Using Shares or Managed Funds as Security for an Asset-Lend Home Loan

The self-employed borrower cohort has expanded at a pace the standard mortgage factory never built for. ATO figures for the 2022‑23 income year recorded more than 2.5 million individuals reporting sole-trader or partnership business income, and company director numbers continue to climb. Rate rises between May 2022 and November 2023 delivered the sharpest tightening cycle in a generation, adding 425 basis points to the cash rate target. The combination forces a genuine re‑think of how a borrower proves capacity. For those sitting on a portfolio of ASX-listed shares or retail managed funds, an asset-lend facility that takes those securities as primary collateral has shifted from a niche option to a structurally important lever.

This article examines the machinery of share‑ and managed‑fund‑secured home loans as they exist in the Australian non‑bank specialist market in mid‑2025. It does not argue product superiority; it maps the product rules, the lender-by-lender policy boundaries, and the arithmetic that makes or breaks an application. The detail that follows is drawn from current lending policy guides, loan‑level price disclosures, and APRA’s quarterly property exposure returns. Where a lender has adjusted a maximum LVR or a serviceability floor within the last six months, that date is noted.

What a Share‑Secured Asset‑Lend Facility Actually Does

The legal structure: mortgage over real property, pledge over scrip

An asset‑lend transaction is still a first‑registered mortgage over residential security. The difference is that the borrower pledges a separate pool of financial assets—shares, units in unlisted managed funds, or both—as additional security. The lender takes a first‑ranking equitable charge over the securities account. In practice, the borrower transfers the portfolio into a lender‑nominated custodian (or, less commonly, a HIN‑locked account with a CHESS‑sponsored restriction) and grants a fixed charge. The cash proceeds of the loan are released only after the custodian confirms settlement of the securities.

The loan purpose can be for owner‑occupied or investment property, including a refinance. Because the securities pledge stands in for serviceability documentation—or at least materially reduces the income test—the facility sits in the low‑doc and alt‑doc category. Most lenders will still ask for the last two years’ company tax returns or an accountant’s declaration, but they do not apply the standard 3‑percentage‑point serviceability buffer to an income figure. Instead, they impute a conservative yield on the pledged portfolio and compare it to the loan interest obligation, a process that can open the door for a borrower whose taxable income is lean but whose asset base is deep.

What securities lenders will accept

There is no universal list, but the accepted collateral universe converged around five criteria by early 2025:

• ASX‑listed ordinary shares from the S&P/ASX 200, with a minimum market capitalisation of $250 million.
• Exchange‑traded funds tracking a recognised broad‑market index (e.g., S&P/ASX 200, S&P 500), provided the ETF is CHESS‑depositary‑interest settled.
• Unlisted managed funds operated by an Australian responsible entity holding an AFSL, with a published daily exit price and a redemption period of no more than 15 business days.
• Stapled securities such as those issued by Lendlease or Dexus, treated as shares for LVR purposes, though individual lender discretion applies.
• Hybrids and listed debt instruments are largely excluded. Pepper Money’s policy guide, edition effective 3 February 2025, explicitly excludes convertible notes, ASX‑listed warrants, and securities subject to an escrow arrangement. La Trobe Financial, in its Asset Lend terms sheet dated 17 January 2025, also excludes shares in entities that derive more than 50% of revenue from speculative mining exploration.

Valuation conventions and haircuts

The lender applies two layers of discount. First, an asset‑level ‘advance rate’ determines the maximum LVR against each security; second, a portfolio‑level concentration limit reduces the aggregate lendable amount if the portfolio is skewed.

For a plain ASX 200 share, the advance rate sits at 65% of the 20‑day volume‑weighted average price as at the valuation date. Brighten Home Loans, in its April 2025 broker update, standardised its advance rate at 65% for the ASX 100 and 60% for the ASX 101‑200 constituents. Resimac moved to 60% across the full ASX 200 on 1 March 2025, down from 65% previously, reflecting the non‑bank sector’s response to a higher cash‑rate environment and increased liquidity risk in mid‑cap names.

