A margin call is one of the most important risks to understand before borrowing against an investment portfolio. It does not necessarily mean the portfolio has suffered a catastrophic loss. It means that, under the lender's collateral rules, the assets supporting the facility are no longer providing the agreed level of protection for the amount borrowed.
That distinction matters because Lombard lending works differently from a conventional mortgage. A mortgage is generally secured against a property whose value is not continuously marked to market. A Lombard or securities-backed facility is secured against financial assets whose prices can move every trading day and, in some cases, throughout the day.
The lender therefore monitors the relationship between the outstanding borrowing and the lending value of the pledged portfolio. If that relationship moves beyond agreed parameters, the borrower may need to add collateral, reduce the loan or take another remedial action.
If the position is not restored within the timeframe and terms of the facility, the lender may have rights to sell pledged investments. This can happen precisely when markets are weak, which is why margin-call planning is not a peripheral issue. It is central to deciding whether Lombard lending is appropriate in the first place.
The Central Point
A margin call is a collateral problem, not simply a market-fall problem.
Falling markets can cause it, but so can changes in lending values, concentrated positions, currency movements or changes to the assets securing the facility. The relevant measure is the lender's available collateral support relative to the borrowing, not simply whether an investment portfolio is up or down.
- What is a Lombard loan margin call?
- Market value versus lending value
- How lender haircuts work
- What causes a margin call?
- Why portfolio concentration matters
- Currency risk and Lombard loans
- What happens when a margin call occurs?
- When can the lender sell investments?
- How can margin-call risk be reduced?
- How margin risk affects property-finance decisions
What Is a Margin Call on a Lombard Loan?
A Lombard facility allows a borrower to raise liquidity against eligible investments rather than selling them. The pledged portfolio remains invested, while the lender assigns a lending value to the securities it is prepared to accept as collateral.
As long as the facility remains within the lender's permitted collateral parameters, the borrower can continue using the credit subject to the agreed terms. If the collateral support falls sufficiently, the lender can require the position to be restored.
That requirement is generally referred to as a margin call.
Depending on the lender and facility, a borrower may be able to meet the call by adding eligible assets, repaying part of the loan, restructuring the pledged portfolio or taking another action agreed with the bank.
The detailed mechanics are contractual and lender-specific. Borrowers should therefore understand the actual margin-call and close-out provisions in their facility documentation rather than relying on a generic description of Lombard lending.
Market Value and Lending Value Are Not the Same Thing
One of the most important concepts in securities-backed lending is the distinction between the market value of a portfolio and its lending value.
Suppose an investment portfolio is worth £5m. That does not mean the bank will lend £5m against it. The lender discounts the value of each eligible asset to reflect factors such as price volatility, liquidity, concentration and its ability to sell the asset if required.
The resulting figure is the lending value.
UBS, for example, explains that it deducts a security margin from the market value of eligible collateral and that the resulting lending value is normally the maximum amount that can potentially be borrowed. The bank also notes that both market movements and adjustments to lending values can change the amount of available collateral support.
This is fundamental because a margin call can occur even without the portfolio falling to anything close to the amount borrowed. What matters is whether the lending value, after the lender's risk adjustments, remains sufficient.
A £4m Portfolio Does Not Mean £4m of Borrowing Capacity
Imagine a £4m portfolio containing eligible listed shares, bonds and funds. After applying its individual lending values and risk adjustments, a bank may determine that the collateral supports substantially less than £4m of credit.
If the borrower draws close to the maximum available credit and the portfolio subsequently falls, relatively little headroom may remain before the lender requires action.
If the borrower instead draws materially less than the available lending capacity, the same market fall can be absorbed by the unused collateral buffer.
This is why the amount a bank will lend and the amount a client should borrow are two different questions.
What Is a Haircut in Lombard Lending?
The term “haircut” refers to the reduction a lender applies when calculating how much credit value it is prepared to assign to an investment.
A highly liquid, relatively stable security can potentially receive a more favourable lending value than an asset the bank considers volatile, concentrated or difficult to sell.
UBS describes less-liquid or more volatile collateral as typically attracting larger haircuts. Its published risk disclosures also note that concentration across individual securities, sectors, countries and currencies can affect collateral treatment.
