Tighter affordability criteria present a challenge for mortgage brokers: how can we help clients who are asset-rich but income-poor get the funding they need?
This is where the Lombard loan is becoming increasingly useful. Debt is secured against personal assets, such as a share portfolio or bonds rather than property. This enables a borrower to access immediate cash to buy the property they want without having to sell any of their assets.
One client, the owner of a mine company in Africa, wanted to buy a property in London but lenders were concerned that his income might not be sustainable because of the risky nature of his business. The lender we approached was willing to lend but wanted to secure the loan on family assets rather than the property. Lombard lending enabled us to do this.
Lombard rates are competitive and compare favourably with a standard mortgage, typically ranging from 1 to 1.5 per cent over bank base rate for five years. Fees are minimal, as you don’t have to pay for a property valuation or conveyancing fees.
The loan-to-value (LTV) that can be achieved will depend on the risk profile of the investment portfolio. Someone with a well-diversified equity portfolio may be able to borrow up to 75 per cent of its value but if you have a racier selection of shares, the maximum LTV may be nearer 50 per cent.
Those who are originally from overseas may be able to borrow against a portfolio held in another country without funds having to leave that jurisdiction. This has tax advantages as well as making it easier if you plan to return to that country at some point.
With the mortgage market review making it tougher for older borrowers to get funding, Lombard lending might offer a solution. Please get in touch for more information.