain securities-back lending, it’s important to understand how it works.
- Pledging Investments as Collateral
When choosing to used securities-backed lending as a method for property finance, borrowers pledge a portion of their investment portfolio as security for the loan. Eligible assets may include stocks, bonds, exchange-traded funds (ETFs), and managed investment accounts.
- Determining Loan-to-Value (LTV) Ratios
Next, lenders will need to determine the LTV ratio they are comfortable with. They’ll assess the value and volatility of the pledged securities to determine the loan amount. LTV ratios typically range from 50% to 75%, depending on asset type and risk profile but more stable assets can secure higher LTV ratios than volatile equities.
- Receiving Funds for Property Purchase
The HNW borrower can use the loan proceeds to fund a property purchase outright or as a deposit for a mortgage. Since securities-backed loans are often structured as interest-only, they can aid cash flow efficiency for HNWIs.
- Ongoing Asset Management
One significant benefit of securities-backed lending is that borrowers retain ownership and the potential returns on their investment portfolio while using the loan.
It’s important to maintain regular monitoring to ensure that asset values remain sufficient to cover the loan. If the asset were to drop in value significantly, the lender may require additional collateral or partial loan repayment.
What are the benefits of using Securities-Backed Lending for mortgages?
For HNWIs considering securities-backed lending for their next mortgage, there are multiple benefits to exploring this method of lending.
Retaining investment growth potential is a significant advantage because borrowers can continue to benefit from asset appreciation and dividend income whilst accessing liquidity. This strategy is particularly advantageous when market conditions indicate strong long-term growth potential.
A HNW borrower should also consider the Capital Gains Tax benefits securities-backed lending offers, because selling investments to fund a property purchase may trigger significant capital gains tax liabilities. By using securities-backed lending, HNW individuals can preserve their investment holdings without incurring immediate tax obligations, however it’s important to speak to a tax professional as our suggestions do not constitute advice for your personal situation.
Securities-backed loans can often be arranged more quickly than traditional mortgages, as no property survey of conveyancing are required, making them ideal for fast-moving property transactions. This is particularly beneficial for buying properties at auction or securing off-market deals. In addition, since securities-backed lending is structured as an asset-backed facility, it does not rely on credit scoring or personal income assessments, making it an attractive option for individuals with complex financial structures.
Key Considerations for Mortgages Secured with Securities-Backed Lending
Whilst securities-backed lending does have its advantages when obtaining a mortgage loan, there are also some considerations to be aware of.
Market Fluctuations
If the value of pledged securities drops below a certain threshold, the lender may issue a margin call, requiring additional collateral or partial repayment. It’s therefore important for borrowers and investors to consider market volatility when using this financing strategy.
Interest Costs and Loan Terms
As securities-backed lending is structured as interest-only finance, it requires careful financial planning to ensure long-term repayment. In order to assess the options available, it’s important for borrowers to compare terms from different lenders to ensure they obtain the most cost-effective facility. With the support of a mortgage adviser, you’ll be able to coherently assess what products are available in the market, and what options are available to you.
Asset Restrictions
It’s important to note that not all types of securities are suitable for securities-backed lending. Highly volatile stocks, private equity holdings, and illiquid assets may not be accepted as collateral. Speak to a specialist mortgage adviser to see if your securities qualify.
How SBL Compares to Traditional Mortgage Lending for HNW Individuals
| Feature | Securities-Backed Lending | Traditional Mortgage |
| Collateral | Investment portfolio (stocks, bonds, ETFs) | Property itself |
| Approval Process | Faster, based on asset value | Lengthier, based on income & affordability checks |
| LTV Ratio | 50% – 75% (varies by asset class) | 60% – 85% (depends on property type) |
| Repayment Structure | Interest-only or flexible repayment | Fixed monthly repayments |
| Impact on Investment Portfolio | Allows investments to continue growing | No investment portfolio involvement |
| Credit Score Requirement | Not required | Usually required |
Who Can Benefit from Securities-Backed Lending for Property Purchases?
Securities-backed lending is particularly suitable for:
- Ultra-High-Net-Worth (UHNW) and High-Net-Worth Individuals who want to retain liquidity whilst refinancing or acquiring new property.
- Business Owners and Entrepreneurs who prefer to keep their business capital invested rather than tied up in real estate.
- Investors with highly appreciated portfolios who want to avoid capital gains tax while accessing funds.
- International Buyers who may not meet UK mortgage affordability requirements but have substantial investment assets.
- Property Developers looking for short-term liquidity to finance purchases before securing long-term financing.
Securities-backed lending: Key takeaways
Whilst there are plenty of HNW mortgage options available in the market, securities-backed lending provides a sophisticated and flexible way for HNW individuals to acquire property in the UK without liquidating their investments. By leveraging existing portfolios, HNW borrowers can maintain market exposure, benefit from investment growth, and secure competitive financing terms with the help of a specialist mortgage adviser.
However, it is crucial to carefully manage the risks, particularly in relation to market volatility and interest costs. Working with specialist lenders, wealth managers, and mortgage advisers can help clients successfully structure securities-backed lending solutions effectively, and integrate them into a broader wealth management strategy.
For HNW individuals seeking an efficient and tax-friendly way to finance property purchases, securities-backed lending is an excellent alternative to traditional mortgages, offering liquidity, flexibility, and wealth preservation.
Learn more about Securities-Backed Lending from our Private Client department here, or to speak to one of our experts and get started today.