This means two portfolios with the same £5m market value can support very different borrowing amounts.
Can a Bank Change the Lending Value After the Loan Is Drawn?
Potentially, yes, depending on the facility terms.
A common mistake is to assume that the collateral treatment agreed on day one remains fixed for the life of the facility. Securities markets and lender risk assessments can change.
UBS states in its Lombard lending information that it determines which assets are acceptable as collateral and reserves the right to adjust lending values. Other banks set out their own provisions in their facility documentation.
A borrower can therefore face two moving variables: the market value of the investment itself and the percentage of that value the lender is prepared to recognise for lending purposes.
This is another reason to avoid using every pound of available borrowing capacity simply because it is offered.
What Causes a Margin Call?
A broad market decline is the most obvious trigger, but it is not the only one.
Margin risk is determined by the interaction between the loan, collateral values and the lender's internal treatment of those assets.
| Potential Trigger | Why It Matters |
|---|---|
| Falling market prices | The market value of pledged investments falls, reducing the collateral supporting the loan. |
| Reduced lending values | The lender applies a larger haircut or lower collateral value to one or more securities. |
| Portfolio concentration | A large exposure to one company, sector or correlated strategy increases the risk of a significant simultaneous decline. |
| Currency movements | Foreign-exchange movements can reduce the value of collateral relative to borrowing in another currency. |
| Portfolio changes | Selling highly lendable securities and replacing them with lower-lending-value assets can reduce available collateral support. |
| Use of additional credit | Drawing further against the facility reduces unused collateral headroom even if the portfolio itself has not fallen. |
Why Concentrated Portfolios Create More Margin Risk
A £5m diversified portfolio and a £5m holding in one listed company do not present the same risk to a lender.
The concentrated portfolio can move much more sharply if something affects that particular company or sector. It may also be more difficult to liquidate a large position without affecting execution price.
This becomes particularly relevant for founders and senior executives whose wealth may be concentrated in shares connected with the company that created their wealth.
From the client's perspective, the holding can represent an extremely valuable asset. From the lender's perspective, it may require more conservative treatment than a diversified portfolio of liquid securities.
Concentration can also be less obvious than owning one share. A portfolio containing several technology funds, US growth mandates and individual technology stocks may look diversified by number of holdings while still being highly correlated economically.
Diversification Reduces Risk. It Does Not Eliminate It.
A diversified portfolio can generally absorb the failure or poor performance of one holding more effectively than a concentrated portfolio. It can therefore provide a stronger collateral base for Lombard borrowing.
But diversification should not be presented as protection against all margin calls. During periods of severe market stress, correlations between different investments can increase and several asset classes can decline together.
The strength of the structure therefore comes from combining diversification with sensible borrowing levels, not from assuming diversification makes the collateral immune to market falls.
What About Bond Portfolios?
Bonds can also lose market value. In particular, longer-duration bonds can be sensitive to changes in interest rates and market yields.
A borrower should therefore not assume that fixed-income collateral is risk-free simply because it is less volatile than certain equities under normal conditions.
Credit quality, duration, liquidity, currency and issuer concentration can all affect how the lender treats bonds when calculating lending value.
Currency Risk Can Trigger a Margin Call Too
Foreign exchange becomes particularly important for internationally mobile HNW borrowers.
A client may hold a US-dollar investment portfolio but borrow in sterling to fund a UK property purchase. Alternatively, the investments may be denominated across several currencies while the credit facility is drawn predominantly in one.
If the value of the collateral currency falls against the borrowing currency, the lender's effective security position can deteriorate even where the investments themselves have not fallen in their local currency.
Coutts specifically identifies this risk in its investment-backed lending guidance, noting that where borrowing and the lending limit are in different currencies, exchange-rate movements can result in the limit being exceeded and a shortfall needing to be rectified.
Currency alignment should therefore be considered at the same time as asset allocation and borrowing level.
How Often Does the Bank Monitor the Portfolio?
Monitoring practices vary by institution and product. Securities-backed portfolios can be monitored frequently because the collateral is market-priced and the bank needs to understand whether its exposure remains within agreed limits.
