Many home buyers are substituting bricks and mortar for a nautical home. But residential canal boats are a specialised field and when it comes to financing life afloat, only a few specialist mortgage lenders offer marine mortgages.
This is surprising given that narrow boats, barges and house boats are becoming an increasing popular option among first-time buyers as their search for affordable places to live goes on.
A few big lenders offer marine finance or boat loans. Barclays Marine Finance and Bank of Scotland deal with river boat mortgages although Kent-based Collidge & Partners is the leading specialist in this field.
It has a joint venture with RoyScot Larch, part of the Royal Bank of Scotland, and offers mortgages on inland waterway vessels with permanent residential mooring agreements.
There are many types of boats but for living purposes the choice is relatively simple – a stationary houseboat or a river boat.
As for marine mortgages, a boat must be registered in accordance with the Merchant Shipping Act 1993 by virtue of which a boat (but not any share) is made a security for a loan.
But as well as the finance, prospective boat owners must overcome the hurdle of securing moorings.
As Tara Feeney, a marine sales adviser for Barclays Marine Finance explains, prospective canal boat clients must have a permanent residential mooring to secure a mortgage.
But Chris Collidge, proprietor of Collidge & Partners, says that while residential moorings become available as new marinas are built it’s generally harder to bring new boats into metropolitan areas where vacant moorings are rare, particularly London.
“A percentage of the asking price for a boat is goodwill to reflect the value of the mooring so in areas such as central London a client may find a marine surveyor values a boat well below the purchase price,” he says.
Mooring prices themselves vary from region to region and are usually according to boat length. In Brighton, mooring a 12.2 metre boat for a year can cost between £4,000 and £5,000. At the lower end of the scale in the north of England, moorings can be had for £1,500 while in London a client could pay £10,000 or more.
But regardless of price, many marinas in London are restrictive, allowing boat owners to stay on board for just a few days per week. British Waterways restricts the number of people allowed residential moorings, and on popular waterways there are waiting lists of up to 15 years.
That said, changes are planned that could affect advisers, as British Waterways and other organisations are looking to open up residential moorings around the North-West. Manchester canals are earmarked for further regeneration and the link between the LeedsLiverpool canal and the Albert Dock complex is likely to be reopened, perhaps bringing with it the opportunity for floating homes in the local marina.
British Waterways has already completed a £200m deal for the restoration of a number of canals. It believes canals can deliver economic prosperity and secure the future of inland waterways.
Moreover, in three years’ time, six more miles of Cotswold canals will reopen at a cost of £24m. Although this is undoubtedly an expensive piece of restoration, it’s a huge step forward in recreating a through route across southern England and opening up more permanent residential moorings to meet demand.
But until these plans materialise the shortage of moorings will make it difficult for clients to buy river boats. This affects financial advisers’ ability to make money from this specialised area and its limited client base.
So what does a marine mortgage involve? In short, the area of marine finance depends on ascertaining a client’s debt serviceability and the value of their boat. Matthew Ashmall, marine finance manager of RoyScot Larch, says that marine finance can be quite technical depending on the vessel and whether it is for residential or leisure use.
“This is high risk lending in case the client moves and the loan is all secured against the vessel,” he says.
Accordingly, marine mortgages are usually re-stricted to maximum terms of 15 years for new boats and 10 for second-hand ones. They normally take the form of chattel mortgages.
With certain residential boat loans – specifically where the boat does not have any engine, such as a purpose-built houseboat or some Dutch barges – a lender will ask a client to sign a conditional sale agreement under which the lender will own the boat until the required payments have been made.
The maximum LTV is 80% of the cost of the vessel with a 20% deposit. Interest rates are higher than for residential mortgages, typically between 8% and 10%. For residential users, the options of fixed interest rates or variable rates are linked to the Finance House base rate.
The other option for clients is an unsecured marine loan. These are available up to £25,000.
So what is the potential for advisers in such a specialised market, particularly in view of the lack of permanent moorings?
David Webb, a marine finance broker with IFA firm Campbell Montague International, says given that a boat is a moving asset and a depreciating one with long waiting lists for moorings, it is not easy to make money.
But recent application figures show that this is a niche area of the mortgage market that needs addressing, no doubt because of the fact that living on board boats has become a more attractive option for first-time buyers who are being forced to consider unusual housing ideas after being priced out of the traditional bricks and mortar market.
Applications to Barclays Marine Finance have risen recently while Collidge & Partners gets daily enquiries about the purchase of river boats.
These will no doubt be boosted if the plans of Residents Boating Association chairman Ivor Caplan materialise. He is another fan of improving mooring supply, but in the form of permanent floating neighbourhoods.
“We’re encouraging marinas to set aside 10% of their space for people living on boats, which provides greater security for everyone,” he says.
In the meantime, intermediary fees for marine mortgages need to be addressed to make the area worth their while. Collidge says his firm does not charge clients fees which means that no fees are payable to IFAs.
But Webb says marinas may pay commission if an adviser picks up a deal from the top end of the boat market.
Feeney says as a lender Barclays Marine Finance doesn’t consider advisers. “If an IFA were to bring in a worthwhile number of deals, it might be worth us considering up to a 1% drawdown fee,” she says. “But at the mo-ment this is not the case.”
“First-time buyers have never been a large part of the business,” says Ashmall. “But I suggest there has been a recent increase in this sector due to the broadening appeal of living afloat brought on by the increasing popularity of the inland waterways as well as cost factors.
“But we do not accept introductions from third parties and therefore pay no introductory commission.”
So it seems that opportunities for advisers in the marine mortgage market depend on additional residential moorings and a rethink on broker fees by marine finance lenders.
Webb says that each deal for advisers is based on the case in question and tailored to the needs of that case.
“Financial advisers need to set up a fee structure with their clients that achieves the best deal with lenders,” he says.
“This must be negotiated with the client and lender, and always clearly stated. If a client comes direct to us, we would expect a variable fee of between 0.75 % and 1%.”
He adds that the level of enquiries he gets concerning canal boats is minimal and that only certain regions are popular.
“It is at the upper end of the boat market where the money can be made,” he says.
Webb also believes that international customers are an area of the market where financial advisers should be looking to pick up business, as well as high net worth clients wanting to buy yachts.
Of course, this is until the supply of residential moorings grows in line with the upturn in first-time buyer demand and City executives’ desire for a new type of liquid asset.