Overview of Lombard Lending in the UK

Background

PryceWilliams offers specialist advisory, consulting and project delivery services to Private Banks and Wealth Managers.

The purpose of this document is to provide a detailed overview of Lombard Lending in the UK, focusing on the relevance within Private Banking and Wealth Management. We consider market size, key providers, product features, the typical requirements of client and the potential strategic options available to Private Banks wishing to address growing demand for Lombard Lending.

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Approach

The analysis is aimed at client and product managers at Private Banking or Wealth Management institutions that have responsibility for growing their client offering or managing the development of debt or lending services. The key objectives of this paper are to provide the following:

• The potential size of the UK market for Lombard Lending
• Approaches for addressing increased client demand
• An understanding of the UK competitor landscape

This is achieved by addressing the following questions:

1. What is Lombard Lending?
2. What is the size of the UK market?
3. Who are the key product providers in the UK market?
4. What are the key features of the Lombard Lending product?
5. How does Lombard Lending work for the typical Private Banking client?
6. What are the potential strategic options available to Private Banks wishing to address the growing demand for
   Lombard Lending?

This analysis has been supported by research of the UK market and drawing on our experiencing of working with Private Banks and Wealth Managers in the UK.

Analysis

1. What is Lombard Lending?

Lombard Lending (or Lombard Loan) is a form of secured lending where the borrower pledges liquid financial assets (e.g. investment portfolios, bonds, equities, or other marketable securities) as collateral to borrow cash or obtain credit.

It is popular with High-Net-Worth Individuals (HNWIs) and Ultra High-Net-Worth Individuals (UHNWIs) and is offered by Private Banks and Wealth Managers as an efficient tax planning approach for accessing liquidity and preserving client investment strategies.

Some Private Banks refer to Lombard Lending as Investment Backed Lending (IBL) or Security Backed Lending (SBL).

2. What is the size of the UK Lombard Lending market?

Determining the exact size of the UK Lombard Lending market is challenging due to the lack of publicly available data.

However, insights from various sources provide some perspective:

• Global market overview - According to Deloitte, the global Lombard Lending market is valued at approximately $4.3 trillion and is experiencing
  annual growth of 5–10% [1].
• UK market for Equity-Backed Lending - Research by EquitiesFirst indicates that in 2020, directors of UK-listed companies disclosed equity-backed loans estimated at £1.55 billion. By August 2021, additional disclosed loans amounted to £269 million [2]. It is important to note that these figures only represent disclosed transactions and do not reflect the full scope of the market.

The UK market has seen substantial growth in equity-backed lending since 2019, driven by factors such as increased awareness, a buoyant stock market, low interest rates and demand for liquidity caused by the Covid-19 pandemic.

In summary, while precise figures are elusive, the available information suggests that the UK Lombard Lending market is a significant and growing segment within the Private Banking and Wealth Management landscape. The future growth and usage of Lombard Lending is likely to be influenced by key events whether economic, political or market driven.

3. Who are the key product providers in the UK market?

The following table offers examples of UK Lombard Lending providers by AUM criteria, LTV ratios, rates and the loan format.

Private Bank	Minimum client AUM	Further info
Arbuthnot Latham	£750k+	arbuthnotlatham.co.uk/private-banking/borrowing
Coutts	£1m+	coutts.com/private-banking/borrowing/investment-backed-lending.html
Barclays	£3m+	privatebank.barclays.com/what-we-offer/securities-back-lending/
HSBC	£2m+	privatebanking.hsbc.com/lending/tailored-lending/
UBS	£2m+	privatebanking.hsbc.com/lending/tailored-lending/
Deutsche Bank	£5m+	deutschewealth.com/en/our-capabilities/equity-stake-financing.html
Rothschild	£10m+ (UHNW)	rothschildandco.com/en/wealth-management/united-kingdom/banking-and-lending/

Note:

• Each provider may package Lombard Lending differently, for example some institutions use terms such as “investment backed lending”, "portfolio lending" or "credit against assets", but the core principles are similar.
• There are also providers (e.g. Coutts Crown Dependencies, Nedbank) that offer an offshore custody option where a Lombard Loan is provided in the UK against assets under custody in an offshore location such as Jersey in the Channel Islands.

