Back In May 2024, The Sunday Times Richlist revealed there are 165 billionaires in the UK, whilst global news agency Reuters estimates that by the end of the year, there will be 2.5 million UK millionaires. And even though the impact of the forthcoming budget statement on these trends remains unclear, there is typically a net inflow of the wealthy to the UK.
Apart from the distinct number of zeros, how is the difference comprehensible between a millionaire and a billionaire? To give context, 1 million seconds ago, it was last week. 1 billion seconds ago, it was 1992!
These days, whether income is ten- or seven-figures, or net wealth is significant but income is low, clients continue to ringfence wealth in appreciating assets. Property, businesses, stocks, securities or investments and luxury assets are high on the list. But by tying up their wealth, they restrain their access to immediate liquidity, capital or income in comparison to the value of their overall net worth. Although a common scenario, this can pose a significant challenge when substantial funds are required to pursue opportunities.
Asset Rich Cash Poor
‘Asset-rich, cash-poor’ scenarios often arise for logical reasons. In many cases, an individual will have made a strategic decision to invest regular income or a lump sum generated through a liquidity event into appreciating assets or high-ROI projects.
Alternatively, a choice may have been made to deliberately draw down relatively little income to limit fiscal liability because there isn’t a requirement for significant income to cover your daily living expenses. The issue, however, when it comes to buying property, is that many traditional lenders tend to focus affordability criteria and calculations on income to determine how much you can borrow for a mortgage. Therefore despite an individual’s overall wealth, they may find they can’t access a high value property finance that will allow them to buy the super-prime real estate they want or that reflects their overall net worth.
As we eagerly await the looming Autumn budget announcement, the introduction of a new parliament always heralds a time of change especially following the appointment of a new government, prime minister and cabinet. With it expected to be ‘painful’ - as quoted by our current prime minister Sir Kier Starmer - we anticipate an increased demand for liquidity from our clients as we enter the final stretch of 2024. Especially as inflation is now under control and future interest rate cuts are back on the radar.
In unsettled markets, debt can be an advantageous way for clients to access capital and raise property finance to unlock opportunities. With several different options available, Enness Global are expert debt advisers and can help you explore the different types of mortgage finance available to you when your assets are significant but you have little income to draw from.
Securities-Backed Lending
Securities-backed lending isn’t always thought of as a route to property finance, but it’s a very viable solution for many high-net-worth individuals with minimal cash reserves who often have considerable wealth tied up in securities and stocks, and who choose to invest as much as possible in their investments.
In these cases, we can use your liquid assets (investment portfolios stocks, shares in privately-held businesses and pre-IPO stock) as collateral for a loan. Interest rates can, in some cases, be more competitive than comparable mortgages for the same amount if you have A-grade stocks, and this type of lending means that you don’t have to sell your securities to raise the capital you need to buy a property. Not only will this allow you to retain ownership of your stocks, but you’ll also benefit from the expected long-term appreciation in value by circumventing potential fiscal liabilities. Although of course this isn’t always guaranteed.
The loan-to-value (LTV) ratio will depend on the stocks or investments you hold. By way of example, a portfolio of very liquid stocks may see us able to negotiate a higher LTV than if we used a single line of unlisted stock as collateral for a loan.
If you have significant net worth but a low income, the benefit of these loans is that lenders will usually assess your suitability for a loan based on your securities and profile rather than your income exclusively. However, your plan to exit the loan and meet monthly repayments is critical.
Alternative Securities and Monetisation Of Liquid Assets
In some cases, we can use different types of collateral that will allow you to raise the capital you need to secure a mortgage, even if you have little income. Here, Enness Global will assess a client’s assets to identify how to get you the capital they need at the most competitive rates. Sometimes, we can arrange a loan using different asset classes as collateral. It is often very surprising what can be used in this way, but of course the common denominator is that the value has significant attributable market value.
Many high-net-worth individuals have global property portfolios, and if this is the case, we can often use these as collateral for a mortgage. We can also consider arranging a loan against luxury assets such as art, cars or jewellery, although these items are less liquid than prime property which makes them more challenging to use as security.
We also regularly work with business owners and entrepreneurs to identify which business-owned assets would allow capital to be unlocked, carefully arranging the deal to ensure it is structured properly with regards to corporate entities and ownership. This ensures there are no blurred lines between personal and business loans and liabilities, which is always beneficial.
