As a high net worth individual, you’re likely to have significant assets but your income may be minimal or have a very complex structure. Being asset-rich but income-poor can make it more challenging to arrange a mortgage. However, there’s a type of high-value lending that offers a solution, called an asset-based mortgage.
What is an asset-based mortgage?
You may have considered liquidating some of your assets to raise the funds you need but an asset-based mortgage enables you to utilise them as security instead. This saves you time and stress but also potentially saves a lot of money in the future. Specifically catering to high net worth individuals, a lender uses your liquid assets as security for the loan instead of the property the loan is for.
What types of assets can be used?
Liquid assets are usually used as security for asset-based mortgages, such as:
- Stocks, shares and bonds
- Cash, bullion, jewellery and gems
- Life insurance policies
- Art collections
- Collectible cars
- Luxury yachts
- Private aircraft
This type of mortgage is assessed on a case-by-case basis. As such, lenders will consider any assets that meet the value needed. The level of risk posed by the assets will determine the deal you’re offered.
For example, whilst stocks and shares offer a potential high return, they are volatile assets, posing more of a risk to the lender. This means that you’ll probably be offered a much lower loan-to-value (LTV) ratio than you would for low-risk assets, such as cash and bullion.
The eligibility criteria for an asset-based mortgage
With this bespoke form of lending, also known as a securities-backed mortgage, the eligibility criteria are different for each lender. Applications are assessed on an individual basis but there are some general requirements that usually need to be met.
- Your portfolio value. Lenders don’t need to check your income as they would for a standard high net worth mortgage. They do, however, require that your portfolio has a minimum value, which is typically £100,000.
- A certificate of high net worth. You may be asked to provide a certificate of high net worth to prove that you meet the criteria as defined by the Financial Conduct Authority (FCA). This stipulates that you either have an annual net income of at least £300,000 or net assets of at least £3 million.
- Your deposit. The amount of deposit you need to pay depends on the lender’s requirements and how much risk your assets pose for them. For example, stocks and shares are more volatile assets that have a higher level of risk for the lender. Using these assets, a bigger deposit is more than likely going to be required, such as 25% to 50%. Cash and bullion, on the other hand, are low-risk assets. For these assets, a smaller deposit of 5% to 10% should be suitable.
Should you choose an asset-based mortgage?
When you’re asset-rich but income-poor, you may struggle to arrange a standard high net worth mortgage. In this case, an asset-based mortgage is a more suitable option. It’s also faster to arrange than a standard high net worth mortgage as the underwriting process is more efficient. The interest rate charged is usually lower too, which makes this a more cost-effective form of borrowing. As you don’t need to liquidate your assets, you can still benefit from any potential returns on them in the future.
However, if your income enables you to secure a standard high net worth mortgage, you may prefer that option. This is especially the case if you don’t want to use your liquid assets as security. Alternatively, you may prefer a combination of these options, using both your income and your assets for your mortgage arrangement.
Benefit from a bespoke funding solution
Our mortgage brokers are here to discuss your circumstances and help you decide whether an asset-based mortgage is right for you. Just give us a call on 01322 907 000 when you’re ready. This niche mortgage is usually only offered by lenders via brokers and, as we work closely with specialist lenders and private banks, you can rest assured that we’ll find the best deal for you.
Your application will be tailored and presented to the lender most suited to handling it. As this will be on an individual basis, you’ll benefit from a funding solution that’s custom-made to meet your needs and circumstances.