What is Asset Backed Lending?
Asset backed lending, which you may also know as a Lombard loan, is a type of lending that has been in place since the Middle Ages in the prosperous Lombardy, Italy where the concept was formed.
The practice of Lombard credit still exists in numerous central banks and it entails raising finance against existing liquid assets – such as cash, investment portfolios, shares, physical gold etc. – either held onshore or offshore – and you don’t need to liquidate your portfolio or sell your shares. This can provide you with a very flexible financing solution should your capital be tied up elsewhere or invested in your business, for example.
High net worth individuals can borrow against the assets they choose to deposit up to a certain, specified percentage of their market value. Due to our relationships with the lenders in this space Enness Private Clients are extremely adept at negotiating a favourable loan-to-value ratio for these assets. This ratio is also considered alongside the type, currency, quality, volatility and tradability of all the securities in question.
Who is Asset Backed Lending most suited to?
In our experience we find that asset backed lending is often a good fit for those clients of ours that are both non-resident and non-domiciled. In this case asset backed lending often suits those with an interest in investing in UK property but who do not wish to suffer a tax charge for remitting the deposit funds in the UK. By working with a bank who will lend against their offshore assets they are able to ensure that the loan forms the deposit for their property purchase whilst legally avoiding any costly tax implications.
For an individual with a sophisticated portfolio this option may be of greater interest than simply using cash for your deposit on a property. In this case one can place the allocated funds with the bank and then invest into an asset class of their choice and subsequently borrow against the investment for the deposit for the purchase.
What are the advantages of Asset Backed Lending?
One of the main advantages of this form of lending is that the overall cost of it is cheaper than funds secured against a property, buying a property outright or raising funds for alternative investment opportunities. Additionally, having a portion of the loan secured on the main residence can also prove to be tax efficient for inheritance tax purposes.
Important – the legislation on asset backed lending has changed in the last few days – please speak to us for guidance.