We are seeing more and more of this in recent years. At Enness, we believe that the trend of using personal assets in addition to income will continue as the city regulator’s Mortgage Market Review (MMR) of 2018 tighten up regulation in the aim to control affordability assessments and restrict what certain lenders and therefore borrowers can do.
Many clients approach us who are asset rich but have a modest income. They come to us because conventional banks have simply declined their application.
The first question to ask is why one would need to use personal assets? The answer is straightforward: because the income does not wholly support the mortgage amount required. Income will always be vital even to any mortgage application. However, there is a difference between affordability based on income and the overall creditworthiness of an application.
For example, if you are looking for a £500,000 mortgage on a property valued at £3,000,000 and have other assets in the background, the risk to the bank is negligible. One could even argue it’s less risky than an application that relies solely on income where the client has no (or little) equity in the property and no savings to fall back on.
With the context explained, see below how we can boost the mortgage available to you using your assets, not just your income. They can be divided into four broad categories.
Probably the most commonly used and widely known. However, it’s still worth mentioning as some clients of mine often don’t consider it. If you have one or more investment properties, you may be able to draw equity from them. In this case, your earned income isn’t important. Instead, it’s the rental income – or in some cases the rental market value – that will determine what you can take.
Stocks & Shares / Pension Funds
This is an attractive option for those who have significant investment holdings and would like to put them to use without cashing them in. This solution will involve a private bank assessing your portfolio – specifically what types of investment you have – and then offering a percentage of the total value back to you in the form of a loan.
Typical loan to values are 50%-60% and the rate will usually be linked to LIBOR (London Interbank Offered Rate). My clients are often amazed by how low the rate often can be on this type of lending. This is a significantly under-utilised area of lending and one where Enness has numerous contacts.
This works in just the same way as stocks & shares. The only difference is that private lenders will often lend a higher percentage of up to 75%-80% of the holding because cash is very stable and therefore lower risk to the lender.
Fine Art / Jewellery
Perhaps the least common, but the principle is exactly the same as lending against any other asset. The lender will consult an expert in the relevant field for a valuation and offer an amount to be secured against it.
Enness has an extremely high rate of securing our clients’ desired lending solutions despite obstacles imposed by the MMR.
We hope that this has demonstrated how it is possible to put your total net worth to good use if you need finance, even if your income is relatively modest. Some of our clients will use more than one of the asset types. In fact, some clients will use all four to secure the lending they need.