Selling investments to fund a property purchase, a tax liability, or a business opportunity carries a cost beyond the transaction itself: you crystallise gains, incur capital gains tax, and lose future compounding on the disposed assets. For clients with substantial investment portfolios, a Lombard credit facility offers an alternative — borrow against the portfolio's value, meet the immediate need, and repay the loan when it is convenient to do so.
Lombard lending is one of the fundamental tools of private banking. Used prudently, it can be a genuinely efficient financial planning instrument. Used without understanding its mechanics and risks, it can amplify losses in a market downturn into a forced sale of assets at the worst possible time. This guide explains how Lombard structures work, how lenders assess collateral, and how to use the facility responsibly.
What is a Lombard facility?
A Lombard facility (also called a securities-backed loan or portfolio loan) is a credit line or term loan secured by a pledge over the borrower's investment portfolio. The lender holds the securities as collateral while the borrower retains ownership and, in most structures, continues to receive dividends, interest, and income from the pledged assets.
The name derives from the Lombard region of northern Italy, whose merchants pioneered movable asset collateral lending in medieval Europe. The instrument has been central to private banking practice for centuries.
Pledge structure
The security arrangement involves a formal legal pledge (or charge) over specified securities held in a custody account with the lending bank or a nominated custodian. Key mechanics:
Eligible collateral: lenders specify which asset classes are eligible and on what terms. Typical eligibility includes:
- Listed equities on recognised exchanges
- Government bonds and investment-grade corporate bonds
- UCITS-compliant funds and ETFs
- Cash deposits
Typically ineligible: highly illiquid assets, unlisted securities, private equity (unless specifically approved), structured notes with limited secondary market, and concentrated single-stock positions above threshold levels.
Pledge vs charge: in most UK structures, the lender takes a fixed charge over the custody account rather than a traditional possessory pledge, achieving the same economic effect (the lender can enforce against the assets if the borrower defaults) while allowing the borrower to continue holding the assets in their own name.
Credit facility vs term loan mechanics
Revolving credit facility (RCF): the borrower can draw, repay, and redraw up to the credit limit, typically over a 12-month renewable term. Interest accrues only on drawn amounts. Suitable for liquidity management — bridge financing for a property purchase, short-term cash flow smoothing.
Term loan: a fixed drawdown repaid according to a scheduled amortisation or a balloon repayment. More appropriate for a specific, defined use of proceeds over a known horizon.
Interest: Lombard facilities typically price at a margin over a reference rate (SONIA in the UK post-LIBOR transition, SOFR for USD facilities, EURIBOR for EUR). Margins vary by loan size, asset quality, and bank relationship — typically 0.5–2.5 per cent over SONIA for well-structured facilities at major private banks. Total borrowing rates as at mid-2026 reflect the current interest rate environment; verify with your bank.
Loan-to-value (LTV): the maximum facility amount is expressed as a percentage of the collateral's eligible market value. This is determined by applying "haircuts" to each asset class.
Haircut tables: what lenders accept
A haircut is the reduction applied to an asset's market value to determine its eligible collateral value. It reflects the asset's liquidity risk (how quickly it can be sold in a stress scenario) and price volatility.
Indicative haircuts at major private banks (these vary by institution and market conditions):
| Asset class | Eligible collateral value |
|---|---|
| Government bonds (AAA-AA rated) | 80–90% of market value |
| Investment-grade corporate bonds | 70–80% |
| Large-cap equities (FTSE 100, S&P 500 constituents) | 50–70% |
| Small/mid-cap equities | 30–50% |
| UCITS equity funds | 40–60% |
| Alternative UCITS (hedge fund-like) | 20–40% |
| Private equity / unlisted | 0–30% (lender discretion) |
| Cash deposits | 90–100% |
These are indicative. Actual haircuts are negotiated and may be adjusted by the lender unilaterally during market stress periods. Always obtain the lender's current haircut schedule in writing before committing to a facility structure.
Concentration limits: lenders typically impose concentration limits — for example, no single equity position may represent more than 10–20 per cent of total collateral value at eligible LTV. If you hold a large concentrated position, the effective LTV on that portion may be significantly lower than the table above suggests.