4. What are the key features of Lombard Lending type products and services in the UK?

i. Secured against financial assets

• a. The loan is secured against a portfolio of liquid assets, often managed by the lending institution.
• b. Acceptable collateral might include listed equities, government and corporate bonds, investment funds, ETFs, or structured products.

ii. Flexible use of proceeds

• a. Borrowed funds can typically be used for any legal purpose except further investment in any financial instruments issued by the lender, i.e. “reinvesting” or “double leverage” [3].
• b. Common uses of Lombard Lending include:
  • i. Tax planning
  • ii. Business financing
  • iii. Real estate purchases
  • iv. Bridging short-term liquidity needs
  • v. Succession planning or intergenerational wealth transfers

iii. LTV ratios

• a. LTV typically ranges from 50% to 95%, depending on the risk profile of the assets.
• b. Example: UK gilts might be accepted up to 95% LTV, while more volatile equities might allow 50–70%.

iv. Interest rates

• a. Rates are usually competitive, especially compared to unsecured lending.
• b. Can be structured as floating (linked to a base rate, e.g. SONIA or BoE Base Rate + margin) or fixed over a period.
• c. Margin depends on client profile, asset mix, and relationship with the Private Bank.

v. Credit lines vs Term loans

• a. Some lenders offer revolving credit facilities where the client can drawdown and repay flexibly.
• b. Others offer fixed-term loans for specific needs such as bridging finance.

vi. Margin calls and Risk management

• a. If asset values fall below the LTV threshold, the Private Bank may issue a margin call, requiring the client to top up the collateral or repay part of the loan.
• b. This is a key risk management tool in volatile markets.

vii. Eligibility and Suitability

• a. Typically designed for HNWIs or UHNWIs with significant investable assets.
• b. Clients must have a discretionary or advisory relationship with the Private Bank.
• c. Suitability assessments are conducted to ensure the client understands the product, margin requirements and the key risks.

viii. Regulatory considerations

• a. Lombard Lending is not typically regulated as a regulated mortgage contract unless it is secured on a UK residential property.
• b. However, the FCA requires that the Private Bank assess the affordability and suitability of such lending under principles of responsible lending and client best interests (particularly for retail clients) [4].
• c. The MiFID II and FCA guidance on categorisation of the client may affect how suitability is assessed by the Private Bank.

The Lombard Lending product offers benefits for the client, however there are also key risks that arise with a debt product of this nature because it is secured against asset classes that are likely to fluctuate in value and may lead to regular margin calls during volatile increased market volatility.

Summary of client benefits of the product:

• Flexibility in usage.
• Competitive interest rates.
• Preserves long-term investment strategy.
• Liquidity without liquidating assets which may lead to Capital Gains Tax (CGT) or losses due to market timing issues.

Key risks the client will need to consider:

• Asset volatility may reduce available credit.
• Margin calls and potential forced liquidation.
• Not suitable for all clients or market conditions.
• Does not suit illiquid or non-standard investments.

5. How does Lombard Lending work for the typical Private Banking client?

The following illustration of considers two fictitious client examples and explains how Lombard Lending facilities maybe structured for typical Private Banking clients:

• i. A business owner of a manufacturing concern, and
• ii. A professional services client such as a Partner in a law firm.

The aim of the respective examples is to reflect how UK Private Banks typically structure their Lombard Lending solutions [5] & [6].

Example 1: The Business Owner that requires funds for a commercial property transaction

Client profile:

• UK based entrepreneur who owns a private manufacturing company.
• Investable assets of £5 million held in a discretionary portfolio at a UK Private Bank that include equities, bonds and unitised funds.
• Requirement to purchase a £2 million commercial property via a holding company (SPV) for expansion of business operations.

Lombard Lending structure:

• Facility type: Term loan over 5 years.
• Loan amount: £1.5 million (to be combined with £500k equity from client).
• Collateral: £3 million in investment-grade bonds and equity funds from the client’s portfolio.
• Loan-to-Value: 60% blended across asset classes.
• Interest rate: SONIA + 2.25% (floating).
• Purpose: Property purchase via SPV.
• Repayment: Interest-only, with capital bullet repayment at year 5.
• Margin call triggers: If LTV exceeds 70% due to decrease in market value , the client to provide additional collateral or partially repay the loan to maintain 70% LTV.
• Exit strategy: Potential to refinance with a commercial mortgage secured against the property and/or future business cash flows.

Key client benefits:

• Preserves investment strategy.
• Fast execution compared to traditional commercial lending.
• Avoids having to withdraw from portfolio which may trigger a tax liability or crystallise losses.

Example 2: The Partner of a law firm that requires funds for partnership capital contribution

Client profile:

• Equity partner at a UK-based law firm.
• Receives profit drawdowns quarterly with annual income circa £500k.
• Investable assets of £1.2 million in a managed portfolio at the Private Bank and invested in a range of equities and diversified funds.
• Requirement to make a capital contribution of £400k into the law firm as part of equity promotion.

Lombard Lending structure:

• Facility Type: Revolving credit facility (3-year term).
• Loan Amount: £400k.
• Collateral: £750k diversified liquid portfolio of equities and funds.
• Loan-to-Value: 53% secured against the portfolio.
• Interest rate: BoE base rate + 2.00%.
• Purpose: Partnership capital subscription.
• Repayment: Quarterly interest payments aligned with partner drawdowns; principal repaid from bonus or over term.
• Margin Calls: Soft warning at 65% LTV with a hard trigger at 75%.

