Securities-back loan or Lombard loan

While real estate will usually be involved, this type of credit can be used for other purposes provided the bank agrees to it: a renovation, a bridging loan, the payment of inheritance tax, etc. or the purchase of a work of art, a classic car or a private plane, for example.

A securities-backed credit can be a solution when buying real estate abroad, because taking out a mortgage loan abroad can be complicated and Belgian banks are reluctant to lend against foreign real estate.

You may be thinking that you could simply sell off a few investments instead and use the proceeds to finance the project yourself. While you could indeed do this, you would miss out on the potential future return on these investments.

In most cases, the interest rate for a securities-backed credit or Lombard loan is also lower than for a mortgage or personal loan.

If you are buying real estate, there are no mortgage charges associated with securities-backed credit or a Lombard loan as there would be with a mortgage loan, because it is your investments that are serving as collateral, not the real estate. You also do not need to take out any outstanding balance insurance, and you avoid certain other terms associated with a mortgage loan, such as the compulsory payment of your income into a related account.

How much you can borrow through a Lombard loan depends on two things: the size and composition of your investment portfolio, and the bank's conclusions from their analysis of that portfolio. If you have invested EUR 1.5 million, this does not automatically mean you can borrow the full amount. If your portfolio primarily consists of high-quality, defensive and stable bonds, the bank will more than likely lend you a higher amount than if you have an overweight position in high-risk equities. A certain margin is also applied to cover any sharp fall in value. Investment funds spread risks more widely, and so have a higher value as hedging collateral than individual shares or bonds.

In most cases, a fixed rate of interest and a term of up to ten years apply, but each Lombard loan is personalised, so they can vary. In most cases, you will be able to choose from a number of repayment plans, such as a fixed monthly amount or a bullet loan where you only pay interest each month then repay the full capital amount you borrowed at the end of the term of the loan.

Less freedom

If you want to sell part of your investments but you have taken out securities-backed credit, you must first agree on the sale with your bank. In other words, you are no longer 100% free to use your investments to do whatever you want, whenever you want, even though you are still the full owner of your portfolio.

The entry level

Your investment portfolio must be fairly substantial. A Lombard loan will not be offered for a small amount. The minimum loan threshold is EUR 200,000 with a related securities portfolio of at least EUR 500,000. The bank may also charge arrangement fees, but these are usually on the low side.

Uncertainty of future returns

While your loan is in place, there is no certainty about the return on your investments. If, for example, you opted for a bullet loan and you want to sell all your investments in order to repay the borrowed capital at once, this may becomes problematic if it comes after a future stock market crash. Waiting to sell would then be more sensible. The best way to make this happen is to extend the loan.