The Madness Is Back: Homeowners Take Out Mortgages To Buy Bitcoin, Cars And Wine

It's been about a decade since the term "mortgage arbitrage" made headlines. It's back.

In the clearest sign yet of just how late far the investing cycle the developed world finds itself, the FT writes that wealthy British homeowners are again borrowing against their property to invest in bonds, equities, alternative investments or commercial property as the low cost of debt creates opportunities for “mortgage arbitrage”. And while taking out a mortgage to invest in "safer" arbs like corporate bonds, commercial real estate or private equity would be at least understandable, if not excusable, in the current low-yield regime, some more extreme "investment" decisions suggest that the madness and euphoria that marked the peak of the last asset bubble is back: because while growing numbers are prepared to risk using their primary residence as collateral, some are ready to gamble on extremely volatile assets like bitcoin, wine and cars.

One broker said a mortgage-free homeowner with a house valued at £10m had taken out a fixed-rate loan of just under £2m to buy bitcoin, the crypto currency that has seen huge volatility in recent months. Others have invested in classic cars or fine wine. One former banker took out a £500,000 mortgage, not for investment purposes, but to provide a fund for routine spending and other eventualities.

To be sure, while these are extreme - and for now rare - examples of investor euphoria, even the more mundane "mortgage arbitrageurs" are willing to take major gambles: "Interest rates of less than 2 per cent on two- and five-year fixed-rate home loans are tempting high-income, mortgage-free homeowners to raise money against their property in the hope they can profit from higher rates of return elsewhere."

Simon Gammon, director at mortgage broker Knight Frank Finance, said the arbitrage had emerged as a trend among financially sophisticated clients as mortgage rates fell.


“We’re a specialist lender at the top end but we’re seeing up to a dozen of these deals a month,” he said. “This is something that has come about because of the current environment of low rates.”

How prevalent is this behavior which peaked during the last housing/credit bubble?

Mark Pattanshetti, a mortgage manager at broker, said the number of borrowers taking out loans to fund investments had risen by about 50% since 2009. “Borrowers have realised the cost of debt is cheap and it isn’t going to get much cheaper,” he said. Unfortunately, what borrowers are forgetting is that home prices can drop as mortgage rates rise, while risk assets - impossible as it may sound - can correct sharply, hitting borrowers with the double whammy of rising LTVs as inbound margin calls force them to liquidate into a sliding market.

Ironically, anecdotal evidence suggests that this troubling behavior has been prompted be declining UK home prices - until recently one of the best performing British assets. This has been the result of Brexit-related concerns, a decline in Chinese and other foreign investors rushing after UK real estate, as well as concerns that the BOE will soon raise rates, resulting in increasingly more "for sale" signs.

As the FT notes, "for debt-free homeowners, remortgaging during the years of booming house prices was often a means of raising cash to carry out home improvements or expand a buy-to-let portfolio. But slowing house price growth and a regulatory and tax crackdown on landlords have made these options less attractive.

Hugh Wade-Jones, group managing director of mortgage broker Enness, said: “It’s accepted that property is no longer going to be the all-conquering investment, doubling every 10 years, so people are looking elsewhere for returns.

In addition to bitcoin, cars and wines, borrowers with housing equity are putting money into everything from bonds and private equity and commercial property, brokers told the FT. David Adams, managing director of John Taylor, a Mayfair-based estate agent, said investors were borrowing against London residential properties to fund investment in commercial and mixed use developments from Southampton to Birmingham at returns of 6 to 7 per cent.

Wealthy investors are no longer chasing capital gain. There is a switch to yield,” Adams said.

According to Knight Frank's Gammon, the practice typically appealed to those with investment experience. “People who have not needed to borrow have looked at the rates available — and we’ve now got five-year fixed rates from 1.65 per cent — and said if I can’t make 1.65 per cent or more from my money, then I don’t know what I’m doing.

Unfortunately, should home prices in the near future tumble while risk assets slide, crushing the "experienced" investors, that's exactly what one can conclude.

