Private Banking for Real Estate Investors: How the Lending Works

A private bank is not a better mortgage lender. It is a different kind of lender: one that looks at the whole balance sheet rather than the payslip, and prices the loan as part of a wider relationship. For some buyers at the top of the market that is exactly what they need. For others it is an expensive way to borrow money that a mainstream lender would have offered on plainer terms.

This guide explains what private banks offer property investors, how the main credit products work, what they cost once the conditions are included, and the questions that separate a good facility from a trap. It quotes no interest rates or loan-to-value ratios, because those are set case by case, move with markets, and any figure printed here would be out of date before a reader could use it.

What "private banking for real estate" covers

The phrase is used for three different things, and it helps to separate them:

• Property lending — mortgages and credit lines secured on residential or investment property
• Securities-backed lending — credit secured on an investment portfolio, usually called lombard lending, which can then fund a purchase
• Advice around the purchase — currency, ownership structure and succession, usually delivered alongside outside lawyers and tax advisers rather than instead of them

Banks market the bundle as lending to "ultra-high-net-worth" (UHNW) clients. The label matters less than the underwriting, which is what actually changes.

How a private-bank mortgage differs from a mainstream one

A mainstream mortgage is underwritten largely on income: a salary, an affordability model, a standard product with standard criteria. A private-bank mortgage is underwritten on the borrower's overall position — assets, liquidity, and income that may come from dividends, a business, investment returns or trust distributions rather than employment.

That difference produces the features buyers are usually looking for:

• Lending to borrowers whose income is large but irregular, earned abroad, or hard to evidence in the standard format
• Interest-only structures, with repayment expected from a liquidity event or from the eventual sale
• Loans on property that mainstream lenders avoid: very high values, unusual construction, mixed use, or property held through a company or trust
• Loans in a currency other than the property's, or across several properties in different countries
• A faster and more discreet decision, because the credit committee already knows the client

The trade-off is that the loan is rarely offered on its own. Private banks commonly expect a relationship in return: assets placed under the bank's management, deposits held with it, or both. That condition is where much of the real cost sits, and it is set out below.

Lombard lending: borrowing against a portfolio

Lombard lending means borrowing against a portfolio of securities pledged to the bank. The bank sets an advance rate for each holding — how much it will lend against each unit of value — and advance rates vary sharply by asset: highest for cash and high-quality bonds, lower for diversified listed equities, lower again for concentrated single-stock positions, and low or nil for illiquid holdings. The facility can then be drawn for any purpose, including a property purchase, or a deposit while a mortgage is arranged.

The appeal is simple. The borrower does not have to sell investments, which might crystallise a taxable gain (see capital gains tax on a second home for how the property side is taxed) or disrupt an allocation, and a committed facility can be drawn quickly.

The risk is equally simple. If the pledged portfolio falls, the loan-to-value rises, and once it passes the bank's maintenance level the borrower must add collateral or repay — in practice often by selling securities into the same falling market. A property bought with lombard money turns a fall in one asset class into forced selling in another. Borrowers who use it well keep the drawn amount well inside the limit and hold unencumbered reserves they could pledge at short notice.

Other credit a private bank may offer

• Portfolio credit lines secured on several properties rather than one loan per property, which is flexible but ties the properties together
• Cross-collateralised facilities, in which several assets secure one loan — convenient, and risky for the reason set out in the negotiation list below
• Bridging finance, to buy before a sale completes or before a longer-term structure is in place
• Lending to a holding company or trust that owns the property, which requires the bank to accept the structure and usually a personal guarantee; choosing that structure is covered in buying abroad: the ownership structure decides
• Construction and renovation facilities, released in stages against certified progress

What is available depends on the bank, the jurisdiction and the borrower. None of these is a product that can be compared on a rate table.

Who operates in this market

Two broad kinds of institution do this work: the private-banking arms of large universal banks — UBS, JP Morgan, Goldman Sachs and Citi are examples — and specialist wealth managers such as Julius Baer, Lombard Odier, Pictet and Rothschild & Co. Domestic banks in most markets also run private-banking divisions, and these are sometimes more comfortable lending against local property than an international house whose credit committee sits in another country.

We make no claim about which is largest or best. For a given borrower, the deciding factors are the specific team and whether it has recently lent against your type of asset in your jurisdiction, not the brand.

The true cost: margin plus conditions

The quoted interest margin is only the visible part of the price. The full cost of a private-bank facility is the margin plus everything the facility requires:

• Management fees on assets you were required to place with the bank, which may be higher than you would pay elsewhere for the same mandate
• The return given up on cash held on deposit as a condition of the loan
• Arrangement, valuation and legal fees, often on both sides of the transaction
• Hedging costs, if the loan is in a different currency from your income
• Break costs, if you repay a fixed-rate facility early

Add these together and express the total as a percentage of the amount borrowed. That is the number to compare with a plain mortgage from a mainstream lender or an independent broker, which a borrower with straightforward income and a conventional property can sometimes obtain on better overall terms. What that borrowing does to the return on the equity you commit is worked through in what carrying cost does to your return.

