Borrowing against your investments without selling them
Pledging means using your investments as collateral for a loan instead of selling them — known as a securities-based loan, a Lombard loan or a pledged-asset line. The lender advances a percentage of their value and, in exchange, can sell them if you do not pay or if they fall too much. Used well, it provides cash for a deposit or an opportunity without breaking a portfolio you have spent years building, and without paying tax on a sale.
- Funds, shares, bonds and deposits can be pledged, each with a different loan-to-value.
- Pledging does not trigger a capital gain: you do not sell, so you do not pay tax on accumulated gains.
- If the portfolio falls below a threshold, the lender will ask for more collateral or sell part of it.
- It only pays if the loan costs less than what you expect the portfolio to earn and you can withstand falls.
- Some lenders also accept pledged assets as extra collateral to finance more of a mortgage.
How it works
You sign a loan or credit line secured by your securities: they stay in your account but are blocked in favour of the lender. You remain the owner, receive the income and the portfolio keeps moving up or down, but you cannot sell or transfer those securities freely while the pledge is in place.
The lender advances a percentage of the value (the collateral's LTV) and sets a threshold: if the debt-to-portfolio ratio exceeds it, you will be asked to add collateral or reduce the debt — a margin call.
How much lenders lend by asset type
Each lender sets its own percentages according to the asset's volatility. As a rough guide:
Example: pledging vs selling
You have €100,000 in index funds with €40,000 of accumulated gains and need €40,000 for a property deposit.
- Selling: you realise a proportional gain of about €16,000. In Spain, with savings-base rates of 19–21% on that amount, you would pay about €3,240 in tax and shrink your portfolio for good.
- Pledging: you borrow €40,000 against the portfolio. If the loan costs 4%, you pay €1,600 a year in interest and your whole portfolio stays invested.
If the portfolio earns more than 4% over the long run, pledging comes out ahead. If markets fall, you still owe €40,000 and your collateral is worth less.
The main risk: the margin call
In the example, if the lender allows at most 50% on equity funds, your €40,000 requires the portfolio to be worth at least €80,000. A market fall of 20% puts you at the limit.
At that point the lender will ask you to add securities or cash, or to repay part of the loan. If you cannot, it will sell part of your portfolio — right after a fall, which is the worst moment.
Pledged assets as mortgage collateral
Some lenders accept pledged investments or deposits as additional collateral for a mortgage. This lets them finance more than their standard percentage of the home's value, because the excess is covered by your assets.
It is an alternative to a family guarantee or to selling the portfolio to complete the deposit. Ask when the pledge is released: usually once you have repaid enough for the mortgage to fall below the standard percentage.
When it pays off — and when it does not
It pays off when the need for cash is temporary or the loan is clearly cheaper than the portfolio's expected return, selling would have a high tax cost, and your portfolio and income can withstand a fall without reaching the threshold.
It does not when you plan to borrow the maximum, when the portfolio is very volatile and concentrated, or when the plan depends on markets not falling.
Taxes
Pledging is not selling: no capital gain or loss arises. Income from your investments is taxed as usual. Loan interest is generally not deductible, unless local rules allow it when the money funds an income-producing activity, such as buying a property you rent out. Check your case with a tax adviser.
Frequently asked questions
What does it mean to pledge an investment fund?
To use it as collateral for a loan. It is still yours and still invested, but you cannot sell or transfer it freely while the pledge is in place.
How much will a lender advance against my investments?
A percentage of their value that depends on the asset: close to 100% for deposits and money market funds, less for bonds and mixed funds, and often around 50% for equities.
What happens if markets fall?
If the value falls to the agreed threshold, the lender will ask for more collateral or a lower balance. If you do not provide it, it can sell part of the pledged securities.
Is pledging taxed?
No. Since you do not sell, there is no capital gain. You only pay tax when you sell the securities or on the income they produce.