Yacht Finance in 2023 – Close Brothers, Aviation and Marine
By James Crew, Marine Sales Director
Close Brothers Aviation and Marine is one of the leading providers of marine finance, offering fast, tailor-made finance to our clients. For over 20 years the team has been providing funding for a wide variety of sailing yachts and motor yachts, including those that are used for charter The world has undeniably experienced seismic changes over the past few years, with Brexit, the Covid-19 pandemic, and the war in Ukraine to name just some. But, what about the world of Marine finance?
Speaking from the perspective of the Close Brothers Aviation and Marine team, over the last five years, we have seen year-on- year growth as both historical and new marine borrowers have decided that they wish to take some level of borrowing for their new yacht.
Many clients are keen to keep their ‘bricks, mortar and savings pot’ and their new yacht separate because, quite simply, the yacht provides the marine lender the security they need – very rarely are any other assets sought to underpin the loan.
The marine market has seen a steady growth in the number of yacht owners seeking to take some level of borrowing against their vessel, countering the ‘myth’ that only those with significant disposable income and savings should own a yacht. We have found that even the very wealthy are now more inclined to borrow because there is often an opportunity for the cash to be used elsewhere.
For example, one of our clients will expect double digit returns on their cash and therefore, given the borrowing costs will be less than this, it makes simple economic sense to borrow.
The lending product is simply a marine mortgage, which has remained unchanged since the 19th century. The lender will use the yacht as its primary security – like a house, the borrower is the owner, unlike a Hire Purchase or a Lease, where the lender owns the asset and the borrower has the option of purchasing the asset at the end of the term.
I have found that new clients unfamiliar with Marine finance are surprised by the simplicity of the transaction and expect – and anticipate – far more complexity than is actually the case.
I can understand why this may be the case purely because of the size of the intended purchase – you would expect to jump through more hoops; however, it’s only simple because of our experience and detailed understanding of both the assets and the broader market.
Any prospective borrower would be advised to engage with an established and experienced lender who deal with yachts, brokers, surveyors, and so on, on a daily basis.
It’s important to point out that reputable lenders like ourselves are highly regulated and clients should not be surprised to expect full due diligence to be conducted in advance of any offers being made.
At Close Brothers Aviation and Marine, the credit process is done manually. The reason this is important for borrowers is that each application is treated on its own merit and is not approved or rejected on the basis of an automated process. We understand all our clients are unique.
We employ expert underwriters who concentrate almost solely on Marine and Aviation assets, which sets us apart from other lenders in the sector.
The market will generally offer up to 70% of the yacht’s cost or value, but I find the majority of our clients seek to borrow slightly less than this.
As a direct funder with a very healthy balance sheet who has lent through all economic cycles over the last two decades in Marine, we find clients welcome the consistency of an established and experienced specialist lender.
One of our clients is on their seventh yacht with our assistance – and this is by no means a unique example, with many clients having funded multiple yachts through ourselves.
Most marine lenders, including ourselves, will offer up to a 10-year repayment profile, but our average mortgage runs for 44 months before the yacht is changed.
Customer Service – with a difference
From a client lending point of view, I expect more clients to see the value in taking out funding to purchase or refinance their yachts, as it becomes further normalised.
The trait clients value most from their lender is consistency – they need to know that when they pick up the phone that they’re speaking with knowledgeable experts who have a detailed understanding of their specific requirements.
Most of the conversations we have with clients is consultative in nature and we try – where we can – to assist getting our clients onto the water as soon as feasibly possible. Affordability is a key topic – we have a duty to ensure we offer loans to our clients that are appropriate to their individual circumstances.
Predictions, particularly in the current economic and political environment, are difficult to make; however, if the past five years are anything to go by, I expect the Marine market to remain stable, and – it has to be said – buoyant.
Sustainability will become increasingly important as clients begin to demand more environmentally friendly yachts from boat makers, including electric and hydrogen.
We have already funded a number of hybrids and are fielding a growing number of requests for electric and hybrid boats, which we have appetite to support.
The move to a more sustainable future is an exciting opportunity for our sector, and as the car market has already demonstrated, build it and they will come…