Found your dream home but struggling to raise the funds to buy it quickly? Do not worry. If you have a Ferrari or a Rembrandt lying around, you can join the super-rich of the world and finance the purchase using your luxury asset as a security.
Lending of luxury assets – against valuables, such as classic cars, fine wines, jewelry, works of art and yachts – is growing, especially among business owners and individuals rich in assets but poor in money.
NHW Lending, a premium pawnshop, reports that the number of people seeking loans against their classic cars rose 35% between October and March, from the previous six months, and 27% from the same period a year ago. .
Since launching earlier this year, the company has loaned out £ 1million against classic cars, with a client securing a £ 150,000 loan against a 1939 Lincoln Zephyr, a Porsche 911 and a 1957 VW Samba Bus. Another customer took out a loan of £ 120,000 for a 1962 Bentley S2 Cabriolet.
Ashley Maddox, co-founder of AG Classic Automobiles, which sources specific classic cars for its customers, attributes the increased demand for these loans to the growing value of classic cars. The Knight Frank luxury index of classic cars increased 467% over a decade to March 2016.
There are three main factors that determine the valuations of classic cars, Maddox explains: “The rarity, the history of a particular car brand and its overall ‘mind blowing factor’. “
The racing cars are particularly attractive and a 1967 Ferrari 275 Spider (identical to the one driven by Steve McQueen in the film The Thomas Crown affair) recently bought $ 27.5 million. Earlier this year, Bonhams, the auctioneer, sold an original 1963 Jaguar E-Type Lightweight Competition for $ 7.4 million, making it the most valuable E-Type to auction.
“We are very happy to lend against classic cars because they are easier to validate as genuine versus other valuable assets and because they have increased in value,” said Ben Shaw, Founder and Director of HNW Lending. “This means that any potential risk we face in terms of default is lower than in other areas.”
High net worth individuals love luxury asset lenders because they promise discretion, expertise and tailored service, and claim to be able to deliver premium loans within hours. They also tend not to perform credit checks and therefore leave no credit footprints. Traditionally, the main players in this market have been small, asset-focused companies like art or cars, but more and more companies are entering the market and expanding their business models.
Experts say clients use the money to close real estate deals, make a quick investment, or pay taxes. Usually it is clients with irregular cash flows who have access to bank debt and this luxury asset loan is the complementary and flexible part of their debt.
Hugh Wade-Jones, managing director of Enness, a premium mortgage broker, says clients are asking for more imaginative ways to help them buy property by borrowing against existing assets. “Everything from a Rembrandt to a Jeff Koons can be taken into account when obtaining a mortgage,” he explains. “The value of a work of art will be carefully considered based on the artist, its uniqueness, the demand for such a piece, sales records and all the data gleaned from galleries and sales to auction. “
He says some lenders will require physical security of the coin or collection, but Enness works with a lender who will allow individuals to retain possession of the asset for the duration of the loan. The company also lends against jewelry, watches, luxury handbags, gold and fine wines.
Loans are generally short term and the owner can redeem the property at any time by paying off the loan plus interest. If the asset has lost value, the lender usually takes the hit, making it essential that the assets are valued correctly in the first place. The interest rates are high compared to traditional bank credit.
Luxury asset lenders either store the assets themselves or impose restrictions on their use. So, if it is already in a museum, there is usually an agreement made that states that the work cannot be released without permission from the lender.
Another way to invest in this market is through Omnia, which entered the UK investor market with the launch of a new bond, the Omnia Corporate Bond, which works by creating income for owners of works of art. art and other assets. Omnia pays people income in exchange for taking security on the asset and encapsulating it in a corporate bond.
“We’ve been offering secured finance against passionate investments like fine art for some time, but we’ve now made it possible for asset owners to have their cake and eat it – to earn residual cash flow on the cake. value of their assets without having to sell them, ”says Daniel Hansen, CEO and Founder of Omnia.
However, although loans against luxury assets are becoming more and more popular, most experts do not recommend this type of loan to ordinary clients.
Charles Boulton, UK Market Manager for HSBC Private Banking, says: Fund ownership purchases likely won’t. . . the most profitable option available to them.