Weatherbys Cuts Lombard Margin to 1.48% and Opens Lending to Externally Managed Portfolios

Weatherbys Private Bank has sharpened its Lombard lending proposition, announcing a margin of 1.48% above Bank of England Base Rate for suitable portfolios while highlighting a feature that could matter even more to wealth advisers: clients can potentially borrow against investments managed elsewhere without changing investment manager or custodian.

The development creates a potentially important additional liquidity route for high-net-worth investors who hold substantial investment portfolios but do not necessarily want to liquidate assets to fund a property purchase, business requirement, tax liability or other short-term capital need.

Weatherbys says financial technology is enabling faster portfolio monitoring and more dynamic risk management, helping the private bank offer what it describes as more competitive lending terms.

Subject to the investment portfolio being suitable for Lombard lending, its latest announcement states that the bank will now charge an interest-rate margin of 1.48% above Bank of England Base Rate.

But for clients already advised by an established discretionary fund manager or wealth manager, the more strategically important part of the announcement may be that the underlying investments do not necessarily need to move.

The Bigger Development Is Not Necessarily the 1.48% Margin

A lower lending margin naturally attracts attention, particularly when the sums involved can run into hundreds of thousands or millions of pounds.

However, the more interesting development for many private clients is the willingness to lend against an externally managed portfolio.

Historically, one obstacle to securities-backed borrowing can arise when a bank wants the client's investments transferred into its own investment-management or custody proposition before it will lend against them.

That can create a conflict between the client's borrowing requirement and an existing wealth-management relationship that may have taken years to establish.

The client may be entirely satisfied with their discretionary fund manager, investment adviser or existing custodian.

Moving a multi-million-pound portfolio simply to obtain a temporary credit facility can therefore be commercially unattractive, administratively disruptive and potentially inconsistent with the client's wider investment strategy.

It can also make the existing wealth manager understandably cautious about introducing the client to another private bank.

Weatherbys' latest proposition directly addresses that issue.

The Wealth Manager Does Not Necessarily Have to Lose the Assets

Weatherbys says one significant advantage of its Lombard proposition is the ability to arrange facilities against portfolios managed elsewhere without the inconvenience of changing investment managers or custodians.

The bank goes further by explicitly identifying the proposition as relevant to other advisers in the market.

It says advisers can support clients in obtaining this type of liquidity without disrupting either the advice being provided or the underlying adviser relationship.

That is important because it changes the commercial dynamics of an introduction.

A wealth manager with a client holding £3 million, £5 million or £10 million of investments does not necessarily need to view a Lombard lending referral as a threat to the investment-management mandate.

Instead, portfolio-backed lending can potentially become another tool available around the existing wealth strategy.

Consider a Client With £4m Invested and a £1.5m Property Funding Gap

The practical significance becomes clearer when viewed through a property transaction.

Consider a high-net-worth client with a £4 million investment portfolio managed by a DFM they have worked with for many years.

The client agrees to purchase a £3 million London property and needs £1.5 million of additional liquidity.

Another property is expected to sell in six months, providing a potential repayment source.

One solution would be to sell part of the investment portfolio.

But that could crystallise gains or losses, remove capital from the client's long-term investment strategy and leave the client out of the market during the borrowing period.

Another option could be a conventional mortgage.

Depending on the transaction, bridging finance, borrowing against another property or a private-bank mortgage could also be relevant.

But if the portfolio is suitable security, a Lombard facility introduces another possibility: use the investment assets as collateral without necessarily selling them or transferring the management relationship.

The correct structure cannot be determined from the portfolio value alone. Cost, duration, market risk, repayment strategy, tax considerations and the client's capacity to withstand a margin call all matter.

But the option is materially different from simply telling the client to liquidate investments to create cash.

Property Purchases Are One of Several Potential Uses

Weatherbys' wider Lombard material identifies a range of circumstances in which clients may require liquidity while wanting to preserve their investment strategy.

Its latest announcement refers to business opportunities, tax liabilities and reinvestment, while its broader Lombard proposition also discusses property purchases and estate or succession requirements.

For Willow clients, property transactions are particularly relevant because the timing of a purchase and the timing of available cash often do not coincide.

A client may be wealthy on a balance-sheet basis but still face a temporary liquidity requirement.

Their capital may be held in investments, another property, a business or assets that they do not want to sell at the precise moment a property purchase needs to complete.

The finance question is therefore not simply:

“Does the client have enough wealth?”

It is:

“Which asset should provide the liquidity, for how long, and at what risk?”

A Mortgage and a Lombard Facility Solve Different Problems

Portfolio-backed lending should not automatically be treated as a substitute for a mortgage.