Key client benefits:

• Offers liquidity at a lower cost than unsecured lending.
• Flexible access to funds without disrupting long-term investment plans.
• Private Bank may be able to also support with future tax or liquidity planning around firm distributions.

6. What are the potential strategic options available to Private Banks and Wealth Managers wishing to address the growing demand for Lombard Lending?

Private Banks considering meeting the growing demand for Lombard Lending have a range of strategic funding options.

The most appropriate option is dependent upon the Private Bank’s capital structure, liquidity position, the regulatory requirements and the overall strategy of the business.

We offer insight into six potential capital funding options that can be considered and will require further detailed analysis before being pursued.

Deposit-based funding

• Utilise client deposits as a funding source for Lombard Loans.
• Could be achieved by re-allocating capital from current deposit book or attracting new deposits to fund further
  lending.
• Advantages:
  • Low cost of funding: Dependent on the rate offered on client deposits versus rate charged on Lombard Lending.
  • Readily available: No need to raise external capital.
• Key considerations:
  • Liquidity risk: Deposits without fixed term can be withdrawn at short notice.
  • Regulatory constraints: Banks must maintain Liquidity Coverage Ratios (LCR) and may face higher capital requirements under Basel III

Raising additional debt capital

• Issuing long-term bonds or debt instruments to institutional investors specifically for Lombard Lending.
• Advantages:
  • Stability: Long-term funding that is not subject to potential deposit withdrawals at short notice.
  • Flexible structuring: Bonds can be tailored for specific maturities and interest rates.
• Key considerations:
  • Cost of borrowing: Interest expenses on the issued bonds.
  • Credit risk: Bond investors assess the bank’s overall creditworthiness which may impact the pricing

Raising additional equity capital

• Issue additional equity to existing or new shareholders to increase capital for Lombard Lending.
• Advantages:
  • Permanent capital: Unlike debt, equity does not require repayment but likely to require payment dividends.
  • Strengthens capital ratios: Improves the CET1 ratio, supporting regulatory capital requirements.
• Key considerations:
  • Shareholders: Potential dilution of existing shareholders should participation be existing shareholders be limited.
  • Market conditions: Timing and market conditions may impact the pricing of new share capital.

Partnering with asset managers and institutional investors

• Co-lending or syndicated lending with asset managers or hedge funds through a partnership where the bank and institutional investor jointly fund Lombard Loans.
• Advantages:
  • Risk sharing: Reduces the bank’s capital exposure.
  • Leverage investor appetite: Access to external liquidity.
• Key considerations:
  • Profit sharing: Reduced returns as profits are shared with partners.
  • Complexity in structuring agreements: Aligning terms between the bank and the institutional investors.

Securitisation of Lombard Loans

• Create a Special Purpose Vehicle (SPV) to hold the Lombard Loan portfolio.
• Issue Asset-Backed Securities (ABS) based on the cash flows from these loans.
• Advantages:
  • Off-balance-sheet: Reduces balance sheet burden.
  • Liquidity generation: Monetises the loan book without sacrificing core capital.
• Key considerations:
  • Structuring: Requires complex structuring and appropriate legal and financial expertise.
  • Market appetite: Investors may be cautious about securities backed by leveraged loans.

Interbank borrowing and repo agreements

• Consider inter-bank loans such as short-term funding from other financial institutions that can be secured by using the repo markets.
• By using repo (repurchase) agreements, this means providing assets such as high-quality government bonds or corporate bonds as collateral to borrow short term cash.
• Advantages:
  • Short-term liquidity: Quickly accessed funding.
  • Collateral-backed: Lower cost of lending due to secured nature against high-quality collateral.
• Key considerations:
  • Interest rate sensitivity: Costs may vary with market conditions.
  • Short-term nature: Less suitable for long-term lending.

Strategic partnerships with specialist lending platforms [7]

• Increase lending capacity through a partnership with a specialist Lombard Lending provider to meet increased client demand.
• This allows a Private Bank to expand the Lombard Lending proposition it can offer to its target market and use the opportunity to introduce relevant Private Banking and Wealth Management products and services.
• Under this model, the Lombard Lending partner provides the capital and the Private Bank and Wealth Manager provides the appropriate client segment and distribution opportunity.
• Advantages:
  • For the Private Bank, meets the growing demand for Lombard Lending without applying additional leverage to the balance sheet.
  • For the specialist Lombard Lending provider, the partnership offers access to an additional channel of HNWI and UHNWI without the requirement to manage the client collateral secured against Lombard Lending.
• Key considerations:
  • Regulatory Compliance: Any partnership must comply with FCA regulations and ensure appropriate risk management.
  • Client experience: Partnerships should enhance rather than complicate client interactions.
  • Risk sharing agreements: Clearly define how risk is shared, particularly in the event of margin calls or defaults.
  • Data security: Data sharing with fintech partners must comply with GDPR and banking regulations.

