Seller Financing in the UK - or other advice

[Davegriff]

Bought my first house in the UK this way back in the sixties. Payments were made over three years and an interest rate agreed by both parties added. Contract was drawn up by a solicitor. Can't remember exact details, but there were absolutely no problems and I see no reason why it shouldn't work for a boat. Just need to find a seller with a boat you want at the price you want etc, etc, to agree. Probably one in a million or two....

 

[Deleted member 36384]

This is an interesting idea and I would not be averse to it. As a seller I would want all the risk transferred to the new owner. For example: Part 1 registration in the seller's name and ownership remains with the seller until final payment is made (Higher Purchase idea), clear default payment rules to sellers advantage where buyer looses all claim on boat and no refund of payments already made, limitations of sailing area, retention of original documents by seller, full insurance retained by seller and paid for by purchaser, seller rents the boat for £1 to the buyer for exclusive use for the duration of the payment period. By retaining ownership until final payment is made it removes the yacht from the buyers assets should they become bankrupt.

Perhaps this scheme would be of interest to owners who are selling up and not buying another yacht where steady income would be of interest to them for a while.

As a kid I bought a paper round off a school chum and payed it up over two months. Hardly the same league, but thinking about it some more it's not so weird. It may be useful to draw up a draft contract for potentially interested parties that demonstrates that the risk to them is minimal. That is the price that you have to take to start such a scheme. You could approach brokers with the idea and be prepared to pay their fee based on the sales price. The Broker bit would require some further thought. However, if a broker saw the benefits it may open up access to potential sellers.

All that is required is willing parties but the selling party must have no risk in my opinion.

 

[charles_reed]

In the case of business purchase it's usually for a proportion of the purchase price, and is tied to a final earnings target for the business and is quite common.
There is no market in the UK for consumers for such a system but with the excessive rates demanded by banks and the miniscule interest offered might be quite attractive for some sellers - a large boat, Part I registered, someone looking for something smaller or getting out of sailing and with no requirement for a large cash sum.
It would, however only apply to a small part of the purchase price.

 

[Me_has_a_Boat]

Perhaps this scheme would be of interest to owners who are selling up and not buying another yacht where steady income would be of interest to them for a while.

Might also be of interest to someone who wants (needs?) to exit the ongoing boat costs (maintanence and moorings) and figures a sale now (instead of maybe a(nother?) year. or so? at an unknown price) is the best option. especially if a downpayment now is very useful. Obviously a full price in cash now is the ideal, but ideal ain't always on the table........

Of course someone who is struggling with a boat loan might be excluded from the deal - but maybe if (and perhaps a big if ) an existing lender would agree that OP replaces the Vendor (with a new loan, not an assignment) and maybe even with a loan reduction thrown in by OP. could even require the Vendor to act as Guarantor would put everyone in a better position.

IMO that should be attractive to an existing lender as they get a more solvent borrower and a smaller loan (even if outside there current new lending guidelines). But perhaps the odds on finding someone at the existing lender who a) has half a brain and b) is allowed to use it! is a bit of a long shot .

All that is required is willing parties but the selling party must have no risk in my opinion.

I think no risk might be stretching things a bit But certainly could be a manageable risk for some. with the risk priced in . Not just on the interest rate but on the fuller sale price.

Could also require that the engine(s) be proffessionally inspected and serviced every year (with copy of report and bills) to the Vendor / Lender.......and maybe even a Survey!

Regular Credit checks on OP might be no bad thing to spot troubles coming over the horizon.

A decent agreement would of course be a must (and Part 1 to register the loan mortgage) - and, as suggested, I would favour either the Vendor retaining ownership until the final £1 is paid or that the boat transfer docs are held in escrow by a lawyer and are executed should the loan payments stop with the position acheived that Vendor reclaims ownership of the boat and OP loses most, if not all the Loan repayments - in practice therefore putting the ball in OP's court to go legal rather than the Lenders.

