Seller Financing in the UK - or other advice

[Fizzwizz]

My Goodness, has it been 8 years since I last posted here?

I would like to gain the benefit of anybody's experience, especially if you are from the UK.

I've owned a series of boats throughout my life from a 19 ft wooden dagger board sloop, to a 40 ft GRP flybridge cruiser which the family lived aboard for a year. My daughter took her first steps on the deck in Malta in 2003. All bought cash. In 2005 I traded in my life for a medical degree which was self financed and required the liquidation of our boat. I eventually ended up with a 18ft inshore boat and then was finally relegated to a 12 foot kayak (don't knock it, unlimited range if you have the arms).

I graduated from medical school in 2009 and now work as a Doctor (GP registrar) with a good income. Attempting to rebuild our lives we have started to look into a mortgage, given that we pay rent at nearly £1,000 per month. However, having to start back on the housing ladder we haven't been keen on any of the houses affordable. With this in mind, and our love of boats, my wife started to push towards buying another live aboard boat on a marine mortgage. This seemed the ideal solution for us. We could put our money into something we would own, while preserving our love of sailing and travelling. Thus allowing us to rebuild our equity ready for that retirement cruise.

We reasoned we could easily afford £1,000 - £1,500 per month on repayments. With this is mind we looked at a budget of around £100,000 - £150,000 for a 48 - 60ft sailer. After finally seeing something we liked we approached marine financing but were declined based on what they said was "fairness to the buyer". When I asked for clarification they explained that I was "going from nothing to something". I'm not 100% sure what that was supposed to mean but I feel it is likely because I had no home equity. I found this a little offensive as I hardly consider myself to be coming from nothing. I worked hard to get to my current position, and my family and I sacrificed a lot. Sadly we realised that without financing our dream would be lost. Even more sadly this left us with the choice of either continuing to waste my money on rent, or buy a starter home. Neither of which seemed a move forward for us.

Researching the Internet for a solution I came across "Seller/Owner Financing" which appears to be popular in the US, however I've seen none here in the UK. Does anyone have any experience of this in the UK? Does anyone have any other suggestions? In desperation we almost went the free boat route, that is take on a free boat that would cost twice the cost to renovate that it would to buy. I swear I entertained this idea for almost 2 weeks until common sense prevailed.

Many thanks ... Fizz

 

[Tranona]

Finance on boats in general has become very difficult to get - even for people with a goood credit record. Most of the big players have moved out of the market. Part of that is because for 10 years or so up until 2008 the main source of finance for buyers was secondary mortgages secured against property, not the boat. The market declined so lenders left. To add further pressure the crash left many lenders with defaulting borrowers and security (ie the boat) that was illiquid. Great for opportunistic cash buyers, but rubbish for both borrowers and lenders.

Long winded way of saying that chances of getting finance on a boat, particularly one to live on in the circumstances you describe are very low. It is an extreme example of the old adage - lenders only want to lend to people who don't need the money.

Don't have a solution to offer. In a world where even "conventional" finance, ie mortgages on houses is difficult the opportunities for less conventional finance have disappeared. My personal view ( influenced by being old and having experienced more than one recession) is that long term you cannot beat residential property. The macro indicators are there - expanding population and limited supply of housing leads to rising property prices, So even buying in today's negative climate is still the right thing to do if you have the cash flow to service the loan. May not fit in with your ideal plan, but it can work. I changed direction and started from scratch (except for owning a small house outright) at the age of 36, brought up two children and was still able to accumulate enough assets to buy the "big" boat at 55.

 

[causeway]

There was an article about this company on radio4 last week. It's some sort of 'peer to peer' lending service. Not sure it'd work for mortgages but it can't hurt to have a look.

Zopa

I've not looked at the site so apologies if its a wild goose chase.

EDIT: Seems the longest term is 5 years, sorry

 

[Deleted member 36384]

If you can get abroad as an expatriate you can accumulate money quite fast. The Middle East are big payers for medical persons.

 

[Fizzwizz]

If you can get abroad as an expatriate you can accumulate money quite fast. The Middle East are big payers for medical persons.

To be honest BoB, the UK are also big payers for Doctors, and I don't want to go ex-pat while my kids are in school. They're entering that critical period and preparing for GCSEs etc. I have considered leaving my current job (which is a progressive path to consultancy) to do locum work which triples my income here in the UK, but given I'm 20 months away from completing I feel I should remain on my existing career path. Ultimately on completion I could return to locum work, and realistically save the money within the following 2 years (and may have no other option) but 2 years working at this pace is something the family and I are keen to avoid unless there's no other choice. My kids were young when I started on this medical adventure, and I'd like to see more of them before they are grown up and left home. In retrospect this career change has been a bad move for my family. My income and job security are very good, but we have lost our financial status, and I don't see as much of my family as I'd like.

