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Old 11.03.2019, 14:07
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Pledging my stock portfolio to buy my primary residence

Hi everyone!

I've read here, bottom paragraphs and other places that instead of selling a portfolio of stocks to come up with the 20% deposit for a mortgage, you could just pledge it to get a higher first rank mortgage.

Has anyone of you done something like that?

The way I imagine it would work is, assuming a 500k property and an existing 100k portfolio of stocks: you would transfer your portfolio to the bank providing the mortgage. They calculate a discount based on the volatility of the portfolio (let's assume a 50% discount) and that provides you with the equivalent of 50k of your own funds (the first 10%) that you don't have to provide. I use 50k from my 2nd pillar to get the other 10%. The bank provides me with a 90% first rank mortgage (450k), that I don't have to amortize (because it's a first rank mortgage). My portfolio is still intact and continues to appreciate. In the mean time, I pay 1.2% interest or lower annually on the 450k or 450 CHF per month.

Is that chain of events accurate? It seems too good to be true...
Here are a few ideas as to how it could be not as good:
  • The bank could be able to margin call (force sell) my portfolio if its value decreases below a certain threshold
  • The interest rate is much higher than the usual 1-1.5% fixed for 10 years.
  • The discounted value of my portfolio has to be at least 34% of the value of the property to qualify for non-amortization

Owning a property was never a dream of mine, and I know that there are a lot of costs associated with owning real estate (maintenance, insurance, tayes, etc.). But paying 450 CHF of "rent" for the next 10 years seems very attractive.

Thanks for your feedback!
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Old 11.03.2019, 15:29
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Re: Pledging my stock portfolio to buy my primary residence

The question is whether the bank sees this as a mortgage or as what's known as Lombardkredit, credit where you use stocks, bonds, etc as collateral. Lombardkredit seem to cost above 2% currently.

A long time ago when I was still working at what is now UBS, the minimum margin used on stocks was 50%, more for foreign stock.
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Old 11.03.2019, 19:11
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Re: Pledging my stock portfolio to buy my primary residence

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The question is whether the bank sees this as a mortgage or as what's known as Lombardkredit, credit where you use stocks, bonds, etc as collateral. Lombardkredit seem to cost above 2% currently.

A long time ago when I was still working at what is now UBS, the minimum margin used on stocks was 50%, more for foreign stock.
I’m sure it can be done separately - effectively a Lombard on the portfolio to provide the own funds and then a standard mortgage for the rest, in the same way you can pledge pensions. The Lombard will have a different (higher) interest rate to the mortgage.

However OP, I’m not sure why you don’t think it would need amortising. You would still need to amortise your mortgage down to 65% and I would expect it to need to be done within the usual 15 years. As the amortisation rate is higher than standard, it’s going to have an impact on the affordability calculation.

Also you talk about margin calls. If you are at the max LTV on the Lombard and your portfolio value decreases, which could easily happen with a stock portfolio, you will be given a short period to add funds or the bank can liquidate. Remember we are in the longest bull run ever. Equity values don’t just keep increasing as you allude to in your post.
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Old 11.03.2019, 19:53
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Re: Pledging my stock portfolio to buy my primary residence

This Basler Kantonalbank webpage discusses the different types of own-equity to purchase a house including the use of a securities account (English):

https://www.bkb.ch/en/Privatkunden/F...nz/Eigenmittel
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Old 11.03.2019, 20:06
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However OP, I’m not sure why you don’t think it would need amortising. You would still need to amortise your mortgage down to 65% and I would expect it to need to be done within the usual 15 years. As the amortisation rate is higher than standard, it’s going to have an impact on the affordability calculation.
My understanding (but I could definitely be wrong) is that first rank mortgages don't have to be amortized. Second rank mortgages do.


Here it says that the full mortgage (90-100% if you pledge securities) is of first rank.

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This Basler Kantonalbank webpage discusses the different types of own-equity to purchase a house including the use of a securities account (English):

https://www.bkb.ch/en/Privatkunden/F...nz/Eigenmittel

Thank you, that's very helpful. It seems that the intuition of this forum is confirmed: the funds are provided by a Lombard loan at a high interest rate. This would disqualify this solution to an extent.

Last edited by 3Wishes; 11.03.2019 at 21:29. Reason: merging consecutive replies
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Old 11.03.2019, 22:24
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Re: Pledging my stock portfolio to buy my primary residence

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My understanding (but I could definitely be wrong) is that first rank mortgages don't have to be amortized. Second rank mortgages do.


Here it says that the full mortgage (90-100% if you pledge securities) is of first rank.




Thank you, that's very helpful. It seems that the intuition of this forum is confirmed: the funds are provided by a Lombard loan at a high interest rate. This would disqualify this solution to an extent.
I know 100% that a „first rank“ mortgage can/is expected to be amortised. I have one. The concept of a two part mortgage where the second loan is the one to be amortised and is at a higher rate seems to be getting rarer, probably because of bank competition to make loans.

You would need to ask your bank and shop around, but I would expect a Lombard to be in the 2.x% range for a retail client.
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Old 12.03.2019, 09:16
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Re: Pledging my stock portfolio to buy my primary residence

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I know 100% that a „first rank“ mortgage can/is expected to be amortised. I have one.
That is very unfortunate...

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You would need to ask your bank and shop around, but I would expect a Lombard to be in the 2.x% range for a retail client.
I would expect the interest rate on a Lombard loan in Switzerland to be even higher than that. At that point it makes more sense to borrow money from Interactive Brokers at 1.5%.
But then I'm exposed to forced selling at the bottom during a market crash (margin call) and to variable interest rates.

And if I have to amortize the mortgage anyway, then I really don't see an advantage to this solution.
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Old 14.03.2019, 12:58
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Re: Pledging my stock portfolio to buy my primary residence

I called the company which published the articles I've referenced (DL Money Park).