Obviously a lot of costs with the above (including the legal fees to set up) - I suspect that at the end of the day that it will be simply be a case of whether the numbers stack up for both Vendor and OP (as well whether a Vendors circumstances mean that less than ideal now is better than SFA - rather than the loan being seen as an "investment").

Be interesting to hear how OP gets on (even where things don't conclude) as it all adds to the pot of knowledge........there's a hint in there somewhere .

 

[Blueboatman]

An interesting thread-or dilemma- to which I can add only a little.
In the States , Rent-to-buy is sometimes offered by an owner keen to sell. This has lest risk and I believe the boat does not move until fully paid for. It would need plenty of understanding and honest good will I imagine to determine how maintenance, repairs, accidents and wear and tear are covered over the period for what is usually a depreciating asset.

Surely it is simpler to buy a house, any house, then tout round the finance houses as a property owner? With the sort of salaries indicated the deposit-strapped stumbling block of most first buyers may not be such a horrible catch22

 

[Tranona]

That's the OPs dilemma as I understand it. He has no equity, only substantial future earning power but needs somewhere to live. Options are rent a property, take out a mortgage (if available) on a small home or use the cash flows to buy a boat to live on. Would guess the monthly cash flows are not that different, but paying rent/mortgage repayments precludes funding the purchase of a boat. However, not spending on rent or mortgage would buy a boat that would provide accommodation and a capital asset in a relatively short period.

The challenge is to find a lender or owner of an asset (boat that will fulfil the role) who is prepared to accept the risk attached to delayed payments as offered by the buyer. As previously noted, probably one in a million - or some other uncalculable odds.

The only way to find out is to find a boat that meets the criteria and put such a proposal to the owner. Would probably help if the offer was accompanied by a robust proposed contract that dealt with the problems already identified. Perhaps there are model agreements available from the US that could form the basis of a contract in the UK.

 

[Simondjuk]

I'm afraid there's something else which may make this particular proposal less attractive as a punt to a seller. The use of the boat as the sole family residence puts them in a legally weak and complex position should repossession of the vessel become necessary due to default.

I'm not au fait with the technicalities myself, but aware that some are likely to exist through snippets gleaned from my wife, an ex wills and probate lawyer.

Sorry, not wanting to sound negative, just throwing in a further consideration. I shall consult her on the details in the morning.

 

[Fizzwizz]

Sorry, not wanting to sound negative, just throwing in a further consideration. I shall consult her on the details in the morning.

Please don't apologise. This is a valid point, and if there is any possibility of such a deal I need to ensure the sellers concerns in this area are minimised. I'd be interested to hear what your wife thinks.

Would probably help if the offer was accompanied by a robust proposed contract that dealt with the problems already identified. Perhaps there are model agreements available from the US that could form the basis of a contract in the UK.

I think that is a very useful idea,. All the concerns listed in this thread are valid, if i can demonstrate a robust legal contract that protects the seller this might help satisfy some of the many concerns. A good protective contract of this sort could also be useful for sellers too. If risk was minimised seller finance might become an option more sellers would find useful. The credit crunch goes two ways, buyers are struggling to finance anything these days, and sellers canot sell their boats because of it. I'm going to try to source a US contract and get some advice from a friend of mine who was a contract lawyer for the sale of large commercial ships here in the UK, and now works in Banking in Australia.

Many thanks again ... Fizz

 

[Fizzwizz]

Just as a brief update I tested the water with three emails to brokers asking if the owner was amenable or had considered owner/seller finance.
1. (a new boat) the broker said that they could not offer this facility for the amount involved (£140K) which made me wonder if they have done this for smaller amounts
2. The broker said that he had a lengthy conversation with the owner who said that he is busy at the moment and has been considering taking his boat off the market for a year, but would be prepared to meet and discuss things in late September. I didn't get any questions about my income or motives so I'm not sure the broker is aware of what I was asking
3. The broker didn't know what seller/owner finance was. I gave him some info and have not heard anything back from him since (2 days)

I'll keep you updated ... Fizz

 

[Davegriff]

The use of the boat as the sole family residence puts them in a legally weak and complex position should repossession of the vessel become necessary due to default.

