If you are one of the many boat owners who buys with cash, then great – you can saunter on by without worrying how to finance a yacht. It’s a relatively simple transaction: find the new or used boat you want, do the survey, sign a contract and transfer the cash to the broker’s account.

But for a significant minority, some kind of loan will be either necessary or preferable to fill the gap between dreams and reality. And the simplest way of borrowing the money to buy a boat, is to borrow against the boat, from a lender that specialises in the marine sector.

There used to be numerous players in this space, but the constant tightening of credit rules has seen it boil down to a handful of experts. The French-backed giant CGI-Finance stands behind several financial brokers, including General Yacht & Leisure Finance (GYLF), based in Lymington. Other brokers include Sure Marine and Pegasus Marine, while Close Brothers, Promarine, Arkle and Lombard all lend out their own funds.

It’s immediately clear that the cost of a boat loan is much higher than you might be used to for mortgages or personal lending. At the time of writing, quotes ranged from around 8%-16%. Most are on a variable basis, so volatile base rates will affect monthly repayments.

“Today we’re looking at an APR of 8-9%,” says Ben Nichols of Clipper Marine, which is the UK dealer for Bavaria yachts and a broker for used production yachts. “That’s up from 4.5% a year ago. The finance companies are becoming a little more competitive with the rates because when it gets over the magical 10% APR, people start going, ‘No, you’re alright’!”

Clipper’s rates are set by CGI-Finance, the asset financing arm of banking giant Société Générale. But the more specialist financing operations like Promarine are quoting rates of up to 16% after a surge in the base rate. Founder Stuart Austin says he has seen the market cooling off a little since September, but thinks it is a post-Covid correction due after two frothy years of buoyant demand for anything that floats.

Just 25% of new boats and 10% of used boat purchases are financed, according to brokers Ancasta

From dreamer to owner

The silver lining here is that there are more boats available for sale again, and brokers report plenty of interest. So, if it feels like the right time to buy and you are considering finance, how does the process actually work?

Just like with a home, lenders strongly advise you to get an in-principle mortgage agreed before you go boat hunting, because it will improve your chances of getting an offer accepted. You’ll need to have a deposit, which is the lender’s safety margin against depreciation in the value of the boat. Some 20%-30% is normal for smaller boats, with up to 50% when you start edging beyond £1m boat value.

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“Deposits are either a cash source or a part exchange that has been taken into account,” says Kris Garner of GYLF. “We often get people taking money out of the business by way of a dividend and then it forms part of the deposit – that’s quite normal. That, savings, and current boats being used as part exchange.”

If you have to borrow to fund the deposit, that’s a different matter, however. “We’re not wildly comfortable about that, because we don’t want people to take on too much debt,” says Promarine’s Austin.

“We want to be responsible lenders. And also, if people are putting their own money into something, they tend to look after it more.”

Then you’ll have to demonstrate that loan repayments are affordable by sharing copies of bank statements. Payslips will be required from employees, while company owners should expect to show accounts. Lenders will also factor in the cost of maintaining and berthing a boat when they assess affordability. There is no hard and fast rule here, but the marine industry generally reckons on annual running costs of 10% of a boat’s value.

Finding your dream yacht is just the start…

After that, the buying machinery whirrs into action. There’ll be a contract with the seller – in most cases a boatbuilder, dealer or reputable broker, although private sales can also sometimes be financed. You’ll have to do a survey if it’s a used boat to prove the value, and the seller will have to furnish five years of ownership documents to demonstrate that they really do own the title. New boat purchases are more straightforward.

All this can create a lengthy paper trail, so most lenders charge a document fee. This can be a flat fee of, say £800, or 1-2% of the sum borrowed. Finally, the lender will usually want to register their charge over the boat with the MCA. Fees for registration vary from the £153 cost price, to hundreds when solicitors are brought in.

Going digital

So far, so traditional – at least compared with other branches of consumer lending. But a new app-based product called Salt is hoping to change all that, which will put the whole process on a digital footing that can be managed from your smartphone.

“We’ve spotted a gap in the market and there’s not a huge amount of competition,” says co-founder and CEO Joe Dalton, who’s also a sailor with around 8,000 miles under his sea boots. “We have a digital application process – so there’s no need to ring up and speak to somebody or send in an application. Through our app, you can apply then and there.”

