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Lombard lending is using marketable securities as collateral for a loan. It is the same principal as a house being used as collateral to secure a mortgage and there are different liquid assets that can be used for security in a Lombard loan.
In simpler terms, this loan type is fully backed by assets, otherwise known as collateral in the industry.
How does a lombard loan work?
Lombard loans are normally setup on a 12 month rolling term. They are usually offered as a percentage of the value of securities offered as collateral.
The assets that the borrower pledges to the lender need to be easily liquidated if need be.
A lender will certainly be interested in the quality of the collateral.
Shares, stocks and bonds are typically the most common type of security used, but in some cases a life policy with a surrender value may also be considered.
Once the loan has been agreed, the securities will be held in a custodial account which is controlled by the lender.
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How much does it cost?
A Lombard loan is negotiated per individual case, so costs will vary across the board. The interest rates are relatively low compared to mortgage rates and the setup costs are relatively low compared with normal private banking fees. However, there are usually custody fees and there can also be trading fees. These do vary, depending on the size of your investment with the private bank as they tend to reward loyalty.
It will ultimately cost you less than selling all your securities before they mature or the cost of a missed opportunity. Generally, you will find that interest rates on a Lombard loan are lower than traditional borrowing due to the collateral being put in place.
How quick is the process?
One of the main advantages of a Lombard loan is it’s possible to receive your credit quickly. When you compare it to a mortgage and the underwriting process, it can take much longer. The underwriting process for a lombard loan is much more straight forward as it is limited to the collateral used for the loan. In most cases it is possible to receive your line of credit in under 24 hours or a few days.
Am I eligible for a lombard loan?
Each lender will have their own criteria for lombard loans. Most lenders will require you to have an investment portfolio of at least £1,00,000 before they consider taking your application, at minimum, they will consider £500,000. Some lenders are a little more flexible in some cases. Some lenders will also require your portfolio to be larger than £1,00,000. Your collateral will also need to meet a lenders specific criteria for offering you a lombard loan.
We at Pinnacle, work with multiple lenders with a vast variety of criteria to suit your specific needs.
Reach out to us today and speak to one of our expert brokers and start your search.