UBS states in its published risk material that exposures and collateral values in its Lombard book are monitored daily. Weatherbys has also described the increasing use of real-time portfolio monitoring and dynamic risk management within its enhanced Lombard proposition.
Borrowers should not assume that a lender waits for a monthly or quarterly statement before reacting to a collateral shortfall.
The precise monitoring and notification process applicable to an individual facility should be confirmed before borrowing.
What Happens When a Margin Call Occurs?
The exact process depends on the lender and facility documentation, but the fundamental purpose is to restore an acceptable relationship between the borrowing and its collateral.
The borrower may potentially be required to take one or more of the following actions:
- add eligible securities to the pledged portfolio;
- add cash or another form of collateral accepted by the lender;
- make a partial loan repayment;
- rebalance the portfolio into securities with greater recognised lending value; or
- take another action agreed with or required by the lender.
UBS describes additional collateral, portfolio rebalancing and reducing credit usage as possible ways to restore an insufficient collateral position. Investec states that a margin call on its portfolio-lending proposition can require additional funds to be deposited or a partial loan repayment.
How Long Do You Have to Meet a Margin Call?
There is no universal grace period.
Timescales depend on the lender, the contractual terms, the severity of the shortfall, the assets involved and market conditions. Borrowers should not assume they will automatically have several days to organise a response.
The risk becomes most acute during fast-moving markets. A position that is only just outside its agreed limits can deteriorate further while the borrower is attempting to restore it.
That is why separate liquidity and accessibility matter. Having a valuable but illiquid asset elsewhere does little to solve an urgent collateral shortfall if the money cannot be mobilised quickly enough.
The Liquidity Question to Ask Before Borrowing
If the pledged portfolio fell materially tomorrow and the bank required the facility to be reduced, where would the money or additional collateral come from?
If the only answer is “the bank could sell the pledged investments”, the borrower is accepting the possibility that securities may need to be realised at a time they would otherwise choose to hold them.
Can the Bank Sell My Investments?
Potentially, yes. This is one of the central risks of Lombard and securities-backed lending.
The precise rights depend on the facility agreement, but lenders can have extensive rights over pledged collateral where a borrower fails to restore the required position or where other contractual triggers apply.
Investec warns that close-out and on-demand repayment requests on its portfolio-lending proposition can be settled through the sale of investments, even where the timing may not realise the best price. UBS states that failure to comply with a margin call can result in collateral being sold.
This means a margin call is not simply an administrative request. If it is not resolved, it can ultimately change the composition of the client's investment portfolio and crystallise losses or gains without the client choosing the timing.
Some Portfolio Loans Can Also Be Repayable on Demand
Another risk that should be understood separately from the margin-call mechanism is whether the facility is contractually repayable on demand.
Investec, for example, states that its portfolio loans are on-demand loans and that it can request repayment irrespective of the portfolio value.
That is Investec's published product position and should not be generalised to every Lombard facility. The wider point is that borrowers need to understand both collateral triggers and the lender's contractual repayment rights.
A facility can therefore look inexpensive and flexible while containing repayment provisions that are materially different from a long-term residential mortgage.
How Can You Reduce the Risk of a Margin Call?
Margin-call risk cannot be removed entirely while a loan remains secured against market-priced assets. It can, however, be structured more conservatively.
1. Do Not Automatically Borrow the Maximum Available
The simplest protection is collateral headroom.
If a bank says a portfolio can support £2m of borrowing, drawing the entire £2m leaves less room for falling markets or reductions in lending values than drawing £1m.
UBS explicitly recommends avoiding use of the total available lending value and retaining a buffer because both market values and collateral lending values can change.
2. Understand What Is Actually Providing the Lending Value
A £5m headline portfolio value is less useful than knowing which assets the bank accepts, the lending value attached to each holding and whether one or two positions provide most of the collateral capacity.
This can reveal risks that are not obvious from the investment statement alone.
3. Consider Concentration and Correlation
A portfolio with numerous holdings can still behave like one large position if the assets are exposed to the same underlying risk.
Where practical and consistent with the client's investment strategy, better diversification can reduce the risk that the entire collateral pool falls sharply together.