Making it easier for the "smart investors" to bury themselves with margin calls, there are no regulations prohibiting this kind of behavior:

There is nothing in mortgage regulation to prevent someone raising a loan on a mortgage-free property for personal investments, as long as the lender assesses that the loan is affordable and not being used, for instance, to prop up a business generating income for its repayment.


Lenders, however, may choose to apply criteria that restrict the use of capital raised through a mortgage, although private banks are typically more relaxed about non-property investments than high street banks. For bigger mortgages, lenders will also moderate risk by insisting that the size of the loan does not exceed 60 per cent of the property’s value.

Naturally, it doesn't take a big drop in the value of the property coupled with a slide in the "alternative investment" to wipe out the LTV buffer, pushing the value of the loan above the underlying collateral.  That said, "the Financial Conduct Authority, which regulates mortgage lenders, declined to comment on individuals borrowing against their house for personal investments."

In a tangent, the FT then focuses on the tax considerations of this risky behavior.

Unlike gains on a principal private residence, any gains on investments would be subject to capital gains tax (CGT). A wealthy homeowner may therefore seek to transfer borrowed funds to a spouse who has not used his or her annual CGT allowance. If the investment is designed to provide a stream of income, there could be a case for a transfer to a spouse who pays the basic rate of income tax, advisers said.


Nimesh Shah, a tax adviser at accountants Blick Rothenberg, said that if a homeowner took out a loan to invest in commercial property — and this was specified as the purpose of the loan — residential mortgage interest could potentially be offset against the commercial rental income.

Of course, the above assumes capital appreciation and therefore, capital gains. For now nobody is worrying on the more unpleasant outcome, one where there are no gains to book taxes again. Then again, in a wholesale wipeout at least the "smart money" will have years and years of NOLs carryforward losses to offset any future income taxes. Just like Donald Trump.


BaBaBouy Blythes Master Sun, 08/06/2017 - 13:54 Permalink

'I woke up with wrists and ankles handcuffed, tape on my mouth, I was inside a bag': Model, 20, relives terror of Italy kidnap and auction on Dark Web as she arrives home in UK and walks dog'

Ransom In BITCOINZ: "At a sensational police press conference in Milan her captor was named as Polish-born Lukasz Herba, 30, who is accused of trying to sell her on the internet for 300,000 Euros (£270,000) through bitcoin."…

Hmmm... How long before US shuts this Crypto "Experiment" Down ???

In reply to by Blythes Master

GUS100CORRINA Anderson Coope… Sun, 08/06/2017 - 16:25 Permalink

The Madness Is Back: Homeowners Take Out Mortgages To Buy Bitcoin, Cars And WineMy response: Makes "PERFECT SENSE TO ME"in the times in which we now live.What has been will be again,what has been done will be done again;there is nothing new under the sun.====Insanity: Doing the same thing over and over again and expecting different results.- Albert Einstein - 

In reply to by Anderson Coope…

Save_America1st GUS100CORRINA Sun, 08/06/2017 - 16:51 Permalink

Maybe I'm wrong, but you can't really buy 2 million dollars worth of BTC.  How would you when the exchanges have pretty low limits on how much you can spend, like 15000 max.  And if you spend your max (I'm using coinbase as example), then there's a waiting period of so many days for the purchase to clear until you get the BTC in your account, like 5 to 8 business days.  Then I think you have to wait another week before you're allowed to make another purchase at your max limit again.  Something like that...not sure, so just asking if I'm close on understanding how that generally goes and if there's any way that someone could make monster purchases of more than that at a time. I guess if that person had multiple exchange accounts with all the others, but I think they all have limits that would make buying 2 millions dollars worth of any crypto take a few years to accomplish.Oh least if this case is true it shows that big money is and will continue to try and move into the cryptos and I think the cryptos will pull phyzz PM values right along with them on the way.In case you haven't heard the latest Greg Hunter interview today, it was with Clif High, and it's a great and very interesting and informative interview if you don't already get Clif's newletters: 

