Most of our clients are not short of assets. What they are often short of is cash they can put their hands on quickly without unwinding a portfolio they have spent years building. A property comes up that suits exactly what you need, or a business opportunity needs funding within weeks, and the obvious source of money sits inside an investment portfolio you would rather not touch.
Selling means crystallising gains, disrupting a strategy built over a long period, and quite possibly triggering a tax bill you had no intention of paying this year. For clients in this position, being asset rich does not automatically mean being cash rich. That gap between wealth on paper and money in the bank is exactly where Lombard lending earns its place.
What Lombard lending actually is
Lombard lending is borrowing secured against the value of an investment portfolio rather than against property. The portfolio, whether it holds equities, bonds, funds or a mix of all three, stays invested throughout and continues to work for you while the loan runs alongside it.
The bank lends against a proportion of the portfolio’s value. Across the private banking market, this is commonly cited as being in the region of 50 to 80 per cent, though the real figure depends heavily on how the portfolio is composed and how liquid the underlying holdings are. A portfolio spread across large, easily traded equities will typically support a higher advance than one weighted towards illiquid or single-stock positions. Loan to value terms vary by lender and by portfolio, so any figure should always be confirmed directly with the lender in question rather than treated as a given.
This is a facility associated far more with private banks than with high street lenders, and that is by design. Approving a Lombard facility requires a proper understanding of what is actually held inside the portfolio, not simply an income multiple or a credit score pulled from a standard affordability model.
How the facility tends to work in practice
Most Lombard facilities are structured as revolving credit lines rather than fixed term loans, which gives clients the flexibility to draw down, repay and redraw as circumstances change. Interest is usually charged only on the amount actually borrowed, and the facility can often be arranged in days rather than weeks once the portfolio and the client’s position have been reviewed.
Currency matters too. Where a portfolio is held in one currency and the borrowing is needed in another, for example a client with a dollar denominated portfolio buying a property in sterling, the structure needs to account for exchange rate movement as well as market movement. This is one of several reasons why Lombard lending tends to sit with specialists who can look at the whole picture rather than a single product in isolation.
Where it tends to make sense
A few scenarios come up repeatedly with our clients. Funding a property purchase quickly is one of the most common, particularly where completion timelines are tight and a conventional mortgage process simply will not move fast enough. Bridging a gap while other assets are being sold or transferred is another, allowing a client to avoid a rushed disposal purely to meet a deadline.
It also comes into its own when markets are down and selling would lock in a loss on a portfolio the client intends to hold for the long term. And it is frequently used to fund a business opportunity or a tax liability without disturbing an investment strategy that took years to put together in the first place.
What needs careful thought
Lombard lending is not without risk, and any adviser worth their fee should say so plainly rather than glossing over it. Because the loan is secured against the value of the portfolio, a significant fall in that value can trigger a margin call. In practice, this means being asked to post additional security or repay part of the loan at short notice, which is why the facility suits diversified, relatively liquid portfolios far better than one concentrated in a small number of volatile holdings.
Interest rates on Lombard facilities are typically variable and linked to short term market rates, so the cost of borrowing can move during the life of the loan. This is a facility that rewards close monitoring. It is not something you arrange once and then forget about, and clients who take it on should expect their adviser to keep an eye on both the portfolio and the loan for as long as it runs.
How London FS approaches it
Lombard lending sits within our Wealth service line, alongside HNW and private bank finance, portfolio landlord finance, and asset and invoice finance. Our role is to understand the shape of your portfolio and your wider objectives, then work out which private banks and specialist lenders are genuinely likely to offer suitable terms, rather than starting from a generic product list and working backwards.
Every client’s portfolio looks different, and so does every lender’s appetite. Some private banks will lend generously against a well diversified equity portfolio but take a far more conservative view of anything concentrated in a single sector or a single stock. Getting the right introduction to the right desk, at the right time, is most of the value we add here. If you are weighing up whether Lombard lending is the right tool for something you are planning, get in touch with our team for a discreet, no obligation conversation.