Investment decisions should remain with the client and their appropriately qualified investment adviser. The lending structure should not drive portfolio changes without considering the investment consequences.
4. Maintain Liquidity Outside the Pledged Portfolio
An external cash reserve or other readily accessible liquidity can give the borrower options if the collateral position deteriorates.
That does not mean retaining an arbitrary amount of idle cash. It means understanding the potential size of a collateral shortfall and whether the client's wider balance sheet can respond without creating another financing problem.
5. Think About Currency Before Drawing
Where the portfolio and borrowing are denominated in different currencies, consider how a material FX move would affect the collateral position.
The correct approach depends on the client's income, assets, borrowing purpose and wider currency exposure. Specialist foreign-exchange or investment advice may be appropriate.
6. Review the Facility as Circumstances Change
A borrowing level that looked conservative when a facility was established may become aggressive after a large drawdown, portfolio withdrawal or change in asset allocation.
Likewise, a facility that was originally intended to last three months can become a different risk if it remains outstanding for several years.
The loan should therefore be reviewed alongside the portfolio and repayment plan rather than treated as a static credit line.
How Much Buffer Is Enough?
There is no universal safe LTV or headroom percentage.
The correct buffer depends on the volatility and lending value of the collateral, the lender's margin rules, the amount borrowed, currency exposure and the client's ability to provide additional liquidity.
A concentrated equity portfolio may require substantially more caution than a broadly diversified portfolio of highly liquid assets. Similarly, a client with significant unpledged cash may be able to respond differently from one whose entire balance sheet is invested or illiquid.
This is why generic statements such as “40% LTV is safe” or “70% LTV is risky” can be misleading without understanding the underlying collateral and contractual trigger levels.
A Simple Stress Test Is More Useful Than the Maximum LTV
Before drawing against an investment portfolio, it can be useful to model what happens if the collateral value falls.
| Stress Question | What It Tests |
|---|---|
| What if the portfolio falls 10%? | Whether ordinary market volatility materially reduces the collateral buffer. |
| What if it falls 20%? | Whether the facility remains workable through a more significant correction. |
| What if the largest holding falls 40%? | How concentration affects the lending value of the entire collateral pool. |
| What if the bank reduces an asset's lending value? | Whether the client is relying on the current haircut remaining unchanged. |
| What if sterling moves sharply? | Whether a currency mismatch could create or accelerate a collateral shortfall. |
| Where would additional liquidity come from? | Whether a margin call can be met without forced sale of the pledged portfolio. |
Why Margin Calls Matter When Lombard Lending Funds Property
Lombard lending can be attractive in property transactions because it can allow a client to access liquidity without immediately selling investments.
A client may use portfolio-backed borrowing for part of a property purchase, to provide a deposit, to bridge the period before another asset is sold or to avoid disrupting an established investment strategy.
But property and securities operate on very different timescales.
A house may take months to sell. A business transaction may be delayed. A conventional mortgage refinance may take longer than expected. Meanwhile, the investment collateral supporting the Lombard loan continues moving with financial markets.
A facility intended to be outstanding for three months can therefore become much more exposed if the expected property or liquidity exit is delayed.
£1m Needed Before Another Property Sells
Consider a client with a substantial investment portfolio who needs £1m to complete a UK property purchase before their existing home is sold.
A Lombard facility may provide an alternative to selling investments or arranging a property bridge. But the comparison should not stop with the interest rate.
The client also needs to consider what happens if the existing property takes nine months to sell rather than three, the investment portfolio falls during that period or the lender reduces the lending value of an important holding.
The right structure is therefore the one that remains workable if the expected exit takes longer than planned.
Lombard Loan, Mortgage or Bridging Finance?
A client with substantial investments and property wealth can have several ways to raise the same liquidity.
They might use a conventional mortgage, a second charge, bridging finance, a Lombard facility or another form of securities-backed borrowing. In some cases, a combination is appropriate.
The comparison should consider more than pricing.
Compare the Risk Structure as Well as the Rate
- which asset is providing the security;
- how quickly that collateral can change in value;
- the maximum and current borrowing level;
- margin-call or collateral-shortfall provisions;
- whether the loan is repayable on demand;
- interest rate and margin;
- currency exposure;
- early repayment flexibility;
- expected duration of the borrowing;
- the repayment or exit strategy;
- liquidity available outside the secured assets; and
- the consequences if the intended exit is delayed.