In reply to by GUS100CORRINA

zebra77a BaBaBouy Sun, 08/06/2017 - 14:59 Permalink

Russia has adopted Mastercoin and blockchain.. Japan has legalized bitcoin and 115,000 retailers accept it. China is looking at quantum key proof cryptocurrencies and blockchain. Western governments are sleeping not realizing crypto will evaporate their gdp into untrackable offshore exchanges.. Nobody is going to be able to stop crypto without going nuclear.. Any central bank clinging to their exploding fiat dollars will soon cease to exist in ten years as socialist taxation forces the financially nimble to disappear their wealth into bitcoin..China could not stop crypto the US sure isnt going to either.. Countries that iron curtain there citizens to attempt  cryptocurrency blocking will implode then collapse as crypto-embracing economies grow at geometric rates triggering currency dollar deficits and peso devaluations of formerly strong currencies like the US dollar... The Vancouver Foreign Tax has already been end run as offshore transactions are conducted in bitcoin before the titles are simply transferred..  paying only the transfer tax. The hidden black gdp is already exploding.. It will never be stopped nowCrypto exchanges can move borders  in hours, disappear if taxed, remain almost impossible to track and burst large dollars into hundreds of micro-wallets to remain below radar..Whiever opens an ebay, amazon or kijiji using only cryptocurrencies will replace Amazon in possibly less than 24 months..Socialist deficit running nations will implode soon anyways as there currency implodes under crushing taxation and debt. It will require a  geometricvexpansion of the police state just to maintain the prison colony and there prison bucks...

In reply to by BaBaBouy

Son of Captain Nemo Sun, 08/06/2017 - 14:07 Permalink

Attention "Buttcoin" shoppers...

Janet Yellen and the Board of Governors sends you their regards!!!


Party at the Marriner Eccles Building December 31, 2017 to say "THANK YOU" for EVERYTHING YOU DO for "THE" BANK to "RING IN" the New Year!...

Those Buttcoin holders that have at least two mortgages on there only homes valued at $1 million or more get to have a sit down VIP dinner with the "Chair" and a personally autographed picture of her, Ben Bernanke and Alan Greenspan as a token of our appreciation for your recklessness AS WELL AS OURS!

CheapBastard Sun, 08/06/2017 - 13:48 Permalink

Used to be against the law in some states to mortgage your house to buy something else. The day they changed that was a sad day for frugal and wise thinking. One more step toward collapse in order to support the ponzi team of Bankers, realtors and RE developers at the expense ot stability and sanity.Just as bad as dropping the traditional 20% down requirement. Terrible move.imho

TheReplacement CheapBastard Sun, 08/06/2017 - 14:14 Permalink

They dropped the 20% rule so they could give out more loans AND property could be sold at higher prices - bigger loans.Being able to mortgage a home to buy other things - same purpose more and bigger loans.New and bigger loans are necessary to pay for older and smaller loans.Debt must grow so default can be forestalled.  Everything will be monetized and financialized.Tis the nature of our "monetary" system. 

