A Lombard loan, worked through.

A Lombard loan is sized by multiplying the pledged portfolio’s market value by the loan-to-value the lender assigns to that collateral, so a hypothetical GBP 2,000,000 portfolio at an illustrative 50% loan-to-value supports an advance of GBP 1,000,000. Every figure below is illustrative and none is an offer, quote, or rate card. It is a worked example of the mechanics, not a set of terms. This is general information, not advice.

The starting point: a hypothetical portfolio

Imagine a diversified portfolio of listed equities and funds with a market value of GBP 2,000,000. It is the kind of broad, liquid book that tends to support a loan-to-value toward the middle or upper part of the disclosed range, because its value can be marked with confidence and, if it ever had to be, realised without moving the price. The figure is chosen only to make the arithmetic clear; it is illustrative, not a quote, and a real portfolio would be assessed on its actual holdings. How the advance rate itself is arrived at is set out in the note on how loan-to-value is set.

Applying an illustrative loan-to-value

Suppose the lender assigns this collateral an illustrative loan-to-value of 50% — comfortably inside the disclosed envelope of roughly 20% to 65%, and deliberately not at the top of it. The advance is then simply the portfolio value multiplied by that percentage: GBP 2,000,000 × 50% = GBP 1,000,000. That GBP 1,000,000 is the cash the borrower can draw while keeping ownership of every share in the portfolio. Choosing 50% rather than the maximum the collateral might support is the single most important decision in the example, because it is what creates the buffer described below.

The example laid out

The table gathers the figures in one place. Each is illustrative, framed to show the mechanics rather than to quote any position.

None of these figures is an offer, a quote, or a rate card. They are an illustration of how the numbers relate to one another; actual terms, including the loan-to-value and the cost, follow a review of the specific holdings.

Where the buffer comes from

The loan is a fixed GBP 1,000,000, but the collateral value moves. As the portfolio falls, the loan-to-value ratio rises toward the level at which a margin call arises — here an illustrative 65%. The buffer is the distance between the two. With the loan drawn at 50% against a 65% threshold, the portfolio can fall until GBP 1,000,000 represents 65% of its value, which is a value of about GBP 1,538,000. That is a fall of roughly 23% from the starting GBP 2,000,000. Had the borrower drawn to the maximum instead, that buffer would have been far thinner. This is the same point made structurally in how much you can borrow against shares: the maximum is a ceiling, not a target.

What happens if the portfolio falls

Consider a decline in stages. If the portfolio falls 10%, from GBP 2,000,000 to GBP 1,800,000, the loan-to-value rises to GBP 1,000,000 ÷ GBP 1,800,000, or about 55.6%. That is higher than 50%, but still short of the 65% threshold, so no call arises and nothing needs to be done. The buffer has absorbed the fall. Only if the portfolio kept falling toward GBP 1,538,000 would the ratio reach 65% and a margin call be triggered: a request to restore the ratio by posting additional collateral or repaying part of the loan. The mechanics of that call — the notice, the cure period, the options — are set out in the note on margin-call risk.

How repayment recovers the position

The example runs in reverse just as cleanly. Because the loan-to-value depends on the loan amount as well as the collateral value, repaying part of the loan lowers the ratio directly. If the borrower repaid GBP 200,000, reducing the loan to GBP 800,000, the ratio against the original GBP 2,000,000 portfolio would fall to 40%, restoring a wider buffer than at the outset. In practice the collateral value usually recovers alongside any repayment, and the two work together to bring the position back to comfort. Interest, meanwhile, accrues on the drawn balance throughout at a floating reference rate plus a spread; no rate is stated here, and the structure of pricing rather than any number is the point.

Reading the example correctly

The value of a worked example is that it makes the relationships concrete: advance follows from value and loan-to-value; the buffer follows from how far below the maximum you borrow; a fall raises the ratio, a repayment lowers it. What it cannot do is quote a position. The portfolio value, the 50% loan-to-value, the GBP 1,000,000 advance, and the 23% buffer are all illustrative, chosen to show the arithmetic rather than to price any book, and the interest cost is left as a floating reference rate plus a spread precisely because no rate belongs in an illustration. A real facility is calibrated to real holdings and confirmed in writing after a review. This is general information, not advice, and the right structure for any borrower is a matter for a proper conversation.