A conventional mortgage uses the property as security. Lombard lending uses an investment portfolio.

Those structures expose the client to different risks and may be suitable for very different time horizons.

A long-term residential mortgage may be preferable where the client intends to retain substantial property debt for many years.

A portfolio-backed facility may become more interesting where the capital requirement is temporary, where the client wants to complete before another asset is sold or where flexibility around drawdown and repayment has particular value.

In other cases, a combination may produce the more appropriate structure.

For example, a client might use portfolio-backed liquidity to complete a purchase and subsequently replace some or all of that borrowing with longer-term property finance.

Alternatively, a conventional mortgage could provide most of the funding while a smaller Lombard facility covers a temporary equity requirement.

The important point is that the options should be compared rather than considered in isolation.

The Existing Mortgage Market Should Still Be Tested

The availability of a Lombard facility does not mean an investment-backed loan is automatically the right answer for a wealthy borrower.

Large-loan mortgage availability has widened materially across parts of the market, and straightforward high-income borrowers can sometimes access substantial facilities without needing to pledge an investment portfolio.

Private banks may also offer bespoke property-backed lending where the client's circumstances warrant it.

For a property requirement, Willow would therefore normally want to compare the relevant structures across the client's balance sheet.

The Key Risk Is That the Security Value Moves Every Day

One of the fundamental differences between Lombard lending and conventional property finance is the behaviour of the collateral.

Investment portfolios can move in value every trading day.

Weatherbys explains that if investments securing a facility fall below agreed levels, the borrower may face a margin call.

That could require the client to reduce the outstanding borrowing or provide additional funds at short notice.

If the margin call is not met, investments may need to be sold to bring the facility back within the agreed lending parameters.

That risk matters because a client taking a Lombard loan specifically to avoid selling investments could potentially be forced to sell assets later if markets fall sharply and sufficient additional liquidity is not available.

The headline interest margin is therefore only one component of the decision.

The client's resilience to a fall in portfolio value can be considerably more important.

Portfolio Composition Determines How Much Can Be Borrowed

A £5 million investment portfolio does not automatically support £2.5 million of borrowing simply because a lender advertises a maximum LTV of up to 50%.

Weatherbys states that borrowing limits depend on the size, composition and risk profile of the portfolio.

That distinction is essential.

A diversified portfolio of highly liquid mainstream securities may support a different lending value from a concentrated portfolio containing a small number of equities, specialist funds or more volatile investments.

Different securities can attract different lending values or haircuts.

The client's usable borrowing capacity therefore needs to be assessed against the actual portfolio rather than its headline market value.

Why This Is Particularly Relevant to Wealth Managers

For wealth managers and DFMs, the Weatherbys announcement addresses one of the most obvious commercial objections to introducing a client for Lombard lending.

If the client can potentially retain the existing investment manager and custodian, the debt requirement and investment-management relationship do not necessarily need to compete with each other.

That creates a more collaborative model.

The wealth manager continues to manage the client's investments.

The lender provides the secured liquidity.

A specialist debt adviser can compare that facility with the property-backed and private-bank alternatives.

The client's tax and legal advisers remain responsible for their respective areas.

For a genuinely complex private client, that separation of expertise can be more appropriate than allowing the financing requirement to dictate where the entire investment portfolio is managed.

A £1m Property Deposit Does Not Necessarily Require £1m of Investments to Be Sold

This is where the proposition becomes especially relevant to property buyers.

A client may have sufficient wealth to fund a large deposit but insufficient cash immediately available.

The traditional response is often to liquidate part of the portfolio.

That may be entirely appropriate.

But it is not the only possible route.

Where suitable, borrowing against the portfolio can allow the client to separate the timing of the property transaction from the timing of the investment disposal.

That can be valuable where another property sale is expected, a business transaction will provide future liquidity or the client simply does not want to make a large investment decision under the time pressure of a property completion.

The facility still needs a credible repayment strategy.

Temporary borrowing without a realistic exit can turn a short-term liquidity solution into long-term leveraged investment exposure.

Entrepreneurs Can Face the Same Liquidity Question

Property is not the only potential application.

Entrepreneurs frequently have substantial personal wealth while simultaneously facing short-term capital requirements in their businesses.

A shareholder may need capital for an acquisition, expansion, working capital or another commercial opportunity.

Selling investments may be undesirable, while refinancing a valuable home simply to raise temporary capital can be slow or economically inefficient.

Depending on the client's circumstances, a portfolio-backed facility may deserve comparison with property-backed borrowing and other forms of credit.

Again, the key question is not which facility has the most attractive headline rate.

