Playing the loan game: why the wealthy are choosing to borrow

Sometimes borrowing makes financial sense.

The decision can depend on the performance of invested capital, the cost of finance and the value of retaining flexibility.

For anyone who’s ever dreamed of being mortgage-free, it’s an obvious question: why would someone in a position to write a cheque for €20m ($23.2m) – or even more – choose to borrow to finance a property purchase instead?

For John Busby, Head of Sales at Traverse International, Knight Frank’s international mortgage desk, in many cases the answer is simple. “People borrow because the maths works,” he says.

The data backs this up – the appetite for finance is growing. Traverse International’s completed lending cases rose 89% in the 25/26 financial year, while total lending increased 160% and the average loan size grew 51%.

The wider financial equation

Another major driver is tax and regulation. The mechanics of the French real estate wealth tax, payable by residents and non-residents, which starts at €1.3m (US$1.5m), allows an interest-only loan to be deducted on a sliding scale over its maturity term.

According to Roddy Aris, Partner at Knight Frank’s Alpine Desk, this is why 80% of his buyers seek finance.

Over the border in Switzerland, low borrowing rates are also a factor. “Wealth advisers are screaming at their clients not to leave their capital sitting in the bank when interest rates are so low,” says Alex Koch de Gooreynd, Partner, Alpine Desk at Knight Frank.

Finally, and arguably most importantly, many people are borrowing to preserve liquidity and keep their options open. In a volatile world, the ability to act quickly, liquidate and diversify assets is increasingly valuable.

From single-property loans to portfolio finance

What’s changed in the finance world? Busby sees the pandemic as a key inflection point.

Enquiry volumes have cooled since the Covid-era rush, but buyers who remain active are, in his words, “well heeled, and ready to transact … [they’re] moving with intent. Property finance is evolving from single-asset lending into full portfolio management.”

He points to a recent deal where a client refinanced an existing home in the Balearics to release capital for a fresh purchase in the Alps, taking combined lending to around €30m ($34.8m). It’s a good illustration of how financing is increasingly being considered across a client’s wider property holdings rather than asset by asset.

While some family offices may consider finance directly, the case for specialist advice becomes stronger as transactions grow larger and more complex. “Once you’re dealing with cross-border transactions, there’s no point taking the risk that an unfamiliar lending policy or cultural misunderstanding could trip up or delay the deal,” Busby says.