The three shocks worth modelling
Model them together, not separately. Historically these shocks arrive in the same quarter more often than independence assumptions suggest.
- A 30% fall in equity collateral, sustained for twelve months
- A 10% adverse move between your collateral currency and your loan currency
- A 150 basis point rise in the reference rate, increasing the interest you must service
A worked stress test
Portfolio of €1.4m, blended advance rate 55%, borrowing base €770,000, drawn €500,000 — utilisation of 65%.
Apply a 30% collateral fall: portfolio drops to €980,000 and the borrowing base to €539,000. The €500,000 drawn is now 93% of the base — uncomfortably close, but no breach.
Now apply the same shock at 90% utilisation. The investor drew €693,000 against a €770,000 base. After the fall the base is €539,000 and the loan exceeds it by €154,000, triggering an immediate call that the locked qualifying investment cannot cure.
Utilisation is the single most powerful risk control available. Drawing 65% instead of 90% of your limit is what separates a stressful quarter from a forced liquidation.
Sizing the cure reserve
A dedicated reserve of 10–15% of the drawn amount, held in cash or short-dated government bonds, covers most realistic calls without requiring you to sell equities at the bottom.
Keep it outside the pledged pool where the facility structure allows, so a falling market does not reduce the very buffer designed to protect you.
Contract terms to check before signing
- The exact loan-to-value trigger and whether it is measured daily or weekly
- The cure period in hours, and whether it can be shortened at the bank's discretion
- Whether the bank may sell collateral without instruction after the cure period
- Whether advance rates can be revised unilaterally mid-term
- Whether the facility has an annual review that permits repricing or withdrawal
Frequently asked questions
What utilisation level is safe?+
Most advisers target 60–70% of the approved limit for financed residency investments, because the qualifying asset cannot be sold to cure a call.
How large should a cure reserve be?+
Typically 10–15% of the drawn loan, held in cash or short-dated bonds and ideally outside the pledged collateral pool.
Discuss your financing with a CISI Level 7 adviser
We model the loan against your actual portfolio, the programme you are targeting, and your tax residency — before you commit capital. No product commission, no obligation.