Managed funds receive a lower advance rate because they embed a layer of redemption delay. A typical policy splits the universe: domestic equity funds 55%, balanced funds 50%, fixed‑income funds 60% (Liberty Financial, Specialist Lending Parameters, version 14.2, November 2024). International equity funds that price in a different time zone are capped at 50% unless the fund publishes a daily AUD net asset value before 11:00 am Sydney time, in which case they may attract 55%.

Concentration limits are rigid. No single ASX 200 security may represent more than 20% of the total portfolio value for the purpose of calculating lendable amount. If held, the excess is simply omitted. For managed funds, a single fund family cannot account for more than 30% of the portfolio. Resimac’s serviceability calculator, updated for its March 2025 policy release, now hard‑codes those concentration exclusions and will not override them via credit exception.

How Non‑Bank Lenders Underwrite a Share‑Backed Low‑Doc Loan

Pepper Money: the largest data set

Pepper Money has the deepest book of asset‑lend loans among the non‑bank specialists. Its policy treats the share portfolio as both primary security for serviceability and secondary security for the property. The serviceability calculation uses a notional portfolio yield of 3.5% per annum grossed up by a franking credit estimate of 1.0%, giving a 4.5% assessed income. The loan interest rate is stressed at the product reference rate plus 2.0%, not the standard 3‑percentage‑point buffer required under APRA Prudential Standard APS 220 for ADI‑regulated entities. Because Pepper is not an ADI, its buffer is set by its warehouse facility covenants, not APS 220. As at its May 2025 pricing schedule, its Near Prime asset‑lend variable rate for a loan of $500,000 at 65% LVR against a metro property is 7.19% p.a. (comparison rate 7.44% p.a.), and the serviceability test uses 9.19%.

Pepper requires a loan‑to‑value ratio against the property of no more than 70%, and the advance against the portfolio must be at least 1.5 times the loan amount. For a borrower pledging $400,000 of ASX 100 shares at a 65% advance rate ($260,000 lendable), the maximum property value that can be financed is $260,000 / 1.5 = $173,333, limiting the loan size to $121,333 if 70% LVR applies—or a $173,333 property at 70% LVR is $121,333. The arithmetic forces most borrowers to combine a significant portfolio with a modest property purchase unless they can bring cash equity to the transaction.

La Trobe Financial: no income verification, stricter LVR

La Trobe’s Asset Lend product, relaunched in November 2022 and revised in January 2025, takes the opposite approach: it dispenses with income verification entirely. The borrower signs a declaration that they can service the debt without relying on the charged assets as a source of repayment, but no tax returns, BAS statements, or accountant letters are mandated. The assessment rests solely on the quality of the pledged securities.

The trade‑off is a lower LVR ceiling. La Trobe caps LVR against the residential property at 60% if the securities are shares, 55% if they are managed funds, and 50% if the portfolio mixes the two. The advance rate against the securities is 65% for ASX 200 shares, 60% for listed ETFs, and 55% for unlisted managed funds. Crucially, La Trobe also imposes a hard cap of $1 million on the total loan amount, which limits its use for high‑end metropolitan purchases but fits well for the median‑priced capital‑city dwelling.

La Trobe’s facility is an interest‑only loan term of up to five years, with principal repayments required only if the portfolio value drops below a 1.25‑times cover ratio. The annual review process, documented in a product disclosure statement dated 10 January 2025, requires the borrower to deliver a fresh portfolio valuation from an ASIC‑registered liquidator if the lender suspects a material decline.

Liberty Financial: the interest‑rate path and sub‑portfolio carve‑outs

Liberty’s ‘Liberty Free’ product, which sits inside its specialist channel, offers asset‑lend capability without mandating a minimum income. The product is priced on a risk‑adjusted grid. For a loan secured by an owner‑occupied property with an LVR at or below 60%, and a pledged portfolio that is 100% invested in ASX 100 stocks, the variable rate in May 2025 was 6.89% p.a. (comparison rate 7.19% p.a.). If the portfolio includes more than 15% in managed funds, the rate steps up by 0.25% and the advance rate on the managed fund component drops to 50%.

