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October 27th 2021. By Alex Smith.

Boat finance

Whether you’re looking to buy a new boat, upgrade your existing one or fund a refit project, it’s important to understand the basics behind boat loans and marine mortgages.

Most boat purchases require finance of some kind. Some of that comes from specialist providers, some comes from High Street banks turning their expertise toward the marine market and some comes through conventional mainstream financing channels.

But while we’d all like to obtain the most cost-effective finance available, we often find that the scale of a loan, the length of the repayment terms and our eligibility for the best rates are all compromised by our personal circumstances. Plainly then, if you want to secure a better deal and maximise the value of your boat ownership experience, it pays to understand the basics types of finance available.

sailing boats

Most boat purchases require finance of some kind. Photo: Lazarescu Alexandra

Boat finance: need-to-know basics

  1. Because it is secured on your boat, a marine mortgage enables greater funds and longer terms than an unsecured loan.
  2. Out-of-water surveys (conducted by qualified marine surveyors with professional indemnity insurance and paid for by the buyer) are usually required in order to confirm the value of a used boat for secured marine loans.
  3. In order to qualify for secured marine finance, the boat in question needs to be fully insured, with the loan provider’s interest formally listed in the policy.
  4. To reduce your monthly repayments, try to increase your deposit, increase the repayment term or factor in an end-of-term balloon payment.
  5. Even on a very modest down payment, you can often stretch a marine loan’s repayment terms to ten or even 15 years, but beware of diminishing cost-effectiveness and delayed equity.
  6. Some lenders can assist with finance in various currencies for overseas boats but usually on the condition that the boat is registered in the UK or in a UK territory.
  7. While most new boats are subject to standard-rate VAT, there are some exceptions – most notably, houseboats on fixed moorings and boats that are to be kept and used in a foreign country.
  8. A good broker or yacht management company can often take charge of the finance, but you should understand that there are plenty of options beyond those recommended by an agent.
  9. If your circumstances allow it, a personal loan or a mortgage secured on your house (rather than your boat) can offer much more cost-effective finance, as well as a simplified ‘cash buyer’ process.
  10. If finance proves difficult, you may be able to mitigate costs by joining a shared ownership scheme, by finding a likeminded friend to join you in the private ownership of a boat or by leasing a boat and keeping it abroad.

Marine loan v marine mortgage

As the names suggest, a marine loan is an unsecured agreement between lender and borrower. As a rule of thumb, it tends to see lenders provide sums of up to £25,000 on the basis of fixed rate terms over periods of up to 60 months; and loans of more than £25,000 through variable rate terms over anything from five to 15 years. If you fail to make repayments on a loan, the absence of any specified security means a court can appoint bailiffs to seize and sell off your assets in settlement of any outstanding debt.A marine mortgage, on the other hand, is a loan that is secured on the basis of the vessel itself.

This added security means that, while a marine loan tends to involve a relatively modest amount for the purchase of a small boat, the funding of a refit project or the acquisition of extra gear, a marine mortgage enables you both to borrow considerably more and to take advantage of more flexible underwriting terms. Subject to your status, many providers will lend a very substantial proportion of the formally agreed value of the boat, but of course, if you fail to make repayments, your boat can be repossessed to pay off the debt.

rowing boat in the sea

While houses invariably appreciate in value, boats almost always lose value. Photo Oliver Cole

How much does marine finance cost?

As with a regular loan, the cost of marine finance for each individual is dependent on a great many things – not least, the prevailing financial conditions at the time, as well as your personal circumstances, your credit score, the size of your deposit, the age and condition of the boat and your intended usage. As a result, while companies tend to quote impressive, best-case rates in their marketing materials, you will often find that, when you make a personalised application, your interest rate is higher, your loan term shorter and your monthly repayments far greater than you anticipated.

Right from the outset then, it’s important to understand that marine finance is rarely the cheapest option. After all, lenders have to take responsibility for a set of risks that don’t exist in the housing market. While houses invariably appreciate in value, boats almost always lose value, making them a distinctly poor long-term investment. More to the point, while a house stays put, a boat is a mobile device that can be stolen, crashed or sunk. And if you simply disappear without repaying your debt, the lender knows that he can be left high and dry with no asset against which to claim. Certainly, the appearance of some major banks in the marine finance market, like Barclays and the Royal Bank of Scotland, has done nothing to harm competition between lenders but, given the unique risk profile of a boat, expecting cheap marine finance is likely to leave you disappointed.


Cheaper finance options

If you only need a few thousand pounds to top up the budget, a personal bank loan (rather than a marine loan) may be the way to go. The sums on offer may be relatively modest and repayment terms relatively short, but in the long run, a personal loan is likely to cost you significantly less than its marine equivalent. And if a larger sum of money is required, leveraging the financial clout that may be lying dormant in your house can be an even better way to raise some affordable finance…

If there’s enough equity in your house (the difference between the property value and the outstanding sum on your existing mortgage) and your current repayments are sufficiently manageable, then you can secure a much more affordable interest rate by tying your finance to your house rather than your boat. If you’re young enough, you can also then spread repayments over 25 years or more (rather than ten to 15 years), immediately creating big reductions in your monthly repayments.

