Can I use shares as security for a home loan?

Share portfolios as a source of income

When assessing your ability to repay your home loan, lenders won't look at the total value of your share portfolio when assessing your serviceability. Rather, they'll look at the dividends you receive from your portfolio.

And because shares fluctuate in value, most lenders will only accept a percentage of your investment income.

Some banks will use around 80% of your dividend income when assessing your loan serviceability (your ability to repay a loan). Some banks or lenders apply 70% or even 50% instead.

Share portfolios as genuine savings

During the home loan application process, lenders will assess your income, debt and assets, and they will review how they affect your ability to service the loan.

One factor lenders look for is proof of genuine savings, such as regular deposits into a savings account.

Banks may accept shares as genuine savings too, provided you've held them for between 3 and 6 months, so holding a share portfolio in your name can help to increase your borrowing power.

Why won’t lenders accept shares as part of my deposit?

One thing a share portfolio can't do is serve as part of your deposit. The deposit for a home loan needs to be in cash, and the loan amount is secured against the value of the property.

This allows the lender to limit their exposure to risk. If you default on your loan repayments, the lender needs to recoup their money. The easiest way to do this is to force the sale of the property.

Your lender doesn't want to go after your share portfolio on top of this (especially if your investments have lost value).

Volatility is a big problem

The value of your share portfolio rises and falls all the time. So while your portfolio might be worth $50,000 now, in 12 months’ time the value could have dropped to $40,000 or even less, which would have a huge impact on the amount you borrow and your ability to service the loan.

Selling shares to form your deposit

You can also sell some of your shares and use the cash to form your deposit. This is a simple solution, and can help you increase your deposit to 20%, letting you avoid paying lender’s mortgage insurance (LMI).

But there are some downsides to keep in mind:

• Genuine savings. Most lenders won't consider the cash from an investment as genuine savings unless it's been in your bank account for 3 months.
• Capital gains tax. When you sell an asset like property or shares, you pay capital gains tax on the profits. If you've held your shares for over 12 months there's a CGT discount.
• Loss of future growth. Shares are usually a long term investment. Selling your shares means you give up any potential future growth in those investments.

Frequently Asked Questions

• Do mortgage lenders look at your stock portfolio?

  Yes, lenders will generally consider your stock portfolio as part of your overall financial situation when assessing your loan application. While they primarily focus on your income, savings, and existing debts, a significant share portfolio can demonstrate financial stability and increase borrowing capacity.

• Can I use equity in my house as a deposit?

  Let's say you own your home and want to buy an investment property. A lender may take the equity in your home as part of the deposit.

  This means you're using your home as security for a second property. A lender won't accept the full value of your home, but may let you borrow up to 80%.

• Can I borrow cash to buy a house using shares as collateral?

  Margin loans are loans allow you to borrow money to invest in shares or managed funds. They're very risky loans for sophisticated investors. Using one to get cash to buy a property is incredibly risky.

  If the shares lose value the lender could make a margin call, requiring you to sell your shares suddenly.

Written by

Sarah Megginson

Personal finance expert + media spokesperson

With over 20 years of experience in property, finance and investment journalism, Sarah is a trusted expert whose insights regularly appear across television, radio, and print media, including Sunrise, ABC News, and Yahoo! Finance. She has previously served as managing editor for Your Investment Property and Australian Broker, and her expert advice has been shared over 2,500 times in 2023-2024 alone. Sarah holds a Bachelor’s degree in Communications and a Tier 1 Generic Knowledge certification, which complies with ASIC standards. See full bio

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