What to Negotiate, Line by Line

Private-bank real estate lending is bespoke, which means the terms are negotiable and the first draft is written for the bank. The interest margin gets all the attention and is rarely where the value sits.

• The covenant package: which loan-to-value trigger forces a top-up, how the property is revalued, how often, and by whom
• Cross-default and cross-collateralisation: whether trouble in one facility can reach assets pledged against another
• Assets-under-management conditions, since a preferential rate contingent on placing a mandate is only cheap once the management fee is added to the margin
• Prepayment and break costs, which on a fixed-rate facility can be large and asymmetric
• The currency of the loan relative to the currency of the asset and of your income
• Recourse: whether the bank may pursue you personally beyond the pledged collateral, and in which jurisdiction
• Term and refinancing risk, because a facility shorter than your intended hold is a decision you will have to take again in a market nobody can forecast

The currency point deserves emphasis because it is the one most often waved away at signing. Borrowing in a low-rate currency to buy an asset priced in another exposes the borrower to exchange-rate moves on top of interest-rate moves, and where the loan is covenanted on value, an adverse currency move can arrive as a demand for more collateral rather than as a paper loss you can wait out. How the purchase money itself is converted and moved, from deposit to completion, is covered in paying for a home abroad.

Choosing the Relationship, Not the Brand

The differences between the major institutions matter less than the difference between a good banker and a mediocre one on your account. Judge a prospective relationship on whether the bank has genuinely lent against your asset type in your jurisdiction recently, whether the credit committee sits somewhere that understands that market, and how the institution treated borrowers during the last market fall rather than how it describes itself in its marketing.

Ask what the bank actually did the last time a borrower breached a covenant — waive, reprice, or call. Ask who your point of contact will be in three years, because staff turnover on private-bank desks is common and an unwritten understanding survives only as long as the person who gave it. Anything that matters should be in the facility agreement.

When a private bank is the wrong lender

• Your income is straightforward, the property is conventional and in one country: an independent mortgage broker may find cheaper credit with fewer strings
• You do not want to move investments: the assets-under-management condition can make the credit expensive
• You need certainty over a long hold: a short facility subject to annual review can be withdrawn at the moment you most need it
• You would be borrowing against a volatile or concentrated portfolio: a lombard line makes a fall in that holding a problem for the property too

The Limits of Structuring

There is a point beyond which cleverness stops adding value and starts adding fragility. A structure that requires several jurisdictions, multiple entities and an annual reporting exercise to save a modest amount of tax is a structure that will be misunderstood by your heirs, questioned by a future tax authority, and expensive to unwind at exactly the moment you need to sell quickly.

Good private-banking advice is frequently a recommendation to do less: fewer entities, lower leverage, a longer facility, and a written note explaining to whoever inherits the arrangement why it exists at all. The ownership vehicles a bank will lend to are covered in tax-efficient property ownership, and if a purchase is tied to a residence permit, read what residency programmes actually buy before the lending conversation. The rest of our tax and ownership guides are collected under Tax & Structure.

Leverage cuts both ways. Lombard facilities and cross-collateralised lending amplify gains and losses alike; a margin call in a falling market can force a sale at the worst possible moment, and no structure removes the underlying market risk. This is general information, not financial, tax or legal advice, and naming an institution is not a recommendation of it. Credit terms are individual; take independent advice before signing a facility agreement.

Frequently asked questions

What does private banking offer real estate investors?

Three things: property lending (mortgages and credit lines secured on residential or investment property), securities-backed or lombard lending against an investment portfolio, and advice on currency, ownership structure and succession, usually delivered alongside your own lawyers and tax advisers rather than instead of them.

How is a private-bank mortgage different from an ordinary one?

It is underwritten on your whole balance sheet rather than a payslip. That allows lending on large but irregular or foreign income, interest-only structures, very high-value or unusual properties, property held through a company or trust, and loans in another currency or across several countries. The price is usually a wider relationship with the bank.

How does a lombard loan work when buying property?

You pledge a portfolio of securities and the bank lends against it at an advance rate set for each holding: highest for cash and high-quality bonds, lower for listed equities, low or nil for illiquid assets. The facility can fund a purchase or a deposit without selling investments, but if the portfolio falls past the bank's maintenance level you must add collateral or repay.

Lombard loan or mortgage: which suits a property purchase?

A lombard line is quick to draw and avoids selling investments, but it ties the property to the value of your portfolio, so a market fall can force sales. A mortgage is secured on the property itself. The two can work together: a lombard line can fund the deposit while a mortgage is arranged. If you use one, keep the drawn amount well inside the limit.

What does private-bank property lending really cost?

The quoted margin plus everything the facility requires: management fees on assets you must place with the bank, the return given up on required deposits, arrangement, valuation and legal fees, currency hedging and break costs on early repayment. Express the total as a percentage of the amount borrowed and compare it with a plain mortgage.