Tailored Lending: When borrowing makes your unique dreams a reality

While you might be able to purchase outright the holiday villa or yacht of your dreams, doing so could potentially affect your long-term financial goals. Luckily, there are better ways to approach investing in such assets, whilst better protecting your wealth, says Gary Edwards, ‎Credit Specialist at HSBC Private Bank.

Tailored Lending: When borrowing makes your unique dreams a reality

You are on the point of buying an investment property in London, but you’re worried about how investing a lump sum in such an illiquid asset might negatively impact your wealth – and that of future generations. Without a regular monthly salary, you’re also concerned that applying for a mortgage will be challenging to say the least.

This scenario is all too common. Yet customised borrowing options are available that can increase your liquidity, help to protect your wealth, and even open up new opportunities for you and your family. Tailored lending, as it is known, is all about old-fashioned banking principles applied to the modern world.

A bespoke fit

There are no exact formulae, matrices or credit scores involved. It’s about understanding your needs, your wealth, and the potential returns from the investment property. Combining that with an assessment of how a loan would best suit your income stream, cash flow, and asset base, a lending decision can then be made by the bank through reasoned judgment – rather than a computer programme.

Taking out a tailored loan isn’t just for investors in bricks and mortar, though. If you’re invested in a portfolio with, say a 5-10-year strategy, and are concerned about having cash tied up over that time horizon, it’s possible to use assets such as shares as collateral for a tailored loan. This means that you can hold onto the potential long-term gains expected from the portfolio, whilst knowing there is liquidity available in the short term – whether for peace of mind, or investment into a new idea.

Tailored lending may also be an interesting option for lovers of yachts, planes, or Old Masters. While you may have the funds available to purchase the item outright, in an environment where interest rates are low, debt is relatively cheap. Choosing a tailored loan to cover the purchase price, or part of it, can therefore be a cost-effective way of freeing up your cash, enabling it to be deployed into other assets.

Investors who enjoy taking risks – and can afford to do so–may also use tailored lending as a means of boosting their participation in portfolios. While this kind of leverage has the potential to enhance returns, it does not suit many investors’ more conservative risk appetites. But such is the nature of tailored lending; it is all about finding the right product to meet the unique needs of often very different investors.

The optimum outcome

With this in mind, the bank will work closely with you to structure a tailored loan that best suits your specific needs, whether it is a personal loan or on behalf of a family office or trust. The bank will also draw on past experiences to help you avoid any pitfalls – such as thinking that the budget you have set aside for building development will be enough. It rarely is!

There may also be hidden factors that could impact how effective the loan is, such as currency, that the bank will be able to advise on. For example, you may be purchasing a yacht priced in euros. However, if your major income stream is in US dollars, it may make more sense to take out the loan in dollars, if the exchange rates are in your favour.

The secret to getting the right tailored loan, therefore, is to be as transparent as possible with the bank. While our Credit Advisory team will work closely with your Relationship Manager to gain a deep understanding of your financial circumstances and analyse your current debt structure, you ultimately hold the key to your financial future.

To find out more about how our tailored lending solutions could help you achieve your goals, while protecting your wealth, please contact our Relationship Manager.

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Risks of Leverage

  • The use of leverage means that losses will be amplified if there is negative performance. Furthermore the loan will still need to be repaid.
  • A fall in the value of your portfolio may result in a situation where the value of your collateral no longer covers the outstanding loan.
  • An increase in interest rates will impact your portfolio's performance. The return on your portfolio must be higher than your financing cost to generate a positive return.

Important information

This material is issued by HSBC Private Bank (UK) Limited which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority in the UK. It has been issued for your information purposes only.

Please note that HSBC does not provide tax advice and clients should seek professional advice from their tax advisor. Any reference to tax is based on our knowledge of the current and proposed tax regime and is subject to change.

In the United Kingdom, this document has been approved for distribution by HSBC Private Bank (UK) Limited whose office is located at 78 St James's Street, London SW1A 1JB.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of HSBC Private Bank (UK) Limited.