When Borrowing May Be Preferable to Liquidating Investment Assets

The Client Situation

A client holds a £20 million diversified investment portfolio and wants to acquire a £5 million property. Paying cash is possible. Selling assets may crystallise gains, alter the portfolio and reduce liquidity available for business or family commitments. Borrowing preserves holdings but adds a large contractual obligation.

The accountant is asked, “Surely it is better to borrow at 5% if the portfolio should earn 7%?” That comparison is incomplete. The 7% is uncertain and volatile; the 5% is only part of the debt cost. Tax, custody, fees, cash interest, property costs, collateral haircuts and a market fall all affect the outcome.

The purpose of professional collaboration is not to predict markets. It is to make the client’s decision resilient if the favourable forecast does not occur.

When Borrowing May Deserve Serious Consideration

Borrowing can be strategically useful where:

• selling now would disrupt a long-term, diversified investment plan;
• the client needs short- or medium-term liquidity before a known receipt;
• the portfolio sale would create material tax or transaction costs;
• the client wants to avoid concentrating excessive wealth in one property;
• cash is needed for several opportunities, not one purchase;
• the portfolio produces reliable cash income that helps service debt;
• a low and conservative level of securities-backed leverage is available;
• a property mortgage offers stable long-term funding;
• the client maintains substantial liquid reserves after completion; and
• the borrowing has a clear repayment or review strategy.

Each reason is conditional. “Avoid tax” is not enough if interest and risk over the term exceed the tax cost. “Remain invested” is not enough if the portfolio is concentrated and could trigger a forced sale after a fall.

When Selective Liquidation May Be Stronger

Selling some investments may be preferable where:

• the portfolio is concentrated, volatile or illiquid;
• borrowing would begin near the lender’s maximum collateral level;
• the client cannot meet a margin call from other resources;
• income after a business sale or retirement is insufficient to service debt comfortably;
• the property is a permanent personal purchase with no natural debt exit;
• the client’s priority is certainty and lower fixed expenditure;
• assets can be sold with limited tax or strategic disruption;
• the mortgage or private-bank relationship imposes disproportionate costs;
• borrowing currency creates unwanted risk; or
• the client would worry about debt during market falls.

A selective sale can preserve the strongest strategic holdings while reducing leverage. The real choice is rarely “sell the entire portfolio or borrow the entire purchase price.”

Borrow Versus Sell: The Accountant’s Decision Table

Compare the Available Finance Routes

Property-backed borrowing and portfolio-backed borrowing respond differently to market movements. A mortgage lender does not normally re-margin the loan because listed investments fall. A Lombard bank can act when collateral values breach facility limits. This distinction should drive the choice of security, not just price.

Model the Complete Economics

The analysis should include:

• property price, tax and transaction costs;
• amount of personal cash available and minimum reserve;
• investments proposed for sale or collateral;
• base cost and unrealised gain by holding;
• tax and dealing cost of liquidation;
• mortgage or Lombard interest at current and stressed rates;
• arrangement, valuation, legal, custody and management fees;
• cash income from investments versus total return;
• property income where relevant;
• loan amortisation or interest-only balance;
• early repayment costs;
• currency mismatch and hedging cost;
• known future receipts and commitments; and
• net worth and liquidity after 10%, 20% and 30% market falls.

How Lombard Collateral Risk Changes the Decision

A securities-backed lender assigns different lending values to cash, bonds, funds and equities. Diversified liquid holdings may support more than a concentrated share position. Ineligible or illiquid assets may contribute nothing.

The facility has an opening loan-to-value and a maintenance threshold. If collateral falls, the client may need to add assets or cash, reduce borrowing or permit sales. A client who holds plenty of wealth but no unpledged liquidity can still be vulnerable.

Before proceeding, identify:

• portfolio value at which action is triggered;
• notice period to remedy a shortfall;
• bank rights to sell or substitute assets;
• whether withdrawals and trading are restricted;
• what happens if one large holding becomes ineligible;
• loan and collateral currencies;
• how interest is paid or capitalised;
• maximum acceptable leverage set by the client—not only the bank; and
• a backup repayment source independent of the pledged portfolio.

The investment adviser assesses whether the pledge changes portfolio suitability. Willow advises on the lending facility. The accountant models cash, tax and ownership.