You start by plugging in your broad requirements – loan amount, boat value and repayment term, and entering a few personal details to set up an account. Salt then asks whether you are happy to use Open Banking to verify your details. This is the clever bit. If you say yes – and Dalton expects 70% of customers to agree – then Salt can automatically see and analyse your bank account.

“We get the customer’s transactional data for the last 12-24 months,” he explains. “That goes through our algorithms to determine what is regular income and what is committed expenditure – gas, electricity, mortgage and loans – and what is discretionary expenditure. It categorises everything and allows us to instantaneously verify everything you’ve told us in your application.”

Fast finance

Loans will start at £10,000 and run up to around £500,000, making Salt a competitor for small boats at the busier end of the market. And unlike some others, it will consider financing almost anything that floats. “We’re also including tenders, RIBs and jet-skis. There are 1,200 jet-skis sold every year in the UK, and nobody’s really financing them,” says Dalton.

Salt is still going through the approvals process with the financial watchdog, the FCA, but is expecting to start making loans very soon. And in the future the customer experience could become even more streamlined. “We are working towards full automation in the sub-£100,000 space – decisions would be instantaneous within a certain tolerance,” adds Dalton. “Otherwise, we expect to turn things around in a few hours, although we say it takes up to 24 hours.”

The Salt app aims to shake up the boat finance sector.

Big and small

Stuart Austin at Promarine has been lending to boatowners since 2010, and specialises in the smaller, second-hand end of the market. “When lenders raised their minimum deal value to £50,000, our space was the vacuum left by those bigger guys,” he says. “There’s a certain market where they will not operate, and that’s where we want to be: older
boats, liveaboards and inland. Typically, they want a 30% deposit, which might be a sensible place to be, but we’ll do it with a 20% deposit.”

Longer terms, true penalty-free early repayment and a tailored approach is Promarine’s focus, with quick turn-around times. “As a sailor, I understand the passions and the problems of ownership,” Austin says.

“Then it becomes about flexibility. It used to be that if you were the director of a business and kept the money in a business account, then some of those lenders would look at your personal account and decide you couldn’t afford it. It was a lack of common sense, but we take the trouble to find that out.”

If Promarine is the go-to lender for buying smaller, older boats, Close and Lombard are the experts when it comes to the jazzy end of the market. To some extent, Lombard has withdrawn from the consumer market by restricting lending to companies or LLPs. This allows it to side-step some red tape and focus on big boats, where there are often complex corporate ownership structures in place.

Boat loans are paid off on average after 46 months, according to Close Brothers

Close has a different approach, however. Its clients must borrow at least £65,000 and put down a deposit of 30%, which implies a minimum boat value of around £100,000, but the sky is really the limit. And because it lends its own funds, it can make complex lending decisions relatively quickly. “Our credit team that deals with the lion’s share of the lending are a walk across the office,” says James Crew, marine sales director. “I get to talk to people that go boating all day. That’s all we do – it’s completely specialist.

“We deliberately don’t have an online quote tool,” Crew continues. “We do everything on a bespoke basis.” So, although the general rule is that the boat must be less than 30 years old at the end of the mortgage term, Close has lent on some far older wooden classics. “The owners employ a lot of people to keep them looking better than when they were built!” he adds.

Final flex

Some lenders, including Close, allow borrowers to make a so-called ‘balloon payment’ at the end of their loan period. So instead of repaying the entire loan in large monthly instalments, you pay less each month and finish with a final lump sum to pay off up to 30% of the boat’s value. It can work out cheaper in the end, while giving you time to get the money together.

However, there are still some areas where yacht financing is less flexible than other areas. “If there is any frustration it is to do with the inability to lease,” says Will Blair of brokers Ancasta. “The finance companies have not been able to address this demand, because the marketplace is so small that it’s hard to identify residual value prices as accurately as it is for the car industry, for example.”

There is perhaps still a reticence to borrow to buy a boat, but it can make a lot of sense, even at higher interest rates.

“Clients who run their own businesses talk about what we charge versus what they could make doing something else. They can deploy their own money for a greater return,” explains James Crew of Close.

“Whether you’re borrowing £65,000 or £6.5m, there’s always the opportunity cost: what else could I do with my money?”

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