What is a Lombard loan?
A Lombard loan is a loan granted by the bank and secured by some, or all, of the marketable securities held by a client in a custody account.
In basic terms, this type of loan is backed by assets – otherwise known within the industry as ‘collateral’.
How does a Lombard loan work?
Lombard lending works by the borrower – you – pledging assets that can be liquidated easily, such as stocks, bonds or select life insurance policies with a surrender value.
A Lombard loan will allow you to borrow against deposited assets with a lender up to a certain percentage of their respective market values. These lending value percentages – which will ultimately affect the maximum amount of credit you can receive from the lender – will depend on the level of risk involved in the financing agreement, and the type of securities you’re putting forward as collateral.
The benefits of Lombard credit agreements
This kind of finance agreement is an attractive and highly flexible solution for those who wish to take advantage of a useful leverage effect in order to access a convenient source of liquidity – and quickly.
When you take out a Lombard credit agreement, you’ll receive additional capital without having to sell your existing securities, which is ideal if you want to continue to take advantage of the increase in value and earning potential of your assets whilst also having the flexibility to explore further investment opportunities outside of your current portfolio.
What are the interest rates like?
With Lombard loans, the risk to the lender is lower than with a typical loan agreement because the company will have access to saleable assets in the case of non-payment.
This means that banks and specialist lenders will usually provide lower interest rates on Lombard finance agreements compared to those offered on credit cards and consumer loans.
However…
If the value of the securities that are held as collateral drops, you, as the borrower, may be asked to ‘top up’ your assets to meet the lender’s criteria. If you cannot do so, the lender may be entitled to sell a proportion of the initial assets to reduce the loan amount.
This is why it’s always important to review the security of the market that the assets are in.
At Large Mortgage Loans, we always encourage our clients to seriously consider the implications of committing to a Lombard loan, and assess whether or not they could afford to make suitable repayments if they experience a shortfall caused by market volatility.
What if you fail to make the loan repayments?
If for whatever reason you fail to make the agreed repayments, your lender is entitled to sell your assets in order to get their money back.
How can you find out if you’re eligible for Lombard finance?
Many lenders stipulate a minimum loan amount. This means that the value of your assets will need to be higher than this figure in order for you to qualify for a Lombard loan.
The loan-to-value (LTV) ratio will impact on whether or not you can take out a Lombard loan, and if so, how much you can borrow. Your own personalised LTV will be granted depending on your financial history, the extent of your investment portfolio, and the volatility of your assets.
In most cases, borrowers will also need to ensure that the value of their collateral is higher than their loan amount; this will account for potentially harmful price fluctuations.
The best way to explore your eligibility for a Lombard loan is to contact the team at Large Mortgage Loans. We will be able to assess your situation and advise you as to which type of loan will best meet your needs.
How can we help you secure a Lombard loan?
Lombard lending can help provide you with a flexible financing solution that can help you purchase or remortgage your property. But in order to benefit the most from this type of credit agreement, you’ll need to find a lender that offers acceptable terms. This is where we can help.
The expertise of our loan specialists lies in assessing your personal requirements and working with you to secure a Lombard lending agreement that will work for you in the longer term. We will draw upon our wide network of contacts to find terms that meet your needs and enable you to free up the cash to embark on a new project or take advantage of a fantastic new opportunity.
Remember, too, that we also cater for international clients earning in foreign currencies. You do not necessarily need to be living and earning in the UK in order to find a suitable Lombard loan.
Seek expert advice on Lombard lending agreements – talk to Large Mortgage Loans today.
Although Lombard loans can represent a cheaper and more convenient way to raise money, it is nevertheless a riskier method of borrowing and professional advice should be sought before committing to such a strategy. The value of the investments used as collateral can rise and fall. Where the value falls substantially, you could potentially owe the lender more than the collateral value of the investments.