External Portfolio Lombard Lending Can Change the Relationship Question
Traditionally, some borrowers have assumed that obtaining Lombard finance requires moving an investment portfolio to the lending private bank.
That is not universally the case.
Weatherbys Private Bank, for example, has recently highlighted Lombard facilities capable of being secured against suitable portfolios managed by other investment managers or custodians. Its enhanced service also refers to real-time portfolio monitoring and dynamic risk management.
This can be relevant where a client is satisfied with their existing investment manager but wants to explore borrowing against the portfolio.
The precise custody, control, collateral and investment-management arrangements still need to be understood. The existence of an externally managed option does not alter the underlying margin-call risk.
What Should You Ask Before Signing a Lombard Facility?
The quality of a Lombard structure is easier to judge when the client understands the downside mechanics before the money is drawn.
- Which investments are eligible as collateral?
- What lending value is assigned to each major holding?
- Can those lending values be changed?
- What constitutes a collateral shortfall?
- When does a formal margin call occur?
- How quickly must it be resolved?
- What can be provided to meet it?
- When can the bank sell collateral?
- Is the loan repayable on demand?
- How does currency affect the facility?
- What happens if portfolio concentration increases?
- What liquidity remains outside the pledged account?
- What is the intended repayment event?
- What happens if that event is delayed?
Those questions are more important to the long-term robustness of the facility than the maximum headline advance rate.
How Willow Private Finance Approaches Lombard Lending
At Willow Private Finance, we approach securities-backed borrowing as a liquidity and liability-structuring decision rather than simply a way of maximising leverage against an investment portfolio.
For a property transaction, that means first understanding why the capital is required, how long it is expected to remain outstanding and what other sources of finance are available.
We can then compare the Lombard route with relevant property-backed alternatives and, where appropriate, explore private banks and lenders able to consider the client's investment assets.
The client's investment manager or wealth adviser remains responsible for investment advice. Our role is to make sure the borrowing side of the decision is properly understood, including collateral requirements, margin-call exposure, repayment strategy and how the facility interacts with the client's property finance.
Considering a Lombard Loan Against Your Investment Portfolio?
The key question is not simply how much the bank will lend. It is how much borrowing the portfolio can support through market movements without creating an unacceptable risk of a collateral shortfall or forced sale.
Willow Private Finance can help compare Lombard lending with mortgages, bridging and other property-backed liquidity structures, while working alongside your existing wealth manager or investment adviser where appropriate.
Explore Lombard Lending →Frequently Asked Questions
Margin calls are one of the principal risks of borrowing against an investment portfolio. Understanding how the lender calculates collateral support is essential before drawing the facility.
What is a margin call on a Lombard loan?
A margin call occurs when the lending value of the assets securing a Lombard loan becomes insufficient relative to the amount borrowed under the lender's agreed collateral rules. The borrower may then need to add eligible collateral, reduce the loan or take another action required by the lender.
What can trigger a Lombard loan margin call?
Triggers can include falling investment values, changes to lender haircuts or lending values, concentrated holdings, currency movements and changes in the composition or eligibility of pledged assets. The exact calculation and thresholds are lender-specific.
What happens if I cannot meet a margin call?
Depending on the facility terms, the lender may be entitled to reduce or close the facility and sell some or all of the pledged investments to restore its collateral position. This can occur at an unfavourable time in the market, which is one of the principal risks of securities-backed borrowing.
How can margin-call risk be reduced?
Risk can potentially be reduced by borrowing materially below the maximum available lending value, using appropriately diversified collateral, avoiding excessive concentration and currency mismatch, maintaining separate liquidity and monitoring the facility regularly. These measures reduce risk but cannot remove it completely.
Is a Lombard loan safer than selling investments to raise cash?
Neither route is automatically safer or more appropriate. A Lombard loan can preserve an investment portfolio and provide liquidity without an immediate sale, but it introduces borrowing cost, collateral-value risk and the possibility of margin calls or forced sales. The alternatives should be compared in the context of the client's wider financial position.