Unless the law has changed, as far as I remember (I've had many dealings with house repossessions in the distant past), 'sole family residence' doesn't (or at least certainly didn't) come into the recovery of debts. (state housing picks up the bits)

 

[Tranona]

Suggest you don't use the term "seller finance" initially, nor say anything about it being common in the US, as very few people will understand it and you will immediately meet resistance. You will then have to spend time explaining what the term means rather than negotiating on the boat.

That is where having some form of model contract will be useful, to show that you understand what is involved and the benfits to the vendor. A script which explains the key features of the offer you are making and which addresses the major concerns will help you keep control over the negotiations.

Start with something like "We really like your boat, but not in a position to pay cash - however - " then explain how you are able to the full amount of your offer over a relatively short period and then show the model contract, and ask if the vendor is interested in discussing further.

The key thing is to engage the other party and not put him on the defensive. Expect it will take a while for the other party to think through what it means for them, so your first objective is to put them in a positive frame of mind. You may have to convince a broker first before he puts the offer to the client, but the same approach should be used as the broker will probably not understand the term, but should be willing to discuss any proposal that gets him a sale. No doubt at some point you will meet resistance from brokers unless you and the vendor are clear about how the commission is paid.

Probably best to focus on specific boats/vendors rather than raising it as a general question. Go through the usual viewing etc prior to offer, so you know this could be the boat for you before you raise the payment issue so the other party sees you as a serious buyer. Timing will be critical - identifying the point at which the vendor is keen on selling to you and could be open to your proposal, and you probably won't know when it is until it happens.

 

[prv]

Unless the law has changed, as far as I remember (I've had many dealings with house repossessions in the distant past), 'sole family residence' doesn't (or at least certainly didn't) come into the recovery of debts. (state housing picks up the bits)

When I've taken on lodgers, the mortgage company has required them to sign a form agreeing to move out if the house is repossessed. That implies they think an occupant may have some rights.

Pete

 

[Simondjuk]

Unless the law has changed, as far as I remember (I've had many dealings with house repossessions in the distant past), 'sole family residence' doesn't (or at least certainly didn't) come into the recovery of debts. (state housing picks up the bits)

It's more to do with the fact that a family, children and all, cannot simply be cast onto the street. Hence, in the event of a default, there may be factors preventing the vendor recovering his asset. As Pete rightly says, residents/occupants have a good many rights which can have a bearing on matters.

I'll ask the question of the wife now and report back.

 

[Fizzwizz]

Suggest you don't use the term "seller finance" initially, nor say anything about it being common in the US, as very few people will understand it and you will immediately meet resistance. You will then have to spend time explaining what the term means rather than negotiating on the boat.

That is where having some form of model contract will be useful, to show that you understand what is involved and the benfits to the vendor. A script which explains the key features of the offer you are making and which addresses the major concerns will help you keep control over the negotiations.

Start with something like "We really like your boat, but not in a position to pay cash - however - " then explain how you are able to the full amount of your offer over a relatively short period and then show the model contract, and ask if the vendor is interested in discussing further.

The key thing is to engage the other party and not put him on the defensive. Expect it will take a while for the other party to think through what it means for them, so your first objective is to put them in a positive frame of mind. You may have to convince a broker first before he puts the offer to the client, but the same approach should be used as the broker will probably not understand the term, but should be willing to discuss any proposal that gets him a sale. No doubt at some point you will meet resistance from brokers unless you and the vendor are clear about how the commission is paid.

Probably best to focus on specific boats/vendors rather than raising it as a general question. Go through the usual viewing etc prior to offer, so you know this could be the boat for you before you raise the payment issue so the other party sees you as a serious buyer. Timing will be critical - identifying the point at which the vendor is keen on selling to you and could be open to your proposal, and you probably won't know when it is until it happens.

