Pawn your gold to buy a conservatory!
These borrowers are pawning diamond rings and sports cars to get the funding for extensions and conservatories, according to a new report.
%VIRTUAL-SkimlinksPromo%Personal asset lender Borro, a posh pawnbroker, reports that the number of property-related loans it has arranged has rocketed in the last year. It reckons that borrowers are turning to less traditional sources of lending in light of mortgage lenders continuing to restrict what they will offer.
Securing a personal asset, like a work of art or a fine wine collection, may sound a lot more upmarket than the stereotypical pawn broker, although the firm still holds onto your asset in secure storage until you have paid off your loan. And if you don't pay back what you have borrowed you forfeit your prized possession.
How it works
Borro offers small business owners, entrepreneurs and other customers short-term loans (usually for six months) of £1,000 to £1,000,000. Loans are secured against assets including fine art, antiques, prestige cars, luxury watches, diamond jewellery, gold, yachts, fine wine and other high value assets.
You apply over the phone or online, before your goods are picked up and taken to Borro's storage and valuation centre (at the lender's expense). Although, if you have something really pricey, the valuer will come to you.
Borro will then decide whether or not to offer you a loan of up to 70% of your item's value. And it doesn't do credit checks.
If you accept the terms, the money will be with you within 24 hours and your item stored safely in specialist facilities.
You can pay back your loan over the agreed term, or sooner if you like, and there are no early repayment charges. Once it is repaid, the lender will arrange for your item to be redelivered to you.
With mortgage lenders being extremely picky about offering extra lending to existing homeowners (either through remortgaging or a further advance), there is clearly a gap in the market.
Borro has noted a massive 183% rise in property-related loans in the last year alone, and says the average amount borrowed for this purpose is £19,500.
It adds that borrowers are taking out these loans for three main reasons - to fund development and redecoration (such as extensions and conservatories), cover the costs of an unoccupied rental property, or for bridging purposes (until they secure longer-term funds).
Paul Aitken, CEO of Borro, gives two examples of assets that customers have recently secured against property-related loans. "One secured a £50,000 loan against a Henry Moore sculpture in order to complete a property deal, and another customer took out a £40,000 loan against a pair of Cartier earrings, to start their own business buying and selling property."
The lender is clearly plugging a hole left by the mortgage squeeze. While the headlines might shout about a mortgage price war, it is firmly focused at the very safe end of the mainstream market – lending to borrowers with at least 40% equity.
For everyone else, securing extra borrowing for home improvements or any other reason, is still a huge challenge.
Aitken admits: "It is clear people are still finding it hard to secure property-related loans from traditional sources of finance. Others may be finding the stagnant property market continues to work against them. Our clients are turning to their existing assets as collateral for loans."
Before you use a personal asset as security against a loan, remember that if you default on the loan repayments and cannot get back on track, there is a chance you could lose that item for good.
Borro says that the vast majority of its customers redeem their items, although if something is of sentimental value you may want to think carefully about whether you want to risk losing it.
If you are going to 'pawn' a prized possession, the fact that Borro levies no early repayment charges on its loan is a bonus, because those who can afford to repay their loans early are not penalised for doing so.
And with interest racking up at 4.99% a month for loans under £20,000 – that's an APR of 68.8% - you'll want to be repaying your debt as soon as possible.
If you need short-term property finance it's worth exploring cheaper options first. Of course, it is difficult to raise funds in the current market but a specialist mortgage broker can look at a diverse range of sources, from traditional lenders, to private banks and bridging loan specialists.
Mark Harris, chief executive of independent advisers SPF Private Clients says: "We generally find that an alternative solution can be found without the need to resort to this type of lender, which will naturally charge a much higher interest rate. It would have to be a particularly extreme situation for a client to go down this route."
So don't take that family heirloom off the mantelpiece until you are quite sure you have shopped around.