Thanks for all the comments, they're appreciated. Has anyone come across seller/owner financing here in the UK?

... Fizz

 

[Fizzwizz]

EDIT: Seems the longest term is 5 years, sorry

Maximum £15K too, thanks anyway ... Fizz

 

[prv]

Has anyone come across seller/owner financing here in the UK?

Never heard of it, but since you found it in the US it may be an American term for something that exists here under another name - not uncommon. Perhaps if you explain briefly what it means, someone who knows more than me will say "Oh! That's a 90° top-hat mortgage" or whatever.

Pete

 

[Tranona]

Idea is quite simple. As the term implies the seller offers finance to the buyer rather than involving a third party lender such as a bank. Very commonly used for transactions involving small businesses where the owner has an agreement with the buyer that he will get payment over time, often financed by the profits of the business.

In the US it is perhaps more common and is used to help finance real estate. Usually involves a lawyer drawing up a binding agreement between the two parties, and obviously the seller needs to be prepared to wait for his money rather than receive cash. Advantages are potentially lower costs and a lower interest rate for the buyer and seller gets a sale he might not otherwise achieve. There is also a secondary market through which third parties can buy up the agreement, so the seller gets cash and the buyer of the agreement gets the cash flows and interest.

For it to work with a boat you would have to find a seller who was happy to finance the buyer rather than sell for cash. Informally such agreements have always existed, but they do rely on both buyer and seller being prepared to enter into legally binding agreements to ensure both parties meet theirr obligations.

Google the term for more detail.

In answer to the OPs question, not sure that any structured market exists in the UK, but no reason why the method should not be used, but doubt many sellers would find it attractive.

 

[prv]

Idea is quite simple. As the term implies the seller offers finance to the buyer rather than involving a third party lender such as a bank. Very commonly used for transactions involving small businesses where the owner has an agreement with the buyer that he will get payment over time, often financed by the profits of the business.

Ah, I see. Yes, a friend of mine bought a business in that way.

Doesn't seem very attractive to the seller, except to shift a boat that otherwise can't find a buyer. It would really have to be someone who was getting out of sailing, as presumably otherwise they'd want the lump sum to buy the next boat. And as well as the delay in receiving the money, they're also taking on the risk of the buyer defaulting or going bankrupt (which is not unheard of in the small-business-buying case).

I think the only way the OP might be able to arrange it is to view boats, get talking with the owner, and then ask if they might be prepared to accept payment in installments. And expect a lot of rejections before someone says yes!

I assume brokers would write off someone making such a suggestion as a dreaming timewaster, so you'd have to talk to the owners.

Pete

 

[Fizzwizz]

Thanks again for your input.

Personally, if it were the other way around I don't think I'd be keen but there are some benefits for the seller talking to some of our stateside friends where it is very popular.

1. Owners can be stuck in finance deals they cannot get out of and can pass the burden to someone else (and free themselves from mooring costs etc). If their settlement figure is £100K it may be better to do seller finance for this amount than quick sell for £80K and then have to find the remaining £20K to get out of the arrangement.
2. In a slow market where banks don't want to lend money it enables the sale of a boat that might otherwise be going nowhere.
3. The seller is in the driving seat and is more likely to get the price they want.
4. The arrangement can be an investment as the seller can charge the buyer a rate of interest higher than would be got from a savings account.

... Fizz

 

[Tranona]

If it was such a great idea then somebody would be promoting it! Just because a particular structure works in one environment does not mean it translates easily to another. You can construct a convincing argument of the merits of idea, but it seems that buyers and sellers here are more attracted to cash or the alternative of transferring the risk to a third party.

Such arrangements would be outside any formal system of control other than the contract and given the series of financial failures in the recent past it is hardly surprising that people are reluctant to get involved in unregulated lending involving large sums of money, particularly on non-essential poor security assets like boats!

Would be interesting if you can find a seller of your dream boat prepared to take on the risk of not getting his money for a period of years and no means of getting out of the arrangement - and be prepared to take the consequences of default which in conventional lending is shared. Probaly when faced with such an offer they might prefer to retain full ownership of their asset, even if it means continuing cash outflows.