Margin call mechanics
If the value of the pledged collateral falls — due to market movements, reclassification of assets, or forced haircut changes — the LTV ratio will rise. If it exceeds the agreed LTV threshold, the lender issues a margin call requiring the borrower to:
- Deposit additional eligible collateral to restore the LTV; or
- Make a partial repayment of the loan; or
- Sell pledged assets (the lender may be contractually entitled to do this unilaterally if the margin call is not met within the cure period).
Cure period: typically 2–5 business days for standard margin calls, potentially shorter in extreme market conditions. Private banks generally aim to work collaboratively with clients on margin events; however, the legal right to enforce enforcement sale is real and should not be overlooked.
Margin call waterfall: sophisticated facility documents specify a hierarchy — first, top-up collateral; second, partial repayment from nominated sources; third, enforced asset liquidation. Understanding this waterfall, and having a plan for each step, is part of responsible Lombard usage.
Stress testing: before drawing on a Lombard facility, consider the scenario where your portfolio falls 20–30 per cent in a market correction. Does the remaining collateral still support the loan? Private banks can run portfolio-level stress scenarios on request — use this service before committing to a facility structure.
UK tax treatment
Interest deductibility: for UK resident and domiciled individuals, interest on a Lombard facility is not generally deductible against income or capital gains unless the borrowed funds are demonstrably used for a qualifying purpose (such as investment in a property letting business or a trading enterprise). Personal use — funding a residential property purchase, private expenditure — does not give rise to a deduction.
Capital gains: using a Lombard facility avoids crystallising capital gains that would arise from selling the pledged investments. This is a frequently cited advantage. However, the deferral of gains is not permanent — if the pledged assets are eventually sold, or if the estate realises the assets, gains will be recognised at that point. (The CGT rates that would apply on eventual disposal are 18% and 24% for 2026/27.) For internationally mobile clients, the tax treatment of borrowing against offshore assets changed when the remittance basis and non-dom regime were abolished from 6 April 2025 and replaced by the four-year Foreign Income and Gains regime for new arrivers — any cross-border structuring should be addressed with a specialist tax adviser.
Inheritance tax: assets pledged under a Lombard facility reduce the net estate value for IHT purposes by the outstanding loan amount. This is not a primary planning tool but is worth noting in the context of overall estate structuring.
Tax rules are complex and change. Always obtain specific advice from a qualified UK tax adviser before structuring borrowing with tax planning in mind.
Use cases for HNW clients
Property acquisition bridge: a client with a £2 million portfolio wants to complete on a UK property purchase before their existing property has sold. Drawing £500,000 on a Lombard facility bridges the gap without triggering a forced sale of investments. On sale of the existing property, the facility is repaid.
Tax bill funding: a CGT or income tax bill falls due in January. Rather than selling investments in December at a tax-motivated time, the client draws on the facility for 30–60 days, pays the tax liability, and repays when convenient.
Investment opportunity: a time-sensitive co-investment opportunity requires £1 million of committed capital within 10 days. The Lombard facility provides immediate liquidity; the client can arrange a more permanent funding structure in parallel.
Currency mismatch management: a client holds a USD-denominated portfolio but has a GBP liability. Drawing in GBP against the USD portfolio avoids an immediate FX conversion, allowing a more considered currency hedging strategy.
Risks to understand
- Lombard facilities amplify returns in rising markets and amplify losses in falling markets.
- A simultaneous market decline and margin call can force asset sales at the worst possible time.
- Interest costs may exceed the investment returns on the pledged portfolio in extended low-return periods.
- Lenders can unilaterally amend haircuts during market stress — your facility capacity may change without notice.
This guide is for informational purposes. Lombard facilities are complex financial instruments. Engage a qualified financial adviser before entering into any secured lending arrangement. Terms vary significantly between providers.
How Global Investments can help
Global Investments works with HNW clients on holistic financial planning, including the role of liquidity management and portfolio-backed lending in the context of property acquisition and international investment. We can introduce clients to private banking relationships offering Lombard facilities and help evaluate whether the structure is appropriate given your portfolio composition, borrowing requirements, and risk tolerance.
Contact us to discuss Lombard lending alongside your broader wealth and property strategy.
This guide is for general information only and does not constitute financial advice or a personal recommendation. Banking regulations, tax rules, and product availability change — always verify current rules and seek advice from a qualified independent financial adviser or regulated banking specialist before making any decisions. The value of investments can fall as well as rise and you may get back less than you invest.