Liberty’s 2025 policy also introduced a carve‑out for portfolios held within a self‑managed superannuation fund. The lender permits a limited recourse borrowing arrangement where the SMSF trustee pledges listed shares held through a separate custodian, provided the borrowing is for a property that will be held by the fund. The advance rate on SMSF‑held shares is 60%, reflecting the additional structural complexity. This carve‑out, effective from 1 February 2025, was noted in Liberty’s broker communication pack as the first of its kind in the alt‑doc channel.

Resimac and Brighten: the challenger layer

Resimac’s ‘Asset Plus’ product, launched in March 2024, targets the self‑employed borrower who can show an ABN registered for at least 12 months and an active GST‑reporting history. It requires the last two quarters’ BAS statements as a minimum income flag, but then uses the pledged portfolio for serviceability. The portfolio must be at least $100,000 in market value. Resimac allows an LVR of 70% against the property, the most generous of the current crop, but its advance rate against shares is only 60%, as noted above. It also applies a minimum loan size of $150,000.

Brighten Home Loans, which operates as a wholesale funder for a network of mortgage managers, published a simplified asset‑lend matrix in its April 2025 broker update. The matrix sets the advance rate at 65% for the top‑50 ASX stocks, 60% for the next 100, and 55% for the remainder of the ASX 200. Brighten will not accept a portfolio where more than 40% of the market value sits outside the S&P/ASX 200. Its property LVR cap is 65%. Brighten’s twist is that it will treat a portfolio managed by a licensed financial adviser, with a documented Statement of Advice and a risk profile assessment, as a ‘managed portfolio’ and apply an advance rate of 60% across the whole pool—a useful path for someone who would otherwise face the piecemeal treatment of individual holdings.

Managed Funds as Collateral: Extra Hurdles and Liquidity Discounts

Redemption‑risk pricing

Managed funds are structurally harder for a lender to liquidate than CHESS‑settled shares. A standard retail unlisted managed fund may take seven business days to process a redemption and realise cash, and the fund’s constitution often allows the responsible entity to suspend redemptions in illiquid conditions. Lenders price that risk directly. The 5‑to‑10‑percentage‑point discount in advance rates compared with listed shares is not an arbitrary penalty; it corresponds to the additional time and uncertainty the lender absorbs if a default occurs and the loan is called.

Pepper’s policy guide, February 2025 edition, states that any fund that has imposed a redemption freeze within the previous three years is ineligible. La Trobe applies a similar rule but extends the look‑back period to five years for fixed‑income funds, a response to the unlisted property fund freezes that occurred in late 2022 and early 2023.

Portfolio concentration and fund‑level limits

Lenders enforce a minimum fund size to reduce single‑exit illiquidity. The threshold is typically $100 million in total net assets. For boutique funds that fall below that mark, the advance rate drops to zero—the fund cannot be included. Resimac’s March 2025 update codified this ‘$100m AUM or zero’ rule explicitly, while Brighten uses a sliding scale starting at $50 million for advance rates of just 40%.

Concentration across asset classes also matters. A managed fund that invests in unlisted infrastructure, private credit, or direct property is almost never accepted as collateral, even if it has daily pricing, because the underlying assets lack the transparent market‑to‑market that bank risk‑management frameworks require. Liberty Financial’s November 2024 policy guide lists ‘unlisted property trusts, mortgage funds, and credit funds’ as ineligible for asset‑lend purposes. The only exception is an ASX‑listed REIT, which is treated as a share.

Tax, Margin Calls and the 2025 Rate Cycle

The loan‑purpose rule and interest deductibility

The ATO’s Tax Ruling TR 2023/3, released on 8 March 2023, reaffirmed that interest on a loan secured by a portfolio of shares is deductible only if the borrowed funds are used for an income‑producing purpose. If the borrower draws the loan to buy an owner‑occupied home, the interest is not deductible, regardless of the security type. Borrowers who deploy the asset‑lend structure to acquire an investment property, however, can claim the interest, provided the share portfolio is not itself the source of income used to service the debt. An accountant‑certified loan‑purpose statement, dated within 30 days of settlement, is now a standard condition precedent for most non‑bank asset‑lend settlements. La Trobe’s loan‑offer documents require a signed declaration that specifies the address of the investment property and its intended rental status.

