Lombard Loans for High Net Worth Individuals.
Lets say you need a large facility of £2 million urgently to seize a time-sensitive property investment opportunity, yet selling your carefully curated investment portfolio would trigger substantial capital gains taxes and disrupt your long-term financial strategy. This scenario perfectly illustrates why lombard loans have become an increasingly popular liquidity solution for sophisticated investors today.
A lombard loan enables you to access cash by pledging your existing securities, bonds, and other liquid assets as collateral, while maintaining full ownership and investment exposure. Unlike traditional unsecured lending, this form of asset-backed finance offers larger loan amounts, competitive interest rates, and remarkable flexibility.
Fox Davidson are a specialist UK mortgage broker. Call or send us an email to discuss your funding requirements in confidence with an FCA regulated mortgage broker. Lombard Loans are secured by referral to to a private bank. we have relationships with over 30 UK private banks & specialist lombard loan companies.
What Are Lombard Loans?
A lombard loan is a secured lending facility where borrowers pledge liquid and marketable assets from their investment portfolio as collateral to obtain credit. Unlike traditional loans that rely heavily on income verification, lombard credit focuses on the quality and value of your underlying assets.
Introduction to Asset-Backed Lending
Asset-backed lending is a powerful financial strategy that enables individuals to unlock the value of their investment portfolio without having to sell their assets. A lombard loan is a prime example of this approach, allowing you to borrow cash by using your stocks, bonds, and other securities as collateral. This type of loan is secured against your portfolio, meaning you can access funds quickly and efficiently while still maintaining your investment positions.
One of the key advantages of a lombard loan is its flexibility. Whether you need short-term liquidity to cover unexpected expenses, want to take advantage of new investment opportunities, or simply wish to achieve your financial goals without disrupting your long-term strategy, lombard loans offer a tailored solution. You can borrow against a wide range of assets, including equities, fixed income securities, and diversified funds, making this form of lending suitable for many different types of investors.
By choosing a lombard loan, you avoid the need to liquidate your investments, which helps preserve your portfolio’s growth potential and avoid triggering capital gains taxes. This means you can continue to benefit from market appreciation, dividends, and interest payments while accessing the cash you need. In today’s fast-moving financial environment, asset-backed lending provides a smart, efficient way to manage liquidity and make the most of your assets—helping you achieve your objectives on your own terms.
How Lombard Loans Work
The lombard lending process begins when you pledge eligible securities from your investment portfolio as collateral. Your assets remain registered in your name and held in a designated custody account, but they cannot be traded or transferred while serving as security for the loan.
Loan-to-value (LTV) ratios typically start at 50% of your portfolio’s current market value, though this can vary based on asset quality and volatility. Blue-chip equities might qualify for ratios up to 65%, while government bonds could achieve 80% LTV. More volatile assets like emerging market securities or specialist funds may only qualify for 40-50% ratios.
Eligible collateral includes a wide range of investment types: listed stocks and shares, government and corporate bonds, mutual funds and ETFs, life insurance policies with cash value, and some structured investment products. The key requirement is that assets must be liquid and easily valued on recognized markets.
Modern lombard loan providers use automated valuation systems that monitor your collateral daily. These systems track market movements and automatically calculate your current LTV ratio. If market volatility causes your collateral value to decline significantly, you may be required to provide additional collateral or face asset liquidation.
Interest calculations are usually based on daily outstanding balances, with rates tied to benchmark rates plus a margin reflecting your credit profile and asset quality. Interest rates for lombard loans are often more competitive than standard personal loans due to the low risk associated with collateralised borrowing.
Key Benefits of Lombard Lending
The primary advantage of lombard loans is maintaining full investment exposure while accessing liquidity. When you borrow against your portfolio instead of selling assets, you preserve your market position and continue benefiting from potential capital appreciation. This strategy proves particularly valuable during strong market periods when selling would mean missing future gains.
Retaining ownership means you continue receiving all dividends, interest payments, and voting rights associated with your securities. For many investors, especially those holding dividend-focused portfolios, this income stream can help service loan interest while maintaining the underlying investment strategy.
Tax efficiency represents another significant benefit. Selling appreciated assets triggers immediate capital gains tax liability, which can substantially reduce your available funds. A lombard loan allows you to defer these tax consequences indefinitely while accessing the capital you need. This approach is particularly valuable for investors holding assets in tax-efficient wrappers like ISAs, where selling would permanently lose that tax-advantaged space.
Speed of access sets lombard loans apart from traditional financing options. Many providers can approve and fund loans within 24-48 hours using automated underwriting systems. This rapid turnaround proves crucial for time-sensitive investment opportunities or urgent liquidity needs where traditional loan processes would be too slow.
Lombard lenders cater to the specific needs of clients by offering customized financial solutions, ensuring flexibility to draw funds as needed rather than taking a full loan amount upfront. Many lombard facilities operate like credit lines, allowing you to borrow only what you need when you need it, paying interest solely on drawn amounts.
For business owners and entrepreneurs, lombard loans provide access to capital without diluting business ownership or disrupting cash flow. This can be particularly valuable for funding expansion, acquisitions, or bridging temporary liquidity gaps. Relationship managers and advisors use their experience to tailor financial solutions to each client’s unique circumstances, further enhancing the personalized service offered.
Risks and Considerations
Market volatility poses the most significant risk in lombard lending. When your collateral assets decline in value, you may face margin calls requiring immediate action.
Interest rate risk affects lombard loans because rates typically track benchmark rates plus a margin. As interest rates rise, your borrowing costs increase, potentially affecting the overall economics of your loan. This variable rate structure means you need to factor potential rate increases into your planning.
Currency exposure becomes relevant when borrowing against international securities or borrowing in a different currency from your collateral. Exchange rate movements can affect both your collateral value and repayment obligations, adding complexity to risk management.
The leverage effect inherent in lombard loans amplifies both gains and losses. While this can enhance returns when markets rise, it also increases downside risk during market declines. Understanding this leverage impact is crucial for appropriate risk management.
Concentration risk arises when your loan is secured against a narrow range of assets or sectors. Diversifying your collateral base helps reduce the risk of margin calls due to sector-specific events or individual security problems.
Fox Davidson are a specialist UK finance broker. We work with international and UK resident clients. We can work by phone, email and video call. We have London & South West offices at which we can meet clients.
