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19 Jul 2019

Investment-backed lending: fast, efficient and flexible

Staying invested doesn’t mean you have to miss out on the next opportunity.

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Investment-backed lending gives you access to capital when you need it, while leaving your investments in place.

Investing in a portfolio of diversified assets has the potential to grow your wealth faster than inflation, which could protect - or even enhance – your spending power over the longer term. It’s something we think all of our clients should consider carefully when putting together their long-term financial plans, particularly if they have a large cash reserve on deposit.

Investing is a long-term enterprise – we suggest clients keep a five-year horizon in mind when committing their capital.

But life is full of surprises, and after you have invested your capital there may be times when you want quick access to it again.

This is where investment-backed lending could help.

 

Release the potential of your capital

One of the worst things that can happen to you as an investor is being a ‘forced seller’. As well as the possibility of having to sell at below the best price, you could also find yourself facing tax complications and other difficulties.

Investment-backed lending could help you to use your investments to fund an opportunity without the need to sell them. You can draw on a line of credit, backed by the value of your investment assets, to fund other purchases while leaving the investments in place.  And while we don’t advise on the lending or give tax advice, there can be benefits to borrowing through investment-backed lending.

Coutts private banker, Teresa Norton explains why one of her clients decided to use investment-backed lending from the range of borrowing options available when they needed to move quickly on a property sale:

“My client had found a fantastic investment property in Chelsea and wanted to move quickly. They considered a buy-to-let mortgage, but because of the competitive market place felt it better to raise all of the funds for the property in advance so they could complete the purchase quickly.

“They had a substantial investment portfolio, but selling would have led to a significant tax bill. Raising the money through investment-backed lending meant the client was ready to complete the purchase quickly, while leaving their investments in place.

“They also really appreciated the ease of having their investments and borrowing managed through the same team. It made the whole process easier for them."

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“Investment-backed lending could be a way to make your investment assets work harder for you. If you have over £1 million in investments you could be able to borrow against them with Coutts.”

Bridging the gaps between purchase and sale

Investment-backed lending is also a flexible and efficient way to fund a short-term gap between a purchase and a sale.

Coutts private banker, Chris Rigby provides a recent example of a client with a passion for classic cars. “Given how individual these cars can be, it can occasionally take some time to sell one. At the same time, opportunities to buy certain cars can come up at short notice.

“And that’s exactly what happened to my client. He was looking to sell one car with the intention to buy another when his agent found a model he’d wanted for years. He had an uncertain, but likely short, period over which he needed to bridge the transactions.

“My client had sufficient money invested to cover the purchase, but didn’t want to sell investments only to reinvest when they sold their other car. As well as time out of the market and administrative costs, there were potential tax implications from realising gains when allowances for the current year had already been used.

“This made investment-backed lending a good option. It provided my client with a quick, low-cost facility to draw on when needed. He was therefore able to buy the new car and repay the funds when his other car sold, leaving him with the possibility of redrawing on the facility should another opportunity come up in the future.”

 

Help is on hand to make the most of your money

Investment-backed lending could be a way to make your investment assets work harder for you. If you have over £1 million in investments you could be able to borrow against them with Coutts. 

Like any form of borrowing, it’s important that you are aware of the risks versus the returns and what other options are available to you. That’s why our private bankers and wealth managers are on hand to help you explore all the available possibilities.

IMPORTANT INFORMATION – LENDING AGAINST INVESTMENTS

This product may not be suitable for you:

  • If you are using it to purchase your primary personal residence, a second or holiday home for personal use, or related expenses, such as renovation/improvement on such properties or related lease/service charges.
  • If you rely on the income and capital from your investments and cash to maintain your standard of living.

We strongly recommend you seek your own independent advice if you are unsure whether this product is suitable for you. We also recommend that you seek tax advice as this is not something we provide.

Lending secured over investments can have an adverse impact on the value of your investments. This risk is amplified if the funds are used for leverage purposes.

The final decision whether to proceed must be your own and in making your decision you should carefully consider the comparison between borrowing costs and potential investment gains/losses.

LENDING AGAINST INVESTMENTS MUST NOT BE USED FOR RESIDENTIAL PROPERTY PURPOSES. SECURITY IS REQUIRED. OVER 18s ONLY.

Read more about our Investment Backed Lending here

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Key Takeaways

Investment-backed lending lets you borrow against the value of your investment portfolio. This means you can use some of the capital you have invested without having to sell your investments. In this way you can still benefit from investment growth.