Thanks Tranona, I think this is sage advice. Thanks again for your input ... Fizz

 

[Fizzwizz]

Just a quick update

I've spoken to a friend who is a solicitor. He is not familiar with contract law of this type but feels there is a basis for protection of both buyer and seller in UK law with an individual to individual Promissory Note with asset security (which he has more experience with). Basically the seller loans you the money to buy his boat but retains ownership as security until the loan is paid back in full. Ownership passes to the borrower upon settlement of the note. He is draughting a contract for me, but as this is a favour he has stipulated must be approved by a fee earning solicitor with some experience in boat sales before its end use as there are some boat related issues like access to inspection, maintenance etc he is not familiar with. With this in mind I've also emailed a legal firm in London who deal with yacht sales to get their take on this.

Wish me luck ... Fizz

 

[Me_has_a_Boat]

Wish me luck ... Fizz

Good luck

 

[Fizzwizz]

Good luck

Thanks David, it seems a promissory note exactly what is needed legally in the UK, and I have since found that these are not as uncommon as I thought. They are legally binding and protect the buyer well, as well as allowing for pre-agreed terms and conditions. I now have my draught contract.

If anyone is interested there is some info at this link (independent none profit information website) - assuming links aren't filtered

http://www.contractsandagreements.co.uk/promissory-notes.html

Thanks again ... Fizz

 

[dunedin]

I can't see this flying with a private seller - unless it is a last desperate move to shift some otherwise unsaleable wreck.

But it could just abount make sense to a new boat builder - particularly if spending a bit more with a smallish boat builder keen to secure build orders. Still may be a longshot, but to a Gunfleet or similar they could lease you a boat. They have the benefit of a build and a future cash flow, and they would be in a good place to sell the asset at best price if you failed to keep up payments.

Time to head over to Southampton next month for SIBS

 

[Fizzwizz]

Hi all
I've been quiet on this thread for quite a while as I've been in the process of securing a deal under seller finance. I approached 6 owners/brokers asking if they were amenable to seller finance. 4 said they were prepared to discuss it. Of the 4 who were the boat I liked the most, also had the most amenable owner whose daughter was also a solicitor. In the end we used an RYA solicitor who hashed out the contract for £3,200 solicitor fees.

The owner was keen to sell and had the boat on the market for a while. I parted with £20K deposit and a few more thousand for survey etc. The solicitor fees got added to the boat. I paid a small interest fee over 4.5 years which was better than any bank. I took delivery Saturday and am presently working my way towards Grimsby from the west coast.

It can be done, but it is more difficult than first appears. It was quite stressful for myself and the owner who said he had lost sleep thinking about it all.

Benefits: Low interest, owner was very transparent about boats faults. He didn't want any comebacks while I still owed him money.

Drawbacks: paid full asking price, limited choice though luckily I got the boat I would have bought if I had the cash (though possibly cheaper)

Thanks for all your input. I'm fairly sure my career had a lot to do with this deal. The owner even Googled my salary. I'm sure other professionals would have a chance too.

Many thanks... Fizz

 

[sellerfinance]

I am yacht broker in Southampton ( Coastal Leisure) we have sold boats using Seller Finance.


Seller finance works well when:-

the owner not longer wants the vessel and the boat has high outgoings - moorings, storage and maintenance.
the deal can happen quickly and the outgoings are stopped immediately
the boat is not selling easily - perhaps because it is overpriced or needs work.
the owner has liquid assets
preferably the owner has no mortgage on the boat
the buyer has the income and confidence that will continue.

Advantages

The title can be held until the last payment is made , ( or any other agreed point ) the risk to the seller is minimized and might be the only method of selling certain boats.

The seller gets a better price than any other method and interest rates could be added in to offset any loss of investment potential.

The buyer gets to purchase a boat which may not be possible to raise a loan on!

Feel free to contact me info@sellerfinance.co.uk