Using prime property as security for a loan is one of the fastest and most efficient ways to raise debt and access very significant liquidity. Using a property as collateral for a short-term loan is often called bridging finance, particularly in Europe where this type of finance originated. A bridging loan works by effectively allowing you to release equity you have built up in a prime property or your property portfolio. By using this kind of loan, you access capital you can use for almost any reason without having to sell what can be a much-loved home or a property that will appreciate significantly over time, which means you’ll want to retain ownership for many years, rather than sell it to generate a quick burst of cash.
You can either use prime property in the US as security for a loan, or your international property portfolio. Lenders can consider writing loans to US nationals or residents who have holiday homes or investment property in continental Europe, the UK, Dubai, the Caribbean, prime Asia and further afield. You can use the loan capital in the US or elsewhere.
While releasing equity from a property is relatively common in the middle market, there are relatively few lenders at the top of the market who can offer multi-million dollar loans. However, those that do are used to working with high-net-worth individuals. As a result, they often have relatively flexible lending criteria, meaning they can take a holistic approach to assessing your suitability for a loan, rather than requiring you to meet very specific lending criteria.
Lenders are also flexible with regard to how you can use the loan. You may want to use a bridging loan to raise capital to make a further property purchase without a mortgage. You can also use bridging loans to raise capital to invest in a business, to pay off or consolidate debt or liabilities, to raise capital for a project you can’t get a conventional loan for, or because you’re facing a short period with little or no income and you want a loan to tide you over until your situation changes.
Lenders are open to considering offering a bridging loan in almost any scenario, including if you need to fund a short-term gap in income or revenue. That said, you must be a quality borrower with a net worth and assets that support a significant loan. Borrowing so you don’t have to sell assets to generate capital is very different from being in a critical financial position, and lenders will make that distinction. If you are over-leveraged, have no solid exit plan (or your exit plan doesn’t look deliverable), you don’t have a clear plan for managing the funds or you don’t have a good track record of money or business management, borrowing will become infinitely more complicated.
Large bridging loans can be secured against prime, residential properties in the US’ most desirable and liquid markets. While bridging loans are available anywhere in the US, lenders are particularly open to considering large loans secured against prime New York City, Aspen, Malibu, Newport Beach, Santa Barbara, Santa Monica, Beverly Hills, The Hamptons, Miami Beach and any of America’s largest cities as collateral for a loan.
You can also use property outside of the US as security for a bridging loan. Here, it’s important that the property is in a liquid market where there is continued demand for prime real estate. This will (broadly) extend to: France (Cote d’Azur, French Alps, Prime Paris), Switzerland (Prime Swiss Alps), Spain (Balearics and coastal Anadalucia), Portugal (Quinta do Lago and the Algarve), Italy (Italian lakes) and the UK (Prime Central London and high-value properties or estates anywhere in the country).
The lenders that can write loans against very high-value property are specialist players who can write very significant loans: a $5 million loan is very possible against a single asset against a property valued at $10 million for example, depending on other factors (risk, your financial profile, exit, loan management, etc). If you need to access considerable capital and you have a portfolio of properties, in many cases, a lender can consider using multiple homes as security for a single loan, even if those properties are in different jurisdictions.
In theory, there is no upper limit on how much you can borrow, provided the value of your property supports the amount you want to borrow. We have enquired about bridging loans of $100 million or more against some of the world’s most desirable real estate, and lenders were receptive to considering a loan. However, it’s worth noting that the more you want to borrow, the more important it is your financial background supports the loan amount. The value of your property will only get you so far: you will need to document your assets, liabilities, net worth, source of income, the reason for borrowing and exit. Lenders will consider all of these factors carefully, in the context of the loan amount and the value of your property. If anything doesn’t add up, it will become very challenging to access the loan amount you want.
In high-value equity release transactions, you won’t usually be able to borrow using property owned in your own name. Instead, it’s usual practice for lenders to only consider high-value equity release in deals where the property is held in a corporate structure (a trust, LLC etc) and often where the borrower is also a corporate entity. Providing you are operating within the terms of your loan and as agreed with your lender, there is no legal obligation to use the loan in the same jurisdiction as your property. How you plan to use the loan is usually covered in the initial discussions with lenders and most are open to writing a loan against a property in one location and seeing the capital being deployed in another.
Lenders offer what they call multi-currency lending, which is to say that even if you are using a US property as security for a bridging loan, you can take out a loan in euros or pound sterling, depending on where you want to deploy the capital.
Your exit - how you will repay the loan - will be one of the most important considerations for lenders. If you have a quality property and you have a perfect profile for borrowing but your exit is unclear or doesn’t look feasible, lenders will struggle to green-light lending. Having Remortgaging, selling the property the loan is secured against (or another property in your portfolio) or repaying the loan through a liquidity event are the most common exits, although lenders can consider other scenarios if they make sense and are solid in terms of timing and deliverability.
If you’re considering releasing equity from a US property or if you own property abroad and want to use it as security for a loan, get in touch. We will help you access the best deal possible and maximise what you can borrow. Few lenders provide very high-value US bridging loans or loans to US residents or citizens that own prime property outside of the US, but we have a track record of arranging this type of finance for high-net-worth individuals and families. Get in touch to find out more about how we can help, how much you might be able to borrow and indicative rates.
Toby has 11 years’ experience working across London’s property and financial services markets.