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Mortgage without selling portfolio

Covering Market, Trends, and Practical (but see LEMON-AID for Building & DIY)
Gerry557
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Re: Mortgage without selling portfolio

#301544

Postby Gerry557 » April 18th, 2020, 1:58 pm

dealtn wrote:
sss555sss wrote:
Lootman wrote:Yes, surely the two issues are the size of the loan relative to both the borrower's earnings and the value of the collateral i.e. the property. If the borrower defaults then the lender can seize the property. Moreover the borrower cannot sell the property without the lender's permission, and that lender will be paid off first.

And therein lies the problem with the OP's auxiliary asset - the shares. Not only can they go to zero, as you note. But the bigger problem is that, unlike with the house being bought, the lender has no control over the shares. The borrower is free to sell them at any time. As such, it is near useless collateral. If a deal is to be made involving the shares, then those shares must be held in some kind of segregated account that the lender can monitor and restrict. Otherwise this is just an unsecured loan, which of course carry much higher rates.


Thanks, it's a good answer. Just because lenders don't do it, it does not mean it doesn't make sense. Australians are paying a fee every time they do a bank transfer or use an ATM. Some countries charge every time you pay with a card. Just because something is the way it is, it doesn't mean it makes sense - just means you're being ripped off.

Let's look at the situation. We have 2 blokes with exactly the same job, income and desire to buy exactly the same property. Each puts down a £20k deposit for a £100k house and wants to borrow £80k. Each has a £30k/year income. However, one also has a portfolio currently worth £50k paying £1k dividends and the other one has no more capital. If you had to lend to one of them, who would you lend to? I sure am going to pick the guy with the extra £50k and £1k of income even if the portfolio paid no dividend. If he lost his job tomorrow, he can sell off parts of the portfolio and still make payments.

You said If the borrower defaults then the lender can seize the property. - so how is having extra capital not a factor in the probability of a default? The answer is it does reduce the probability of default and if a lender tells you otherwise you are being ripped off. Unless we live in a world where defaulting on your mortgage as as much implications as selling a stock, most people will do anything to pay their off mortgage and not default so extra capital makes this person far less risky to a lender. If tomorrow you had to choose between defaulting on your mortgage or selling 100 shares of vodafone and paying your mortgage, you sell 100 shares of vodafone.

The idea of shares can go down is simplistic. Mortgages go to 0 over a 20 year period. Over the same period, a portfolio will tend to go up. That is, if you hold a portfolio of companies, every year you become less and less risky to the lender because the mortgage debt relative to the portfolio value will tend to decrease to 0.


Both meet the criteria, the lender will lend to both. Probably favouring the one with the additional capital.

BUT that wasn't your original point. You wanted a discounted interest rate, and as has been explained, that isn't likely to happen.



You would most likely get a discount if you increased your loan to value and Im sure you have looked at what level was needed.

Be warned! They may come back and say the value of your house is also valued at less than you are planning/paying so you will not have the LTV for the current rate and will charge you an even higher rate or need you to add more capital. If you think the current situation is "theft" then that is going to be armed robbery! Been there, done that!

Loup321
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Re: Mortgage without selling portfolio

#301957

Postby Loup321 » April 20th, 2020, 2:15 pm

sss555sss wrote:Let's look at the situation. We have 2 blokes with exactly the same job, income and desire to buy exactly the same property. Each puts down a £20k deposit for a £100k house and wants to borrow £80k. Each has a £30k/year income. However, one also has a portfolio currently worth £50k paying £1k dividends and the other one has no more capital. If you had to lend to one of them, who would you lend to? I sure am going to pick the guy with the extra £50k and £1k of income even if the portfolio paid no dividend. If he lost his job tomorrow, he can sell off parts of the portfolio and still make payments.


What you're suggesting, though, is the 2 blokes have exactly the same job, income and desire to buy exactly the same property. One puts down a £20k deposit for a £100k house, wants to borrow £80k, and has a portfolio currently worth £50k paying £1k dividends. The other puts down a £70k deposit for a £100k house and wants to borrow £30k.


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