In reply to by CheapBastard

helloimjohnnycat TheReplacement Sun, 08/06/2017 - 18:37 Permalink

Yes.....and the taxes on all assets will be levied, and raised & raised, over & over.The joo-kike-schmucks that control the processes MUST have inflation.And the word " inflation " is misdirection for the game in play.  The Game is nothing more complicated than the simple arithmetic behind money-changing.Most fat-fuck Americans are too stupid and brainwashed to bother understanding that Maestros Greenspan, Bernanke, & Yellen are effing retards who couldn't function in the real world.I have a messican in my machine shop who's better at applied mathematics than those kikes. Truthfully, I've had enough of him, but that's for other reasons. Such as:   His light drinking ( LITE ? ) over decades DOES alter a man's fitness & he'll never get back to full strength.Nevertheless, I'll bet my life that he can run circles around the esteemed intellectuals always crammed down our throats.Why's that ?  Simple : Because the man is actually engaged in taking raw chunks of steels & alloys and turning the rough shapes into a high-precision machine tools. I'm NOT saying one part which can be quantified. No, I'm talking assemblies involving numerous parts which fit together and operate with exacting tolerances.The rub : IF an error is made, there's no punching a string of zeros into a computer, then having a press conference or some such political rim-job session to buffalo the moronic masses who only care if their fantasy nigger scored another touchdown.Bottom line to my rant : NO bankster I've EVER MET can do what I'm discussing. The fuckwads would lose a finger, or an eye, in minutes. That is IF they could remember how to power-up the machinerys' drives.  Bernanke couldn't " chuck " a thin-walled tube if he had to. ( How many reading know the term chuck ? ) The POS Bennie is a fucking fool, and a sputtering Greenspan would drool and slip on our polished cement floor. OSHA would fine me unless I provided a drool cup.  Yeah Howdy, and they * think * they're the Master Race ? Come see me & we'll talk. lolAs for buying wine and collector cars....I don't drink, don't care if you do, but I can tell you more about the car game than Miles Mathis opines re Modern Art , galleries & brokers. He's spot on ( whatever he is, I don't care. But he speaks truth about bullshit " art " and the related. ). I'm older than the " genius-boy " and have seen it all.  BTW, in the tool room, I can produce a ROUND part with a diameter sized to whatever dimension I desire. The dimensional accuracy can be held to millionths of the nominal diameter.  Pi is not 4.I can expose a wider range of physical fruads than he's ever dreamed about. That comes with having been involved in manufacturing with connections world-wide.I'd never recommend leveraging any NEEDED asset to afford a toy.Call me stupid as you drive past in your new over-priced Ferrari and pull up to your second vacation home. I OWN my assets & I purchased things I'd always want BEFORE we reached today's Inflection Point.  ( disclaimer : we KNOW the bureacratic taxing-authority joos hold RE titles, but we can smoke them if & when we decide to go Medieval.  And don't think they don't know it.  I'll ALWAYS remind to never give up the 2nd. That's " god " given anyway. No commie JEW is our " god ".  )Anyway, screw these articles & comments serving the joo banksters. So many of you assholes come on board daily and preach End the Fed !, End the Fed !, and then you turn around and let the flunky banksters run a scaley cock right on up.  I agree to End the Fed, but Fuck you !  Fuck you hypocrites.  I laugh & cry at such ignorance. Don't get me wrong, I have projects which I'd love to do. Thing is, we're talking large sums of moolah.  I have enough, but I'd leave myself wide open for the next turn-down which is coming.Regular people have been fooled into believing the historic near-zero interest rates are for OUR benefit. Sorry, that's mostly wrong. The zero rates mainly  benefit the big jewfish and their connected joo-faggot, blow-ya' jewfish brothers. Low rates for them aids the war on America's White Middle Class. It's been a joo-bait plan from the inception of their last manipulated economic down turn.Factor in the percentage of USD depreciation, multiply that by the LOWEST current interest rate, and the number is the functioning rate most broke-dick Joe & Josefina Schmoe are paying for her new catch-me, fuck-me Toyota.  Buzz-cut Joe's a POS for marrying the messican puta, anyway. Speaking of messican putas....Beware the young brown slit bank tellers. They can be young & pretty, even married to Buzzed Joe, but they all have leetle gang-banging brothers who glean informaccion from her. Those turds fuck their seesters, and his friends fuck her. If she gives up enough potential info to help their low-brow, two peso dime crimes, the pimple-faced punk may not be allowed to have his way with her. Fucking spics of this caliber are trash. They're here because the Jew York Jew, Emanuel Celler, pumped the law. Thanks a lot !OK kiddos, I gotta' run. There's a Mopar Hemi on eBay about to end.  Not bad, not bad. It's bargained priced before the next Mecum auction and UNDER 200 K !

In reply to by TheReplacement