How to use my assets in addition to my income to secure a mortgage
I wanted to write a piece on how you might go about getting a mortgage with assets because it’s something I am seeing more and more of and believe that trend will continue as the city regulator’s Mortgage Market Review (MMR) of 2014 continues to restrict what certain lenders and therefore borrowers can do.
I have numerous clients who are asset rich with a modest income that have approached me because they find a conventional bank simply can’t help. The first question to ask is why one would need to use assets, and the answer is straightforward, because the income does not support the mortgage amount required by itself. The total focus on only your income as a means of assessing the affordability will be MMR’s lasting legacy to the market.
As a broker I think income will always be very important, vital even to any mortgage application. However there is difference between affordability based on income, and the overall credit worthiness of an application. In the right circumstances my view is the former should form part of the later and not be an exclusive assessment criteria. 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, I now want to go through how I 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 about, 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. Here 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. If you’re unsure of what you might be able to take out contact me directly at email@example.com.
Stocks & Shares / Pension Funds
A good option for people with significant investment holdings who 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. My clients are often amazed how low the rate often is on this type of lending. This is a significantly under-utilised area of lending and one where I have numerous contacts. I’d love to hear from you if you have any further questions on this type of lending.
Works exactly the same as stocks & shares, the only difference is 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 an offer an amount to be secured against it.
Hopefully this has given you some hope that you can put your total net worth to good use if you need finance, even if your income is relatively modest. I would also add some of my clients will use more than one of the asset types discussed, sometimes all four to secure the lending they need. This considered alongside any income my clients have means we can nearly always secure the amount they need and overcome the barriers MMR has imposed.