According to Alex Ogario, head of The Private Office at Knight Frank Finance, “…high-net-worth individuals are increasingly borrowing against their investments of passion”.

Worldwide, more and more individuals are using passion investments as loan collateral to meet their liquidity needs quickly and conveniently.

A shift in mindset

The mindset of both consumers and the financial industry to asset-based loans has shifted recently.

Collateral loans used to be considered a last resort of the wealthy, who might fall back on pawning movable assets in times of extreme stress.

Today, collateral loans have become an accepted and savvy way to secure funding. They enable greater diversification of personal portfolios and make it easier to unlock liquidity.

Alex Ogario, head of The Private Office at Knight Frank Finance, says this:

“What I am talking about here is not short-term debt to cover some kind of liquidity crisis, but structured borrowing used as part of a defined investment or cash-flow strategy. This could be connected to the client’s business or possibly to fund new acquisitions for their collections.”

Examples of how the wealthy use luxury assets to secure funding

In this article, Charlie Jenkins, head of asset finance at SPF Private Clients, explains how he helped a couple secure a £1.5 million loan using their £5 million art collection as collateral.

The couple had finally found their dream home in the Mediterranean and couldn’t afford to waste time. While they were wealthy in terms of assets, they didn’t have liquidity to secure the sale.

Says Toby Johncox, managing director of Enness Global, “Wealthy people tend not to have much money; their wealth is in stuff… I help them unlock this in a week or two.”

Johncox has secured loans for his customers against a Ferrari F40 (value £2 million), two Ford GTs (£1 million each), a sculpture collection (£18 million), and a horseracing stud (£12 million).

In another example, Paul Welch, a luxury asset loan broker, secured a £6.5 million loan for his client against £10 million worth of Bitcoin, so his client could buy a house. This sort of lending is no longer unusual, especially among the super-wealthy.

Mark Davies, a London-based tax adviser, said this about asset-based lending, “Early in 2022 […] all of my clients had loans against their investment portfolios; most were borrowing as much as their private bank would lend.”

Can all luxury assets serve as loan collateral?

Not all luxury assets can serve as loan collateral. To qualify, a luxury asset must have good resale value.  

This is because collateral loans are based on a percentage of the current market resale value of the asset. If the borrower defaults, the asset is sold to recoup the loan amount.

Even though a luxury asset may have intrinsic value, if it’s unlikely to sell – except to a select group of collectors – a lender might be unwilling to accept it as collateral.

Advantages of funding against movable assets

Using a luxury asset as loan collateral has many advantages compared to more traditional bank loans:

• credit score is unaffected
• employment is not a prerequisite
• few supporting documents
• fast, simple application process
• ownership of the asset is unaffected
• no hidden fees or early cancellation penalties
• competitive, NCR-compliant interest rates.

Lamna: SA’s leading lender against luxury assets

Lamna is South Africa’s leading lender against luxury assets. We offer asset-based loans against a range of passion investments.

Our high-net-worth clients have had great success using passion investments as loan collateral, from sports cars and luxury watches to art and antiques.

We have offices in most South African cities, Botswana and the UK. WhatsApp us to learn more or simply start your online application now.