The possibilities for using alternative securities instead of property as collateral for a loan are almost endless. Collateral in the form of cash or foreign currency reserves, bonds, gold bullion and cryptocurrency can also be arranged, and the more liquid the asset, the easier it will be for us to source an exceptional deal for you.
Cross-Collateralised Mortgages
In some cases, cross-collateralised mortgages (sometimes known as cross-charging) can also be an option.
Cross-collateralised mortgages will see a lender use one or more assets already used as collateral for a loan as security for a subsequent loan that you can use to buy a property. This means you can leverage the equity you have built up in existing assets to access finance, even if they are already security for another loan.
One of the benefits of cross-collateralised mortgages is that a client may use a ‘mix-and-match’ approach and use different asset classes, such as residential and commercial real estate, and luxury assets like cars, planes or yachts, to secure a loan to buy property.
Cross-collateralised mortgages are only offered by a few lenders and only in particular scenarios: usually, if you have a very significant net worth, if you are in a solid overall financial position, and your lender is very sure of your ability to repay the loans based on your global assets and your calibre as a borrower. As a result, they are generally only available to ultra-high-net-worth individuals with exceptional financial backgrounds. They are generally an option when you want to use debt strategically.
For example, you want to utilise equity in various existing assets to raise finance rather than sell assets, liquidate investments, or increase a ‘salary’ paid through corporate structures to access the capital you need, as opposed to being an option when you can’t afford a mortgage any other way. Another advantage is that you can use multiple assets in different jurisdictions for a single loan, which is helpful if you have multiple properties or assets in various locations globally.
Like all loans, if you can’t make repayments the individual potentially stands to lose the assets, with the first charge lenders being repaid first and second charge lenders after that. Therefore, these deals need to be brokered exceptionally carefully, and the risks and advantages weighed at length. Lenders don’t offer these mortgages as standard, often preferring introductions from brokers like Enness Global who have worldwide advisers vetting suitability for a loan for whichever country the collateral may be located. Again, we will need to provide concrete and comprehensive details of why a client is deemed to be a suitable borrower for this type of specialised high-net-worth mortgage.
High-Net-Worth Exemption Mortgages
Most lenders - especially high street banks - offer regulated mortgages as standard, which means you must meet specific affordability criteria to secure a mortgage. This is usually calculated based on your income. However, lenders (predominantly private banks) can also offer what’s known as a high-net-worth exemption mortgage. To be eligible, you’ll usually need a net worth of £3 million or more (excluding the value of your primary residence) and a net income of £300,000.
We can often broker a more significant mortgage based on your overall net worth if you meet these requirements.
Prepaid Mortgages
While HNW exemption mortgages can be an ideal solution in many instances, they aren’t ideal in all scenarios. For example, a client may not meet the requirements in terms of minimum annual income. An alternative option Enness Global can explore in this scenario is a prepaid interest mortgage.
Here, the borrower will pay some or all of the interest to the lender in advance, giving the lender more comfort and confidence in your ability to cover capital repayments. Interest is the prepaid upon completion of the property transaction, which is held by the lender for the loan term. The lender will then deduct the interest from this account (usually every month) as it’s due.
Prepaying interest means there is no requirement to prove an applicant meets the usual criteria for income in line with FCA regulations, effectively opening up a route to a higher-value mortgage and reducing what is ultimately paid every month.
However, it’s important to note that lenders will still want to ensure the borrower can cover the principal loan amount. Whilst income will need to amply covers any liabilities, including the monthly mortgage payments. Lenders will also want to see a justification for this kind of loan, as these mortgages can only be used in specific scenarios: if you have a good amount of capital available to prepay interest, but your income is expected to grow considerably over a few years, for example.
Prepaid mortgages can be ideal if you’re setting up a new business that will generate significant income over time - preferred by our career entrepreneur clients who have a track record of setting up successful business ventures - or can show a career trajectory that will see you earning considerably more in an annual salary or bonus’ within a couple of years.
For high-net-worth individuals who are asset-rich but cash-poor, financing a mortgage may present some challenges initially but when leveraged correctly, can be a strategic tool to unlock liquidity without compromising long-term wealth. By exploiting wealth tied up in valuable assets, such as property or investments, clients can access tailored mortgage solutions that fit their unique financial situation.
Whether seeking to diversify investments, fund new ventures or manage liquidity needs, Enness Global have been helping high-net-worth individuals, business owners and successful entrepreneurs secure a well-structured mortgage that offers clients the opportunity to benefit from diversifying whilst maintain a strong asset portfolio. To see how Enness Global can help you unlock wealth, contact us today.