It is which structure creates the required liquidity while producing an acceptable combination of cost, security, flexibility and downside risk.

Trusts and Companies May Also Be Eligible

Weatherbys states that Lombard facilities may potentially be available to individuals, trusts and limited companies.

That broadens the relevance beyond straightforward personal borrowing.

Trustees, family investment structures and private companies can all encounter situations where liquid capital is required while substantial investments remain in place.

The legal, tax and fiduciary implications can be considerably more complex in those circumstances and need appropriate professional advice.

But from a financing perspective, it means portfolio-backed liquidity is not necessarily confined to an individual investor borrowing personally.

The Pricing Discrepancy Needs to Be Treated Carefully

There is an important caveat around the newly announced pricing.

Weatherbys' latest announcement states that, subject to portfolio suitability, the bank will now charge an interest-rate margin of 1.48% above Bank of England Base Rate.

However, at the time of publication, Weatherbys' separate Lombard lending product page continued to display pricing of 1.99% over Base Rate with a 1% arrangement fee.

The newer announcement appears to represent the enhanced proposition, but borrowers should not rely on a website headline as confirmation of the precise terms available to their case.

The portfolio, facility size, borrower, security structure and other circumstances can all affect an individual lending decision.

Willow would therefore confirm current terms as part of an actual lending assessment rather than assuming that a published margin represents a guaranteed all-in cost for every client.

Private Banks Are Becoming More Flexible About Where the Wealth Sits

There is a broader strategic point behind the Weatherbys development.

For years, private-bank lending and investment management have often been closely connected.

That model can work extremely well where the client genuinely wants a consolidated private-bank relationship.

But it can be less attractive where the client already has investment advisers they trust and simply requires debt.

The ability to lend against third-party managed assets suggests a more modular approach to private banking, where the lending relationship can potentially sit alongside rather than replace the existing investment relationship.

For HNW borrowers, that can widen the options available.

For wealth managers, it can reduce the perceived risk of introducing clients for specialist borrowing.

And for debt advisers, it reinforces the importance of comparing the client's entire balance sheet rather than defaulting immediately to property-backed borrowing.

Wealth Advisers Can Use Debt to Protect the Investment Strategy

A client approaching their wealth manager for £750,000 or £1.5 million of cash may appear to be asking an investment question.

In reality, they may have a financing problem.

If the client needs the capital for only six or twelve months, immediately liquidating long-term investments may not always be the only appropriate response.

That does not mean borrowing should automatically replace a sale.

Leverage introduces cost and risk, and the investment portfolio can fall in value.

But the client should at least understand both sides of the decision.

The investment adviser can consider the consequences of selling assets.

The debt adviser can establish what borrowing alternatives exist.

The client can then make the decision with both sets of information available.

The Best Security May Not Be the Most Obvious Asset

A wealthy client may own several assets capable of supporting borrowing.

They could have a principal residence with substantial equity, investment properties, a securities portfolio and interests in a private business.

If £1 million is needed for six months, the objective should not be simply to identify the first lender prepared to provide it.

The more useful question is:

Which asset should provide the temporary liquidity without unnecessarily restructuring the rest of the client's balance sheet?

A Lombard facility may be the answer.

A second-charge property facility may be better.

A conventional mortgage, bridge or private-bank facility may produce a stronger outcome.

In some cases, selling investments may still be the most appropriate solution.

The value of the advice lies in making those options comparable.

What Should HNW Clients Review Before Using Lombard Lending?

Clients considering securities-backed borrowing should establish more than the maximum facility and interest margin.

They should understand the assets being pledged, the lending value applied to them, the circumstances in which that lending value can change and the consequences of a significant market fall.

They should also have a clear view of the expected borrowing period and repayment source.

If the facility is being used to complete a property purchase before another property sells, for example, the client should consider what happens if that sale takes significantly longer than expected or completes at a lower price.

Liquidity planning should include the downside case, not merely the expected case.

The External-Portfolio Model Creates a Different Introducer Conversation

For wealth managers, this week's Weatherbys announcement creates a particularly straightforward question to ask when a client needs capital:

“Could the client obtain liquidity against the portfolio without moving the portfolio away from us?”

That is materially different from an introduction where a private bank's first requirement is to transfer the investment assets.

For Willow, it means the role can be explicitly collaborative.

We can assess the client's property and debt options while the existing wealth manager retains responsibility for the investment strategy.

Where Lombard lending is relevant, we can compare lenders and structures alongside the mortgage, bridging and property-backed alternatives.

The objective is not to replace the wealth adviser.

It is to add specialist debt capability around the wealth relationship that already exists.