Three weeks ago, Charlie Jenkins was approached by a couple who, after 18 months of searching for the right holiday home in the Mediterranean, had finally found the perfect place: now they needed to buy it before anyone else could. Arranging a mortgage would take too long, they figured, someone might snatch it first. Could Jenkins, head of asset finance at SPF Private Clients, find them a £1.5mn loan, as soon as possible?
Among their possessions was a valuable art collection, worth roughly £5mn. After a few calls, Jenkins had an offer of the full amount secured against some of the paintings.
“They are currently deciding which ones they can bear to part with temporarily. The day they are delivered to the lender’s vault, it will release the cash,” he says.
In recent years, as the value of many collectable assets has risen, the industry for lending against them has grown. From fine art, luxury watches, and investment portfolios to yachts, jets and classic cars, the very rich are taking a close look at trophy assets as a means to raise cash.
“The most common lending is against an investment portfolio,” says Hina Bhudia, of Knight Frank Finance’s private office in London. “Depending on the private bank or wealth manager, the best rates are between 0.8 per cent and 1.25 per cent over the Bank of England base rate [currently 5.25 per cent].”
“Early in 2022, before interest rates started to increase, all of my clients had loans against their investment portfolios; most were borrowing as much as their private bank would lend,” says Mark Davies, a London-based tax adviser with 300 non-dom clients, whose average net worth is at least £10mn. Today, roughly half of them have borrowing, with generally much lower loans as a proportion of the item’s value (LTV) than before.
Interest payments are not the only cost, however. In most cases, the private banks or wealth managers will expect to manage their investments, too, meaning, for a full discretionary service, an annual fee of around 0.8 per cent of the entire portfolio value.
Paul Welch, a luxury asset loan broker, says loans from non-bank specialist lenders against single, highly liquid stocks such as Google, and against cryptocurrency, have become popular with his clients this year. “In March, we raised £6.3mn for a client on £10mn of bitcoin at 3.25 per cent, fixed for two years, to help fund a house purchase,” he says.
Beyond financial assets, the industry for asset-backed loans divides broadly between specialist lenders — who focus on one or a small amount of very high-value assets, including yachts, classic cars, fine art and wine — and pawnbrokers, who typically lend at higher rates and for shorter periods, against a wide range of assets.
In the second group is Toby Johncox, managing director of Enness Global, a high-end loan broker, who in recent months has found loans for his customers, charging between 0.8 per cent and 3 per cent per month, against a Ferrari F40 (value £2mn), two Ford GTs (£1mn each), a sculpture collection (£18mn), and a horseracing stud, along with most of its horses (£12m).
“Wealthy people tend not to have much money; their wealth is in stuff,” he says. “I help them unlock this in a few weeks.”
Philip Hoffman runs the Fine Art Group, a leading specialist art lender (Sotheby’s and Christie’s are also active in this space). His largest loan was for £200mn, against a collection worth at least double that, owned by a European family, following a death. “They wanted to split the [estate] up quickly before a long-term settlement could be made,” he says.
For loans against investment portfolios, and most luxury asset finance, interest payments are typically made monthly; for pawnbroking, interest is generally paid at the end of the loan.
At Unbolted, a London-based pawnbroker for luxury items including art, classic cars, watches and jewellery, when a loan term expires, customers typically have a few weeks to pay back or take out a new loan, according to Chris Brown, the company’s head of lending.
If they do neither, they are told where and for how much their seized asset will be sold (typically at auction). Roughly one in 10 loans ends up this way, according to Brown, although in half such cases — including his highest value example, a £400,000 classic car — the owner could afford to extend the loan.
“After the interest you’ve already paid on the loan you might be up to 90 per cent of the value of the item,” he says. “Maybe the market [for the item] has dropped off a bit. If you don’t have an emotional attachment to the item, you might just decide to walk away.”
Bhudia and Jenkins say they’ve never had a client default. Bhudia’s clients take out loans of at least £5mn, at LTVs typically below 50 per cent, from specialist lenders. Interest rates vary with the type of asset, says Jenkins. “For art you’re looking at between 1.7 per cent and 2.5 over the [Bank of England] base rate, for a six-month rolling loan. A two-year old jet might be 2.5 per cent to 3 per cent; a yacht around 5 per cent.”
Eligible collateral is constantly changing, as tastes for collectibles, and the values of collections, change.
“In the last year or so I’ve been on a crash course on handbags,” says Brown. “A Hermes Birkin still in its wrapper, whose buyers were selected from a waiting list, might be worth £30,000, £10,000 more than it cost. Another make, bought for £20,000 from Harrods, say, that has picked up a small scratch, might now be worth £3,000.”
“Three years ago, no one would lend against a Stradivarius violin, now I could get two or three quotes,” says Jenkins.
He says that bridge financing for home purchases, such as the Mediterranean example, remains a popular application among his clients. Although higher interest rates have slowed home purchases, properties that rarely come to market and which many people want to buy — such as family homes in catchment areas for popular schools or rare gems in sought-after holiday spots — still attract multiple offers.
“That means that getting the deal done in a few days or weeks can make the difference,” he says.
An increasing proportion of Brown’s business is to property developers or buy-to-let investors, who typically seek between £100,000 and £500,000, at rates of about 2 per cent per month.
A property developer might be over budget but have borrowed all he can from the bank, from whom lending has been harder to secure since interest rates have increased. Buy-to-let investors will have maxed out their lending against their properties and may need extra finance for a short period because the sale of one has been delayed. “That’s when you break out the Banksy,” says Brown.
Asset-backed lenders place tight conditions on the asset backing the loan. Paintings, watches, wine, cars — all will usually end up in heavily secured vaults for as long as the loan is made.
Once Bhudia arranged a loan for a woman with money in a trust that would become available to her in a few months. “She had just divorced and received a classic car collection as part of the settlement, which was the collateral we used. They went to a location so secret I only learned where it was the day they were released.”
High interest rates also reflect the speed with which the loans can be arranged.
One Thursday evening in 2022, Hoffman got a call at his London office from the accountant to a super-rich entertainment executive based in Los Angeles.
“His client hadn’t done his homework and had just realised he had a huge tax bill to pay. Could we lend him $1mn secured against two paintings?” he says. “By Monday.”
https://www.ft.com/content/7ad63ab4-f22d-4c53-881a-0ba9ceb78e27
