Some high-net-worth individuals are turning to secured overdrafts as a smarter borrowing alternative to mortgages, as high interest rates continue to bite.
Secured overdrafts are proving a beneficial alternative to mortgages, for cash buyers purchasing property, says Jamie Pigott of Knight Frank Finance.
While a number of wealthy clients have the cash to buy a home outright, many still require flexible debt facilities. “Having instant access to liquidity is very attractive for high-net-worth individuals, which is exactly what a secured overdraft provides because it gives borrowers a revolving credit line that they can dip into whenever they need,” says Jamie.
“I recently helped a client who wanted to purchase a £15m property. He works in private equity and is in a good financial position to buy the property outright, but he still required some financial flexibility and wanted to avoid high prevailing rates.”
Instead of taking out a conventional mortgage, which he would have had to service monthly from day one, Jamie advised the client to pay cash for the home and then open a secured overdraft facility, which was 65 per cent loan-to-value.
The facility only incurs interest when utilised and has a minimal annual review fee of £250. “So, this was a really flexible option for him,” says Jamie. “The client has no obligation to pay interest. In theory, he could have this facility, undrawn, and only pay the £250 fee a year, for a multi-million-pound limit.”
This type of product is proving increasingly popular for clients looking to make home improvements on the properties they are buying, as well as homeowners facing significant tax liabilities.
Jamie adds, “It’s also useful for those working in companies with a partnership structure, such as private equity. As partners, these clients are often obliged to co-invest with their firms. So, one month they could be asked for a significant personal contribution to form part of the firm’s investment. Having a secured overdraft makes those kind of ad hoc investment requirements simple from a cash flow perspective.”
If you are interested in exploring whether secured overdrafts may be right for you, get in touch with Jamie Pigott to discuss your borrowing requirements. At Knight Frank Finance, we have access to over 200 lenders and can help find the right solution for you.