A bank indicates that a client can borrow against their investment portfolio. The amount appears sufficient for the property purchase. Before the client relies on that facility, the next conversation should establish exactly what the lender is offering and what it will require throughout the borrowing period.
Portfolio-backed borrowing, often called Lombard or securities-backed lending, uses eligible investments as collateral. It may provide funds without an immediate investment disposal. It also creates a debt whose terms can place continuing obligations on the borrower and the pledged assets.
Through our wealth manager and financial adviser partnerships, Willow helps establish the finance options and explain the lending conditions. The client’s existing adviser retains responsibility for investment strategy and any advice on retaining, transferring or selling investments.
This article is part of our Investments, Liquidity & Borrowing Guides for IFAs and Wealth Managers. The seven questions below concern the lending assessment. They support discussion between the relevant professionals; they do not replace the assessments required within each adviser’s remit.
1. What Is the Facility Funding, and for How Long?
Begin with the actual transaction: the amount required, intended use, completion date and expected borrowing period. A short gap before a known receipt presents a different lending requirement from a property purchase that may need funding for many years.
Confirm that the lender permits the proposed use. The availability of portfolio-backed credit does not establish that every property-related purpose is acceptable.
For example, Coutts’ published investment-backed lending information currently excludes residential property renovation or improvements. That is a condition of its particular offering, rather than a restriction that should be assumed to apply to every lender. See the published product information.
The net amount available also matters. Establish whether the proposed limit covers the full funding requirement and whether fees, retained amounts or other conditions reduce what can actually be drawn.
The Answer to Obtain
Confirmation that the intended transaction is permitted, the required net funds can be made available and the proposed duration fits the lender’s facility.
2. What Will the Lender Accept as Security?
The total value shown on a portfolio statement is not necessarily the value against which a lender will advance money. The lender assesses which holdings it accepts and assigns lending values to those assets.
Different holdings may support different borrowing amounts. Currency, liquidity, concentration and the nature of the assets can affect the assessment. A headline percentage discussed before the holdings are reviewed should therefore be treated as an indication rather than confirmed borrowing capacity.
Establish who owns the assets, whether they are already pledged, where they are held and whether the proposed account or ownership structure is acceptable. Assets belonging to a company, trust or another family member cannot simply be treated as the borrower’s personal collateral.
UBS’s published Lombard explanation describes asset-dependent lending values and their ongoing review. Its specific product terms relate to a Swiss offering, but the explanation illustrates why the collateral assessment must be obtained from the proposed lender. Read the explanation of lending values.
The Answer to Obtain
A lender assessment identifying the accepted collateral, the lending value applied, any exclusions and the resulting facility limit.
3. What Could Trigger a Collateral Call, and How Would the Client Respond?
This question concerns the operation of the loan. It requires more than an acknowledgement that investment values can fall.
Ask what happens if market values decline, a holding becomes ineligible, the lender reduces an advance percentage or currency movements affect the security position. Establish the relevant thresholds, any warning process, the required response and the lender’s rights if the shortfall is not corrected.
Coutts expressly identifies both insufficient security and certain currency movements as possible causes of a margin call. Its information notes that a shortfall may need to be addressed at short notice. Read the lender’s risk explanation.
The practical follow-up is where the required cash or additional acceptable collateral would come from. An asset that is already pledged, cannot be accessed promptly or requires another lender’s approval may not provide a dependable response.
If the property purchase has absorbed the available cash, the fact that the client owns a valuable property does not mean they can raise money against it within a short collateral-call period. A future mortgage application still requires assessment and completion.
Interest payments can be up to date while the facility still requires additional collateral or a reduction in borrowing.
Willow can establish the facility’s requirements and explain the funding implications. The wealth manager assesses the consequences for the investment portfolio, while legal advisers address interpretation of the security documents where needed.
The Answer to Obtain
The contractual triggers, notice and response arrangements, together with a clear understanding of which resources could meet a shortfall within the time available.
4. How Will Interest and the Full Borrowing Costs Be Paid?
Obtain the interest benchmark and margin, payment frequency, upfront charges, ongoing fees and any costs of repayment or renewal. Where a facility requires particular custody or banking arrangements, any additional charges should also be visible.
The payment source needs to be identified. Salary, rental income, business distributions, cash reserves and investment income may be treated differently by the lender. We can establish what evidence the proposed lender requires and how it assesses the borrower’s position.
If the rate can change, the lender should explain the mechanism. A quotation at today’s rate is not a promise that the payment remains unchanged throughout the borrowing period.
Where interest is added to the borrowing, confirm how this affects the balance and available facility headroom. Deferring a cash payment does not remove the interest liability.
Willow’s contribution is the borrowing schedule and the relevant lending assessment. Expected portfolio growth should not be presented as an assured source of interest payments.
The Answer to Obtain
A clear schedule of rates, fees and payment dates, an identified payment source, and an explanation of how variable rates or capitalised interest could change the commitment.
5. When Can Repayment Be Required, and What Is the Exit?
“Flexible” borrowing can describe several different arrangements. Establish whether the proposal is an overdraft, a committed term loan or another type of facility.
Ask about the contractual maturity, review dates, renewal process, cancellation rights and circumstances allowing the lender to demand repayment or reduce the limit. A fixed interest-rate period does not by itself guarantee continued access to the facility.
Next, identify how the remaining debt is intended to be repaid. If the plan relies on a property sale, business receipt or future mortgage, the expected timing and dependencies should be made explicit.