 

[Fizzwizz]

If it was such a great idea then somebody would be promoting it! Just because a particular structure works in one environment does not mean it translates easily to another. You can construct a convincing argument of the merits of idea, but it seems that buyers and sellers here are more attracted to cash or the alternative of transferring the risk to a third party.

Hi Tranona, thanks for your input

Indeed, and that does appear to be the case here in the UK, as proven by the lack of people who have been involved in such a deal. In the US it is a completely different picture. I came across one forum poster whose house car and boat were all seller financed. It did make me wonder why we are less receptive in the UK. I wondered whether our contract law was less robust than in the US, or whether we are just more cautious. I can definitely understand this, as I said, I'm not sure I'd be prepared to offer seller financing if it were the other way around. That being said, if I did have £100K to invest 7% interest is higher than would be earned from a fairly risky share investment, with the benefit of lien security.

Presently I have a vested personal interest in seller finance for the reasons outlined above, but subtracting this from the equation seller finance in the US is taking lending control out of the hands of the banks, and if became far more ubiquitous would force banks to compete with lower interest rates. Until this point banks have had complete control over credit spending and consumer markets, and as credit (be it for home, car or boat) is intrinsic to modern lifestyle, they've had control over our lives too. Seller finance does shift the balance somewhat. It would be nice to see a robust legal framework to help shift this control bank into the consumers hands, and I guess this is what is occurring in the US.

For me, I'm afraid, this is my last option for this year which doesn't look like it was an an option at all. I may approach a few sellers to test the water but failing that I'll regroup next year and retry the banks with a larger deposit. In the meanwhile, thanks for everyone's input. And if anyone has managed to get seller finance here in the UK, please post.

... Fizz

 

[Me_has_a_Boat]

If it was such a great idea then somebody would be promoting it! Just because a particular structure works in one environment does not mean it translates easily to another. You can construct a convincing argument of the merits of idea, but it seems that buyers and sellers here are more attracted to cash or the alternative of transferring the risk to a third party.

Such arrangements would be outside any formal system of control other than the contract and given the series of financial failures in the recent past it is hardly surprising that people are reluctant to get involved in unregulated lending involving large sums of money, particularly on non-essential poor security assets like boats!

Would be interesting if you can find a seller of your dream boat prepared to take on the risk of not getting his money for a period of years and no means of getting out of the arrangement - and be prepared to take the consequences of default which in conventional lending is shared. Probaly when faced with such an offer they might prefer to retain full ownership of their asset, even if it means continuing cash outflows.

I understand exactly where you are coming from. But I come from the angle that if the deal is good enough then worth at least a good look to assess the risk vs reward.....but I accept that not everyone is able to do that (financially or noggin wise. or both )..........but OP only needs one person for whom the idea works - not to create a whole market........although the peer to peer model would work fairly nicely for him (must by now be a few websites around?), multiple lenders spreading the risk. and the boat loan does not have to be over 10 years, in 3 years the deal is that OP re-finances.


Now Doc, about me piles............

 

[Fizzwizz]

and the boat loan does not have to be over 10 years, in 3 years the deal is that OP re-finances.

To be honest, the loan only needs to be over 4 years if it's around £100K. Based on a realistic incremental instalment that follows my earnings
yr 1 12 x £1,500
yr 2 12 x £1,750
yr 3 12 x £2,550
yr 4 12 x £2,550
= £100,200

Now Doc, about me piles............

*Shudder!*

 

[Retired in Crete]

When a debtor defaults it is usual to get "an attachment of earnings" which means that the cash is deducted from the debtors pay and sent, by the employer, direct to the creditor.

I don't know if you can do this without a court order but if you could arrange for the payments to be made by your employer the seller may be more tempted to accept your offer.

Just a thought

John

 

[prv]

When a debtor defaults it is usual to get "an attachment of earnings" which means that the cash is deducted from the debtors pay and sent, by the employer, direct to the creditor.

Shrug; I know of at least one small business being bought by this method in which the business went under within a few years of being bought, the buyer declared bankruptcy, and the rest of the money owed to the seller was written off.

I suppose at least if the buyer was in possession of a yacht rather than a now-worthless business, it would be sold off and the proceeds given to the creditors, but you'd be one among many and would only get your share.

Real lenders can spread the risk of default across the thousands of loans they administer, but if you play lender in a scheme like this you have one big egg in one single basket.

Pete

 

[Tranona]

Just to add a little dose of reality. First you have to find a boat you want, being sold by somebody who is prepared to wait 4 years for his money.

