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Lombard loan in Switzerland: your options for 2025
Do you own a securities portfolio and need short-term liquidity? A Lombard loan allows you to use your securities as collateral for a loan without having to sell them. Find out how to leverage this flexible financing solution in 2025 to achieve your investment goals.
What is a Lombard loan and how does it work?
A Lombard loan, also known as a securities-backed loan, is a specific type of credit financing where securities serve as collateral. The key advantage is that the borrower remains the owner of the securities and continues to benefit from potential price increases and dividend payments. This flexibility makes the Lombard loan an attractive financing instrument.
The loan amount granted depends on the loan-to-value (LTV) ratio of the pledged securities, which varies by asset type. While top-rated government bonds typically have higher lending values, more volatile stocks receive lower ones. Banks also consider factors such as creditworthiness, currency, and market liquidity.
Lombard loans are generally offered in two forms: a flexible overdraft facility or a fixed-term advance. This allows for optimal financing adaptation to individual needs.
Advantages of Lombard loans
Lombard loans have been growing in popularity for good reason. A Deloitte study shows that this type of credit has seen annual growth of 5 to 10% since 2018, making it one of the fastest-growing credit products.
One major benefit is the ability to generate additional liquidity without liquidating existing investments. This is particularly relevant as over 60% of borrowers now use Lombard loans for purposes beyond investments.
Additionally, interest is only charged on the amount actually used, allowing for efficient tax planning.
Risks and drawbacks of Lombard loans
However, Lombard loans come with risks. The main risk lies in market fluctuations: if the value of the pledged securities falls below the required threshold, the bank may demand additional collateral. In some cases, this could lead to forced asset sales.
Therefore, those considering a Lombard loan should carefully assess their risk tolerance and market expectations. Regular portfolio monitoring and careful planning are essential to avoid unpleasant surprises.
Current interest rates and conditions for Lombard loans in Switzerland
Interest rates are a key factor when taking out a Lombard loan, and conditions vary significantly between providers.
Fixed-term advances typically offer better rates than variable overdrafts, reflecting their lower risk profile.
Currency choice is another important factor: Lombard loans can be taken out in Swiss francs or foreign currencies, providing flexibility to suit different financial strategies. The average share of Lombard loans in managed assets is around 6%, with a range from 0% to 25%.
The quality of the pledged securities also impacts loan conditions. Lenders assess aspects such as credit quality, portfolio diversification, and overall customer exposure when determining interest rates.
Tax considerations of Lombard loans
Lombard loans offer tax advantages. Interest payments are generally deductible as debt interest if the loan is used for business or income-generating purposes, making this an attractive option for Swiss taxpayers. However, tax treatment varies by canton.
Additionally, Lombard loans can reduce taxable wealth, as debts are deducted from gross assets, leading to potential tax optimisations. However, the pledged securities still count as assets.
Tips for using Lombard loans for investments
Using a Lombard loan strategically can enhance investment management.
A key benefit is the ability to maintain an investment strategy even when short-term liquidity is needed.
Lombard loans can also support portfolio diversification. However, caution is advised: using them to buy more securities should be carefully considered, as excessive leverage can lead to margin calls during market fluctuations.
Key principles for success include:
Developing a clear investment plan with defined exit strategies
Keeping sufficient liquidity reserves for margin calls
Regularly reviewing the loan-to-value of securities
Ensuring a well-diversified portfolio to minimise risks
Lombard loan strategies hold significant potential but should always be approached with caution and a thorough understanding of the risks involved.