Conclusions

1. Growing demand: The UK Lombard Lending market is experiencing significant growth, driven by increasing demand for liquidity without asset liquidation, particularly among HNWIs and business owners.
2. Competitive landscape:
   1. Private Banks are increasingly differentiating their Lombard offerings by tailoring LTV ratios, interest rates, and repayment structures based on client profiles.
   2. New entrants, including fintech partnerships and alternative lenders, are intensifying competition.
3. Regulatory considerations:
   1. The MiFID II categorisation and FCA guidance influences how Lombard Lending products are structured, with greater suitability requirements for retail clients compared to professional clients.
   2. Funding Challenges: Private Banks must carefully balance liquidity management, capital adequacy, and funding costs when expanding their Lombard Lending portfolios.
   3. Options such as deposit reallocation, bond issuance, and strategic partnerships can help manage the required capital funding needs.
4. Strategic partnerships are key to market entry: Collaborating with fintech firms, asset managers, and real estate partners can enhance both funding capabilities and client reach, replicating successful models like the Firenze-Monument Bank partnership [7].

Recommendations

We recommend that Private Banks need a clear product strategy and plan for execution to ensure they create value for clients and offer return on investment. Our approach to product strategy development and execution is thorough, easy to understand and will support your organisation’s desire to create value for clients, investors and key stakeholders.

Here are 3 key recommendations for those Private Banks wishing to address the growing demand for Lombard Lending
in the UK:

1. Leverage strategic partnerships:
   1. Private Banks should actively explore collaborations with fintech companies and institutional lenders to enhance funding capacity and product innovation.
   2. Consider co-lending models and syndicated lending agreements to diversify funding sources.
2. Enhance risk management:
   1. Invest in technology-driven risk monitoring systems that provide real-time portfolio valuations and margin call triggers to safeguard both the bank and clients.
   2. Adopt scenario analysis to assess the impact of market volatility on asset values and LTV ratios.
3. Diversify the lending portfolio:
   1. Create tailored Lombard products for different client segments, including business owners, professionals, and UHNWIs.
   2. Integrate bespoke structuring options that align with the client’s cash flow and investment horizon.

Next Steps

Here are five suggested next steps to develop your Lombard Lending proposition:

1. Conduct a market analysis:
   1. Assess the current demand for Lombard Lending among existing clients and potential segments.
   2. Benchmark against key competitors to understand their product features, rates, and client engagement
      strategies.
2. Explore funding strategies:
   1. Evaluate internal capital reallocation versus external funding options.
   2. Identify potential strategic partners such as fintech lenders, asset managers, and insurance firms.
   3. Analyse ROI and develop a business case for senior management consideration.
3. Develop a risk management framework:
   1. Implement robust credit risk monitoring and stress-testing protocols specifically designed for Lombard
      Lending.
   2. Train relationship managers to effectively communicate risk factors and margin call procedures to clients.
4. Create a client engagement plan:
   1. Design client education materials that explain Lombard Lending risks and benefits.
   2. Highlight bespoke lending solutions for different wealth segments, reinforcing the bank’s advisory strength.
5. Pilot new lending products:
   1. Develop a pilot program to test new Lombard Lending propositions with a select group of clients.
   2. Use feedback to refine product terms and client communication strategies before a wider rollout.

At PryceWilliams, we focus on supporting senior stakeholders that are responsible for client growth and new product implementation. Should you need support with any aspects of product development and execution, then contact us for a confidential discussion about your requirements.

Useful sources of information

The following sources of information supported the development of this document on Lombard Lending:

[1] Firenze’s David Newman explains how Lombard Loans could help advice clients ease rising tax fears, IFA Magazine, 15October 2024

[2] UK Equity-Backed Lending: Substantial Growth Since 2019, Equities First

[3] The UK PRA Policy Statement on Groups Policy and Double Leverage, Clifford Chance, 2018

[4] The FCA Handbook, Consumer Credit Sourcebook, Chapter 5, Section 5.2A10

[5] Typical Use Case - What is Investment Backed Lending? Phil Lock, Arbuthnot Latham Private Bank, 22 January 2024

[6] An Example: Fast and Flexible Lending Against Your Investments, Coutts & Co

[7] Fast-Growing Fintech Firenze and Monument Bank Forge £160M Strategic Partnership, FF News, 25 February 2025