If you are a high-net-worth individual, you are likely looking for flexibility and speed when it comes to borrowing. You may also want to access capital quickly without undertaking a lengthy application process with a lender.
Mortgage Reserve Accounts give borrowers the ability to release equity from their home either drawing down capital in a lump sum or in increments whenever needed. Repayments are also flexible in terms of when borrowers pay back the outstanding balance.
Here are the main benefits of how Mortgage Reserve Accounts can be used.
What is a Mortgage Reserve Account?
A Mortgage Reserve Account lets you release equity from your property, but it’s slightly different from a “conventional” equity release loan. Equity release lending usually sees you receive a lump sum from your lender, which is helpful if you need to finance a specific goal like renovating or enlarging your home.
The Mortgage Reserve Account is slightly different in that you borrow against the equity in your home. You could still access the available funds as a lump sum if you wanted to, but you are free to do so whenever suits you and you can either take all or some of the available amount.
Your lender will make the agreed amount available to you in a mortgage reserve account (usually as a % of the value of your property) that you can withdraw as and when you need. While there are fees associated with this type of finance, lenders will only charge interest on what you drawdown rather than on the amount that is in the reserve account. Rates vary from lender to lender, but lenders usually offer reserve mortgages on an interest-only basis. You will usually be able to repay anything you have borrowed at any time, but you will need to plan and document how you repay any outstanding balance at term.
How much can I borrow?
How much you can borrow will depend on your financial background and plans. These loans used to be more common but are no longer mainstream. Today, lenders usually only offer Mortgage Reserve Accounts to high-net-worth individuals. Many are willing to provide these facilities for high-value properties in the £3 million-plus range. LTVs vary from lender to lender but start at around 60%, so it is possible to have access to £1 million-plus in a mortgage reserve account. High LTVs can be possible in some cases, but will depend on your background, aims and how you plan to repay the loan.
Key benefits
The key benefit of a mortgage reserve facility is the flexibility it will offer you as a borrower. You can access liquidity at any time during the pre-agreed period and borrow as much or as little of the facility as you need. Mortgage reserve facilities are often (loosely) compared to approved overdrafts for this reason. It should be noted that some lenders may stipulate minimum amounts you can withdraw at any one time.
You could also use this type of finance as a way to be able to access liquidity quickly without going through another lengthy loan approval process. You could either have fixed plans for what you would like to use the facility for, or you may simply want the ability to drawdown funds in case you would need to. Here, lenders will be looking very carefully at exit and affordability – it will be an option if you are a wealthy individual who can document you have assets and wealth that supports this kind of loan.
You can make repayments flexibly, and some lenders will offer a revolving facility allowing you to repay capital and use the facility again as required. Whether or not you have a revolving facility, if you wanted to pay off the full reserve amount without incurring fees, you would also be able to do so.
Lenders and rates
Mainstream lenders used to offer this type of finance more readily, but today it is a relatively niche product, predominantly provided by private banks to high-net-worth borrowers. If you want to benefit from this type of finance, you will need to prove to lenders that you have a suitable profile and can easily make repayments (either in increments or a lump sum). Future liquidity events, generous income that will allow you to make monthly repayments or save enough to settle a potential balance, planned disposal of assets to repay the balance or raising capital via other viable means will all be acceptable to lenders.
- LTV starts at around 60%. Higher LTVs are possible, subject to lender appetite and dependent on your profile, net worth and plans
- Lenders offer both fixed and variable rates – your plans, when you might borrow and how long you will potentially borrow for are likely to determine which are most advantageous for you. Planning carefully here will be imperative
- Annual fees are usually applicable for these facilities, regardless of whether you have drawn down funds or not. They are either due as a percentage of the reserve amount or as a fixed price, sometimes both will be applicable
- Revolving facilities are an option but are more costly in terms of rate. Lenders that offer revolving facilities usually offer lower LTV
Contact Enness
If you are interested in learning more about Mortgage Reserve Accounts, get in touch. Enness will be able to answer any questions you have, give you more information about lenders, rates and how much you may be able to borrow.