Perhaps the best news with finance secured on your house, however, is that the mortgage company won’t much care what you spend it on. In principle, you could borrow enough to cover the entire boat package, including 100 per cent of the purchase price, plus the costs of the survey, the sea trial, the equipment and the training, as well as a year or two of insurance, berthing, maintenance and fuel costs. And because the boat itself isn’t part of the agreement, your finance provider needn’t be involved in the boat buying process (the boat survey, ownership documentation and insurance policy) or in the subsequent boat sale, when you come to sell it on. If your circumstances enable it, a loan secured on your house has the capacity to eradicate all the complication by making you, to all intents and purposes, a cash buyer.


Marine finance: the practical process

If you go down the route of a secured marine loan, your activity as a boat buyer needs to be properly coordinated with your activity as a borrower. Each lender will have a specific process in place but if you adhere to the general stages outlined below, you can shop with confidence, knowing that your finance will appear in good time to complete the deal on the boat you want:

1. Conduct the groundwork

Firstly, you need to decide what kind of boat you want. Trawl the boat sales websites, visit brokers and dealers and examine yachting magazines, owners’ clubs and yacht clubs to research and confirm your choice.

2. Assess your budgets

Conduct a thorough breakdown of costs, including training, additional equipment, marina fees, maintenance, taxes and insurance, so you can establish exactly what kind of figure you are looking to spend and what kind of figure you will need to borrow.

3. Examine the finance market

This is the time to source the right finance provider and the most appropriate policy parameters. Though you might not yet have found the specific boat you want to buy, you will have a plan regarding the boat type, the financial figures and the loan type so getting some research done at this stage will help you establish an Approval in Principle and ensure that everything is in hand once you reach completion stage.

4. Find the boat

Choose the boat you want, gather a file of research on the features, traits and specifications of that model and contact the vendor to arrange a viewing.

5. Pick your finance provider

While brokers will tend to have favoured lenders in mind, it is the easiest thing in the world to secure a selection of quotes. Play with the figures by investigating a slightly larger deposit and slightly longer terms. Ask questions, read the small print, talk to High Street banks as well as specialist providers and select terms you know you can satisfy.

6. Negotiate the price

What you need now is a legally binding contract with the vendor, otherwise known as a Sale and Purchase Agreement, specifying an agreed price so you can move the process forward. If you’re operating through a broker, they should be able to provide this but if not, the RYA has templates you can use. Once this is signed by both parties, you leave a deposit (usually around 10%), which is refundable in the event that the survey and/or sea trial prove to be unsatisfactory.

8. Conduct the survey

It is often necessary (even on a new boat) to commission a survey with a registered yacht surveyor – firstly, to verify the condition of the vessel and its market value in order to protect the interest of the loan provider; and secondly, to arrange the boat insurance that the loan provider requires. If you also want to sea trial the boat, this is the time to do it.

man up a sailing boat mast

A survey is essential when buying a boat – especially if you need finance. Photo: Alma Lonardi


9. Finalise the price

Armed with the survey report’s recommendations, you can now negotiate a fair and final price for the boat and confirm the formal valuation with the loan provider.

10. Finalise the loan documentation

Your marine finance provider will now liaise with the vendor to confirm the boat’s documentation (regarding ownership and VAT status); and they will also contact your insurer to confirm that their interest has been noted on the policy.

11. Complete the purchase

If all is acceptable, the finance provider will get your confirmation that you are happy for them to transfer the remaining funds to the appropriate account – usually a broker’s protected client account or the vendor’s private account. Once those funds have cleared, the broker or vendor will complete the deal by handing you all relevant documents, including the Bill of Sale, confirming you as the new owner.

What can you really afford?

Whatever kind of finance you opt for (and notwithstanding the possibility that you might be trading in an existing boat), there are only really three ways to reduce your repayments for any give finance package. Either put down a bigger deposit, factor in a balloon payment at the back end of the repayment schedule or increase the length of the repayment term. An extended repayment period does have its downsides of course, not least in terms of additional overall cost and delayed equity in your boat, so it’s always worth checking whether you are permitted to pay your boat off earlier than the stated terms of the loan, without incurring any penalties. But in all financed boat purchases, the most vital consideration has to remain the establishment of monthly terms you can afford to meet with a generous safety margin in hand. However favourable a finance deal might be, getting carried away with the dream and kidding yourself about your capacity to satisfy the repayments can quickly see your boat become a liability rather than an asset.

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Alex Smith is an ex-Naval officer, with extensive experience as a marine journalist, boat tester and magazine editor. Having raced as a Pilot in the National Thundercat Series and as a Navigator in the inaugural Red Sea RIB Rally, he has now settled in the West Country, where he lives and works as a specialist marine writer and photographer from his narrowboat in Bath.