Ownership Can Stop the Strategy Before Pricing Begins

Investments may be held personally, jointly, through a company, pension, trust or family investment company. The client may not be entitled to pledge or sell them for a personal property purchase.

Confirm the legal owner, beneficial interests, controller, trustee or board authority, existing charges, distribution policy and proposed borrower. If company assets support personal borrowing, the tax, company-law and benefit consequences require specialist advice. A trust’s discretionary assets should not be described as the beneficiary’s personal portfolio.

What the Accountant May Need to Provide

Worked Example: Unlocking £30 Million Without Selling the Portfolio

A high-net-worth Saudi national required approximately £30 million for an equity commitment to a major US construction project. A substantial diversified portfolio of quoted investments was custodied in the UK, and the client wanted to retain the long-term holdings.

Willow identified a private-bank Lombard solution. The bank assessed asset quality, diversification, liquidity, concentration, custody, residency, source of wealth and the proposed transfer of funds to the United States. The facility offered sterling and potential US-dollar capability and preserved the client’s execution-only investment discretion.

The initial leverage was conservative relative to the portfolio, which created greater resilience than borrowing to the maximum. Nevertheless, the portfolio remained subject to lender monitoring and market risk. Preservation did not mean insulation.

The case demonstrates when borrowing can be rational: the client has a deep, diversified, liquid asset base; the borrowing supports a defined investment opportunity; and a specialist institution can structure collateral and cross-border execution. It does not prove that Lombard finance is suitable for a smaller concentrated portfolio or permanent lifestyle expenditure.

Contrasting Example: Property Mortgage Instead of Portfolio Collateral

A senior professional wanted a £950,000 second home while preserving ISA and pension holdings. Willow arranged a five-year fixed, interest-only property mortgage over twelve years. Earned income supported monthly affordability, and future sale of the main residence was the repayment strategy.

The investments remained outside the lender’s security. This removed daily portfolio re-margining from the structure, although the client still faced mortgage interest, property security and a final repayment obligation.

The two cases show why “borrow rather than sell” is only the first decision. The second is what should secure the borrowing: the property, the investments or both.

Where the Professional Boundaries Sit

The accountant models tax, cash flow, ownership, company consequences and the borrow-versus-sell comparison. The wealth manager assesses portfolio construction, sale priorities, investment risk and the effect of pledging assets. The solicitor advises on security, company or trustee powers and property ownership.

Willow compares mortgage, private-bank and securities-backed facilities and explains loan mechanics, cost, collateral and repayment. The decision should be documented around the client’s objectives and downside capacity, not an assumption that debt always improves investment efficiency.

Common Mistakes to Avoid

• Comparing expected return with headline rate only: include uncertainty, tax and all costs.
• Treating portfolio preservation as capital preservation: values can fall.
• Borrowing at the bank’s maximum: maintain a margin-call buffer.
• Using company or trust assets as personal: confirm ownership and authority.
• Ignoring cash interest: total return may not provide spendable income.
• Holding no unpledged reserve: the client needs independent liquidity.
• Using short-term debt for permanent needs: match term to purpose.
• Overlooking investment-management costs: price the whole relationship.
• Assuming tax deferral makes borrowing cheaper: model the complete period.
• Choosing all-or-nothing: a partial sale and smaller loan may be stronger.

When to Involve Willow

Refer the client when:

• a material portfolio sale is being considered for property;
• the client wants to preserve ISA, pension or managed investments;
• a private bank has proposed assets under management;
• the client asks about Lombard or securities-backed lending;
• investments are concentrated, foreign-currency or corporately held;
• the purchase is high value or time-sensitive;
• interest-only could reduce forced withdrawals;
• the client has a future property sale or liquidity event;
• tax cost is driving the desire to borrow;
• a company, trust or family investment company owns assets;
• property and portfolio security could be combined; or
• the accountant wants proposal-level costs before recommending liquidation.

The anonymous outline should include property, amount, portfolio value and composition, ownership, unrealised gains, income, liabilities, liquidity reserve, term, repayment, residency and tolerance for collateral calls.

Relevant Willow Case Evidence

For property-secured borrowing that preserved investments without pledging them, see the £950,000 second-home case.