Then you have to consider his opportunity cost - what sort of value of asset would he swap for £100k spread over 4 years. If his opportunity cost is 10% to reflect the loss of use of the asset and the risk of lending to somebody who has no assets, only a promise of future earnings, then the £100k is worth £77500 in todays terms (calculated on an annualised basis would be a bit more if the calculations reflected the monthly payments).

In other words you might be in a position to make an offer on a sub £80k boat - not a £100k boat. On the other hand if you saved the money at 4% you would have £110k to spend on a boat in 4 years time.

It is all about risk/reward and finding somebody who has what you want and is prepared to share the same risk as you.

To me, the biggest risk is the security of your future earnings. Accept that you are in a "secure" job, in that you will always be able to find work, but what happens if you die or are unable to work. Try getting insurance for the amount of the debt you have in these circumstances. What happens to title to the asset? Does the vendor hold that until the final instalment, or is there a progressive transfer of ownership in line with payments received? Imagine the difficulties if things go wrong and you are unable to keep up payments. How are you going to word your agreement so that both party's interests are protected? never mind the practicalities of liquidating the asset to satisfy competing claims on it. Then there is the nature of the asset. Boats are mobile assets and very difficult to track if somebody is determined to keep it away from others. Just sail away!

When you work through these issues you realise why third part finance, with all the negative bits that go with it is the preferred way of financing assets such as boats.

 

[davidej]

Just to add to that...

If the buyer lost his job and went bust, the yacht would probably have been undermaintained for some while as he would have been in cash flow crisis.

The seller then has to try to repossess a knackered boat, which he may not know where it is and might well be hundreds of miles away.

The practical difficulties are very real.

 

[Fizzwizz]

Just to add a little dose of reality. First you have to find a boat you want, being sold by somebody who is prepared to wait 4 years for his money.

Hi again
Indeed. I'm already aware of this reality, and don't hold out much that I'm going to have any success, but it doesn't hurt to explore the possibility.

Then you have to consider his opportunity cost - what sort of value of asset would he swap for £100k spread over 4 years. If his opportunity cost is 10% to reflect the loss of use of the asset and the risk of lending to somebody who has no assets, only a promise of future earnings, then the £100k is worth £77500 in todays terms (calculated on an annualised basis would be a bit more if the calculations reflected the monthly payments).

I have considered this too. I recently saw a suitable boat advertised at £105K, but it was then dropped to £85K as it didn't sell. I considered offering the full £105K via seller finance feeling this may be some incentive for the arrangement.

On the other hand if you saved the money at 4% you would have £110k to spend on a boat in 4 years time.

That wouldn't happen, as originally indicated these figures are only achievable as a liveaboard. Without doing so I'll be saving at an inhibited rate.

but what happens if you die or are unable to work. Try getting insurance for the amount of the debt you have in these circumstances. What happens to title to the asset? Does the vendor hold that until the final instalment, or is there a progressive transfer of ownership in line with payments received? Imagine the difficulties if things go wrong and you are unable to keep up payments. How are you going to word your agreement so that both party's interests are protected? never mind the practicalities of liquidating the asset to satisfy competing claims on it. Then there is the nature of the asset. Boats are mobile assets and very difficult to track if somebody is determined to keep it away from others. Just sail away!

This would be my concern if I was the seller. All these obstacles are overcome-able with insurance and contract. Security can be held as lien in the boat, ownership (as with marine mortgage) gets transferred on final payment. Insurance is a pre-requisite for me. If anything happened to me the security of my family is dependent upon it. Another clause that the boat cannot leave UK waters until paid in full is advisable. Tracking the boat may be difficult, but tracking me is not. I'm GMC registered and my address and contact details have to be kept with the GMC for fear of being struck off. Big Brother is always watching me and the GMC get very grumpy about behaviour unbefitting a Doctor and probity issues. I have to make legal declarations of probity every year to them. I'm also on the performers list (updated every year, and is the list of Doctors in a given area who are allowed to work in General Practice).

There are obstacles there indeed, and I definitely see why sellers would be hesitant. I guess its also very deal specific. On the other hand a buyer could be in an insecure job on a lower income with no experience of boats or living aboard and suddenly got drawn into the dream of boat ownership only to find its not what they dreamt and that it's far more expensive than they realised (very likely).

Many thanks ... Fizz

 

[Fizzwizz]

if you could arrange for the payments to be made by your employer the seller may be more tempted to accept your offer.

Thank John, that's a good idea and can easily become a condition of a deal

... Fizz