High net worth mortgages: Why do wealthy investors take out mortgages, instead of buying with cash?

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People are often confused as to why wealthy clients chooses to take out high net worth mortgages to buy property, when they could afford to purchase it outright in cash.

There are many reasons wealthy buyers would choose a mortgage; the main reason being that they prefer to protect their liquidity, keeping it available for other investments. However, there are a number of other factors at play, including record low interest rates, and the illiquidity of trophy assets in the current market, for example.

Protecting liquidity

Wealthy investors prefer to be as liquid as possible, so tying up a large sum of cash in one asset is a risk. By not having all their cash held in one property, high net worth individuals are free to invest in a variety of other diversified assets – for example stocks and shares – which often have higher yields accessible much more immediately. Investing in multiple assets gives them myriad opportunity for return.

Record low interest rates

Interest rates are at an historic low, with little sign of this changing, so it’s an ideal time to take out property finance. High net worth clients tend to opt for interest only loans, as the appreciating value of the property is likely to outweigh the interest charges, with the sale of the property providing security on the loan.

Illiquidity of trophy assets

Now more than ever, trophy assets – particularly those in Prime Central London – are not appreciating at the value they once were. So, while they are not depreciating, purchasing one with cash might not necessarily pay off in the long run. Therefore, investors tend to hold on to them for the long term, seeing them as a safe store of value, so paying off the interest on a mortgage will be negated by the appreciation felt over a long period of time.

So, high net worth mortgages may seem like an odd concept, but it makes perfect financial sense. As the leading specialist high net worth mortgage broker, we have a wealth of experience in making sure our clients’ assets are protected and the property purchase is structured in a way that lets them maintain their liquidity for other investments.

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