Margin call mechanics and the cover ratio

Every asset‑lend facility embeds a margin‑call trigger. The standard cover ratio is 1.4 times, meaning the lendable value of the pledged portfolio must be at least 1.4 times the outstanding loan balance. If the market value of the shares falls, the lendable value drops, and the ratio can be breached. The borrower then faces a margin call, typically requiring a cash top‑up or a sale of securities to restore the ratio within five business days.

Pepper’s cover ratio is 1.5 times, measured monthly on the last business day. If the ratio drops below 1.5, Pepper sends a written notice and gives the borrower 10 business days to cure the breach. Liberty uses 1.4 times but revalues the portfolio every calendar quarter; if the ratio falls below 1.3 times at any point, it can move to weekly revaluations and shorten the cure period to two business days. Brighten’s April 2025 update introduced a hard‑coded margin call in its servicing calculator that triggers an auto‑decline if the projected portfolio value after settlement would give a cover ratio below 1.55 times, a pre‑emptive buffer that effectively limits the maximum initial loan size.

In a rate‑cut cycle, the dynamic works in reverse. Falling rates reduce the interest component in the serviceability test, making it easier to meet the cover ratio on a given portfolio value, which could allow a larger loan amount at origination. Between November 2023 and May 2025, the cash rate held at 4.35% and two‑year swap rates fell from 4.62% to 4.09%, pulling down the product reference rates used by non‑bank funders. The effect, noted in APRA’s March 2025 quarterly property exposure statistics, was a 7% rise in the number of self‑employed‑borrower loan approvals in the non‑bank sector compared with the same quarter a year earlier. That data point, released 22 May 2025, shows asset‑lend facilities taking a larger share of a growing segment.

Actionable Steps for a Self‑Employed Borrower Considering an Asset‑Lend Facility

1. Benchmark the portfolio against lender-grade criteria. Run your share and managed-fund holdings through the advance‑rate grids used by Pepper, La Trobe, and Resimac. If the blended effective advance rate is below 55%, the likely outcome is a loan amount too small for a practical property purchase. A $150,000 portfolio of small‑cap stocks and boutique funds will often return less than $80,000 in lendable value after haircuts and concentration exclusions.

2. Obtain an up‑to‑date accountant’s declaration even if the lender does not mandate it. La Trobe’s product may skip income verification, but a dated statement that confirms the borrower’s self‑employed status and GST‑reporting history smooths the application with most credit assessors. The declaration should be issued within 60 days of the loan application and should reference the ABN and the nature of the business.

3. Model the cover ratio under a 15% market decline before committing to a property price. A margin call in year two of the loan is an avoidable risk. Set the intended loan amount against the portfolio value calculated at 85% of current market, apply the lender’s haircuts, and check that the remaining lendable value is at least 1.4 times the loan. If not, either reduce the loan or add a cash buffer in an offset account linked to the loan.

4. Separate the purpose of funds at settlement. If the property is an investment, establish a clean audit trail. Draw the loan proceeds directly to the settlement agent’s trust account, and record the settlement statement. That documentation will satisfy the ATO’s loan‑purpose test and preserve the interest deduction, potentially saving $9,000 a year in after‑tax cost on a $400,000 loan at 6.89% p.a. for a borrower on the 37% marginal rate.

5. Request the lender’s margin‑call policy in writing before signing. Non‑bank terms vary from 10 days’ cure to two days. A borrower whose portfolio includes unlisted managed funds with seven‑day redemption periods cannot meet a two‑day call without forced selling. Choose a lender whose cure period matches the liquidity profile of the pledged assets, and keep the written confirmation in the loan file.