Banking 101 -
What is investment-backed lending?
At Arbuthnot Latham, we provide a wide variety of lending arrangements to meet our private banking clients’ needs and circumstances.
At Arbuthnot Latham, we provide a wide variety of lending arrangements to meet our private banking clients’ needs and circumstances, one of these is investment-backed lending.
A investment-backed lending facility is a loan that enables individuals to borrow against investments, rather than liquidate assets to give access to capital.
Very often, withdrawing from an investment portfolio can incur capital gains tax, so it can be more tax efficient to borrow against investment assets and repay it over time. In general, investing should be considered over the long term. At Arbuthnot Latham, our investment management team suggests at least five years when committing capital.
Also, it is not always the most appropriate option to liquidate investments prematurely as this might coincide with falls in the value of investment assets.
If appropriate for the client’s circumstances, the bank will typically lend up to a percentage of an investment portfolio’s market value. The lending value percentage depends upon the type of assets held and level of risk involved. Typically, a bank will lend up to 60% of the total value of the investment portfolio.
A investment-backed lending facility can give the client quicker and relatively more cost-effective access to capital relative to other available options.
Not all investment portfolios are acceptable as security, however, in the right circumstances and with the bank’s approval, clients of Arbuthnot Latham might be able to borrow against their investment assets. This means the entire process is managed under one roof, creating a more seamless experience. The cost to arrange such a facility can be low with an arrangement fee from 0.5% and the borrowing margin from 1% over base rate, dependent on client’s circumstances and credit status.
Typical use case
A client wanted to borrow £500k to gift to their daughter to assist with starting a new business.
Rather than liquidating a well-established portfolio, an investment-backed lending facility was arranged.
The facility fell well within the loan to value margins at only 25% of the overall portfolio. A 5-five-year term was agreed with repayment from the sale of other assets the client held.
The arrangement costs were 0.5% with interest charged at 1.5% above base rate (with a minimum base rate of 1%).
The client was not only able to assist their daughter quickly, but it left their investment portfolio intact and allowed the repayment to be made in an orderly manner.
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This communication should be considered a marketing communication. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research. It is for information purposes only and does not constitute advice, a solicitation, recommendation or an offer to buy or sell any security or other investment or banking product or service. You should seek professional advice before making any investment decision. The value of investments, and the income from them can fall as well as rise, and may be affected by exchange rate fluctuations. Investors could get back less than they invest. Past performance is not a reliable indicator of future results. The tax treatment of investments depends upon individual circumstances and may be subject to change.
The contents of this communication are based on opinions or conditions as at the date of writing and may change without notice. To the extent permitted by law or regulation, no warranty of accuracy or completeness of this information is given and no liability is accepted for its use or reliance on it.