Investment-Backed Loans Explained
When you think of a mortgage, you probably imagine it being secured against a property. That’s the standard route most borrowers take. However, if you hold significant investments, you might be wondering whether it’s possible to use them to secure a loan instead of tying everything to bricks and mortar. The answer is yes, with a large enough portfolio, you can potentially use certain investments as security for borrowing, often referred to as investment-backed, securities-backed lending or Lombard loans.
This type of finance is not available or suitable for everyone, but for those with large investment portfolios, it can be an efficient way of raising funds without liquidating valuable assets through specialist lenders such as private banks. As a specialist route, the right advice is essential.
What does it mean to secure a loan against investments?
A loan secured to investments is a loan where your portfolio is pledged as collateral rather than property or income alone. This means you can borrow funds while keeping your investments intact. Your portfolio continues to be managed, and you retain ownership, but part of it is used as security for the lender. These are usually only offered to HNW investors via specialist lenders such as investment banks, so only for the right investors.
Investments that can often be used include:
- Stocks and shares
- Bonds and fixed income securities
- Exchange-traded funds (ETFs)
- Managed investment accounts
- In some cases, offshore bonds
Not all types of assets are eligible. For example, highly volatile stocks or illiquid investments are less likely to be accepted. A lender will want reassurance that your assets are stable and can cover the loan if values fall.
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How does it work in practice?
The process begins with you pledging a portion of your investment portfolio as collateral. The lender then determines how much you can borrow by assessing the value and risk profile of your investments. This is usually expressed as a loan-to-value (LTV) ratio.
For example, if your investments are worth £1m and the lender is comfortable with a 50% LTV, you could potentially borrow £500,000 secured against that portfolio. The exact figure will depend on the nature of the investments and the lender’s appetite for risk.
The funds raised can then be used in different ways. Some borrowers use them to purchase property outright, others to provide a deposit for a traditional loan. They can also be useful for bridging liquidity gaps, refinancing, or even funding renovations.
One of the main advantages is speed. Unlike a traditional loan, which requires property valuations, affordability checks and legal work, investment-backed borrowing can often be arranged faster depending on legal work that may be required . That makes it appealing for time-sensitive purchases, such as securing an auction property or taking advantage of an off-market deal by using the funds from the Lombard loan.
Advantages of securing a loan to investments
There are several potential benefits if you are considering this type of finance:
- Preserve your investment strategy: Instead of selling assets, you keep your portfolio intact and continue to benefit from growth and dividends.
- Tax efficiency: Selling investments could trigger capital gains tax. Borrowing against them allows you to access funds without an immediate tax liability, although you should always take tax advice for any transaction that you are thinking about entering, to go over the finer details.
- Flexibility: The facility can be structured in ways that suit your needs, including interest-only payments.
- Speed: With no survey or conveyancing delays, finance can usually be arranged quickly.
- No reliance on income: Since the lombard loan is asset-backed, lenders may not rely on credit scores or income affordability in the same way as mainstream loans.
For high-value property purchases or refinancing, these features can make investment-backed lending an attractive solution for the right HNW investors.
Risks and considerations you need to be aware of
While the benefits are appealing, there are also important risks and considerations to take into account.
Market volatility is one of the biggest factors. If the value of your investments falls below a certain threshold, the lender may issue a margin call. That means you could be asked to provide additional collateral or repay part of the loan at short notice.
Interest costs also need to be planned for carefully. Many facilities are structured on an interest-only basis, which helps cash flow but means the capital remains outstanding. You need a clear strategy for how and when the loan will be repaid.
Not all assets are suitable. Illiquid or high-risk investments may not be accepted, and lenders will set their own criteria. The facility may also be renewable annually rather than fixed for a long term, so you must be comfortable with potential changes in terms and costs.
Because of these factors, you must approach this type of finance with a full understanding of both the opportunities and the risks.
How it compares to a traditional mortgage
A traditional mortgage is secured against the property itself, and the lender relies heavily on income and affordability assessments. By contrast, an investment-secured loan focuses on the value of your portfolio as collateral and with many transactions being unregulated, the same affordability rules do not always apply.
Traditional mortgages can often offer higher loan-to-value ratios, sometimes up to 85% of the property value. Securities-backed lending usually ranges between 50% and 75% depending on the portfolio type and stability, but the lender would need to advise.
Approval is generally faster with investment-backed lending, as it is asset-driven rather than income-driven. This makes it especially useful for individuals with complex income streams or international assets who might not fit standard affordability models.
However, traditional mortgages can provide longer terms and more predictable repayment structures. Each option has its place, and the right one for you will depend on your financial position, objectives and appetite for risk.
Who might benefit from securing a loan to investments?
This type of borrowing is not for everyone, but it can be valuable for:
- High and ultra-high net worth individuals looking to fund property purchases without disrupting investments
- Business owners or entrepreneurs who prefer to keep capital in their businesses while using investments for security
- Investors with highly appreciated portfolios who wish to avoid triggering capital gains tax
- International buyers who may not meet traditional affordability criteria but have significant investment assets
- Property developers seeking short-term liquidity to secure opportunities
If you fall into one of these categories, securing a loan to investments may be worth exploring.
Conclusion
So, can you get a large loan secured to investments? Yes, it is possible, and for the right HNW individual it can be a smart move, flexible and tax-efficient solution.
By pledging your portfolio as collateral, you may be able to raise substantial funds quickly without having to sell valuable assets. However, it is not without risk, and careful planning is essential. At Kerr & Watson, we work alongside some specialist banks that can consider asset backed lending such as Lombard loans, for the right HNW investors. If you would like to explore this further, please contact us.