They have confirmed the following:
  • First rank mortgage don't have to be amortized. I could remain 90% in debt for the duration of the mortgage. He was more skeptical on 100% but he said that it should be doable under certain conditions.
  • The loan is not a Lombard loan, or not really. It is a mortgage backed by the real estate and the portfolio. The overall rate should be around 1.1 to 1.2% for 10 years.
  • The portfolio has to be domiciled at the institution providing the loan (to be expected).
  • They can ask for additional collateral if the stock market tanks. But you may also provide additional collateral in advance (before the crash) by either consolidating your portfolio there through regular contributions or subscribing to a 3a there.

I'll probably arrange an appointment with them to discuss this further and with concrete numbers. Are there other aspects I should consider or ask clarifications about?
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Old 14.03.2019, 13:51
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Re: Pledging my stock portfolio to buy my primary residence

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Are there other aspects I should consider or ask clarifications about?
Well, it seems that these "independent adviser" make a first free meeting and charge 275 CHF per hour after that. Your local bank will tell you the same info for free...
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Old 14.03.2019, 16:31
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Re: Pledging my stock portfolio to buy my primary residence

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Well, it seems that these "independent adviser" make a first free meeting and charge 275 CHF per hour after that. Your local bank will tell you the same info for free...
Of course they are going to charge me. I don't expect anyone to work for free. How could they be independent if they didn't charge me?

The advantage is that they have an overview of the different banks and what these banks offer. Since my situation is not classic (i.e. not the typical 20% own funds + 80% mortgage), I can imagine that the conditions offered by the different banks can be quite different in terms of: custody fees, criteria for margin calls, interest rates, discount rate on the assets, etc., so having an overview and someone with experience to advise you is valuable.

A bank would only present their offer. Of course, I could visit each and every banks, but i) I don't know all of them and ii) my free time is valuable to me.

Even if they charge me 1000 CHF, how ridiculous is that money if I can save on interest rate, or borrow 100% instead of 90%, or keep the entirety of my portfolio at 5% instead of selling it? Never go cheap on the lawyer...
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Old 14.03.2019, 16:37
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Re: Pledging my stock portfolio to buy my primary residence

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Of course they are going to charge me. I don't expect anyone to work for free. How could they be independent if they didn't charge me?

The advantage is that they have an overview of the different banks and what these banks offer. Since my situation is not classic (i.e. not the typical 20% own funds + 80% mortgage), I can imagine that the conditions offered by the different banks can be quite different in terms of: custody fees, criteria for margin calls, interest rates, discount rate on the assets, etc., so having an overview and someone with experience to advise you is valuable.

A bank would only present their offer. Of course, I could visit each and every banks, but i) I don't know all of them and ii) my free time is valuable to me.

Even if they charge me 1000 CHF, how ridiculous is that money if I can save on interest rate, or borrow 100% instead of 90%, or keep the entirety of my portfolio at 5% instead of selling it? Never go cheap on the lawyer...
I am intrigued by your very positive opinion of advisors you havent even met yet. Quick question: Do you have any relationship with DL Money Park?

Or do you genuinely believe that there is "independent" advice?
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Old 14.03.2019, 16:47
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Re: Pledging my stock portfolio to buy my primary residence

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I am intrigued by your very positive opinion of advisors you havent even met yet. Quick question: Do you have any relationship with DL Money Park?

Or do you genuinely believe that there is "independent" advice?
I have no relation with them except the phone call we had. I don't have any opinion of them for now.

I can just see that they deliver a service ; service which I see as useful and that I'm willing to pay money for. I can only assess if they are competent or not and whether they bring an additional value or not after meeting them. When I see what they have to offer, I can do my homework and see if I can't find a better deal on my own. If I can't, they will have earned their fee.

The meaning of "independent" is of course called to debate. But I believe that the best way to get an "interested" advice (not independent) is to get it from someone who gives it for free.
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Old 14.03.2019, 16:56
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Re: Pledging my stock portfolio to buy my primary residence

Sorry that I have to ask but you dont believe what sort of guerilla advertisement we already witnessed on here.

I personally expect any broker to try to sell me whatever gets him the best comission… and getting paid for the consulting on top seems to be the sort of business model one only finds in Switzerland. But maybe I am just too critical about this stuff.
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Old 14.03.2019, 17:14
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Re: Pledging my stock portfolio to buy my primary residence

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Sorry that I have to ask but you dont believe what sort of guerilla advertisement we already witnessed on here.

I personally expect any broker to try to sell me whatever gets him the best commission… and getting paid for the consulting on top seems to be the sort of business model one only finds in Switzerland. But maybe I am just too critical about this stuff.
That's fair. It is my understanding that they get a commission from the banks as well. And I expect them to push some offers on me more than others according to the commission they get. But I don't have much to lose going in for their free appointment. I'm not even sure that I want to buy real estate anyway...
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Old 14.03.2019, 17:17
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Re: Pledging my stock portfolio to buy my primary residence

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Sorry that I have to ask but you dont believe what sort of guerilla advertisement we already witnessed on here.

I personally expect any broker to try to sell me whatever gets him the best comission… and getting paid for the consulting on top seems to be the sort of business model one only finds in Switzerland. But maybe I am just too critical about this stuff.
having been to markets in switzerland where you have to pay entrance to go in to spend further money, this doesn't surprise me at all!
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Old 14.03.2019, 17:18
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Re: Pledging my stock portfolio to buy my primary residence

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That's fair. It is my understanding that they get a commission from the banks as well. And I expect them to push some offers on me more than others according to the commission they get. But I don't have much to lose going in for their free appointment. I'm not even sure that I want to buy real estate anyway...
go for the appointment and get the free advice.
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