Where the proposed exit is a mortgage, Willow can investigate that route before the client commits to the initial borrowing. Property suitability, ownership, income, existing debt and the proposed use of funds may affect the eventual mortgage assessment. An expectation that the bank will lend later is not a mortgage offer.
If repayment instead involves selling investments, that decision and its implications belong with the client’s investment adviser and, where relevant, tax adviser. Willow can clarify the debt amount, timing and repayment conditions they need to consider.
The Answer to Obtain
The circumstances in which repayment can be required, the intended repayment source and the consequences if that source is delayed or insufficient.
6. What Restrictions Come With Pledging the Portfolio?
Assets can remain invested while being subject to lender controls. The existing wealth manager needs to know which activities require consent or could alter the borrowing capacity.
The arrangements may affect custody, withdrawals, trading, substitutions of collateral or the movement of assets between accounts. Requirements vary, so the actual lender and custody documentation should determine the answer.
Points to Clarify
- Must assets move to the lender or an approved custodian?
- Can the existing manager continue managing the portfolio?
- What happens when a holding is sold or replaced?
- Can cash or investment income be withdrawn freely?
- Does the security cover only this facility or other liabilities too?
- Who receives lender notices, and who is authorised to act?
These questions should be settled before the client assumes their existing arrangements will continue unchanged. They also help prevent a gap in responsibility after drawdown: the parties should know who receives collateral notices and how those notices reach the borrower promptly.
Willow can clarify the lending requirements. Advice on changing the portfolio, manager or investment arrangements remains with the client’s appointed investment adviser.
The Answer to Obtain
The account and custody requirements, restrictions on the pledged assets, scope of security and agreed communication arrangements throughout the facility.
7. Which Other Funding Routes Are Credible for This Transaction?
Where a client is purchasing property, a mortgage may provide another way to raise funds without an immediate investment disposal. If suitable property is already owned, refinancing or additional property-backed borrowing may also be worth investigating.
The existence of an investment portfolio should not determine the security choice before those alternatives have been tested. Equally, a mortgage is not automatically available or preferable. The borrower, property, affordability, timing and lender criteria determine whether it is a credible option.
Willow can compare relevant lending structures by their net proceeds, total costs, payment commitments, security, repayment flexibility and expected delivery. The wealth manager can then consider the investment implications of the available options within their own advice.
A property deadline makes this comparison more valuable when started early. A portfolio-backed facility may be quick to access where the necessary approvals and security arrangements are already in place. A new facility can still require onboarding, collateral assessment and documentation before any funds are released.
The client therefore needs a realistic view of which route can complete, rather than an assumption based on a product’s name or an initial indication of credit.
The Answer to Obtain
A comparison of the finance routes that can realistically meet the requirement, with the reasons for accepting or rejecting each route made clear.
Bring the Answers Together Before the Client Relies on the Facility
An initial conversation may produce indicative figures and conditional answers. As the application progresses, those should be checked against the lender’s formal terms and outstanding conditions.
If a material answer remains unclear—particularly the permitted use, collateral-call process or repayment provisions—it needs clarification before the client treats the funding as settled.
The seven questions do not create a universal suitability test. Their purpose is to establish the lending facts that the relevant professionals need. Advice and recommendations must remain within each firm’s permissions and agreed role.
When to Involve Willow
A conversation with Willow can be useful before a client pledges investments to fund property, particularly where a bank has proposed a facility and the adviser wants to understand the property-finance alternatives.
We can begin with an anonymous outline covering the property objective, approximate value, amount required, timing, broad income position and intended repayment source. If a proposal already exists, a high-level summary of its structure and the principal concern can help frame the initial discussion.
From there, Willow can assess the credible lending routes, establish what further information is needed and manage the finance process where instructed. With client consent, we can coordinate with the existing wealth manager and other advisers.
The Lending Assessment
Finance options, lender criteria, borrowing costs, security, repayment requirements and the practical process of arranging the facility.
The Investment Assessment
Investment strategy and advice on retaining, transferring or selling investments, within the adviser’s permissions and agreed relationship with the client.
Have a Portfolio-Backed Property Funding Proposal to Discuss?
Bring Willow the borrowing requirement and the question that needs resolving. We can investigate the lending options and explain the conditions attached to them.
Frequently Asked Questions
General lending considerations for professional discussion. Actual requirements depend on the lender, borrower and facility.
Does a Large Portfolio Guarantee Access to Borrowing?
No. The lender must accept the borrower, intended use and proposed collateral. Borrowing capacity depends on eligible holdings, the lending values applied, existing commitments and the lender’s credit assessment.
Can a Margin Call Arise When Interest Payments Are Up to Date?
Yes. A collateral shortfall can arise because investment values fall, lending values change or currency movements affect the facility. Keeping up with interest does not remove the obligation to maintain sufficient security.
Does a Fixed Interest Rate Guarantee the Facility Will Remain Available?
No. The interest-rate period and the conditions governing availability are separate matters. Check the contractual term, review rights, collateral requirements and any provisions allowing early repayment to be demanded.
Should a Property Mortgage Be Considered Before Pledging Investments?
Where property is being purchased or suitable property security already exists, it can be useful to establish whether a mortgage is a credible alternative. Availability depends on the borrower, property, affordability and lender criteria.
Can Willow Assess the Lending Without Taking Over the Investment Advice?
Yes. Willow assesses finance options and explains lending costs, security, repayment requirements and delivery. Investment strategy and decisions about retaining, transferring or selling investments remain with the client and their appointed investment adviser.