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Set sail with a yacht loan: All there is to know about boat finance

Important questions

The last thing any person wants to do when attempting to secure a yacht loan is to become financially overstretched. This is why you need to sit down with your financial adviser and establish a maximum boat management spend.

Only once this has been done can you begin to look at the question of your yacht loan.

However, even once you have identified how to finance a boat you love, actually achieving ownership can be difficult. This is because seafarers and wealthy cross-border individuals must negotiate the numerous international regulations and international sanctions policies that exist in relation to yacht finance.

Depending on where you, your business and your assets are located, it may be more or less difficult to secure financing for a boat. Not only do lenders want to understand your circumstances and where these fit with their various criteria, they also want to be sure that they have suitable recourse in the event that they need to enforce the boat loan.

How to finance a boat

Once you’ve established how much it will likely cost to secure a boat loan, you should explore each avenue, in regard to how to finance a boat and what to do about ownership. Common arrangements include:

Purchase financing

Depending on your credit score, securing financing for a boat needn’t be that complicated, and it’s even possible to take a boat away the day you apply for boat finance. Going through the bank is often used by individuals slightly shy of the overall amount, and looking to top off their purchase.

Yacht loans from specialist providers

Securing a boat loan from a specialist provider depends on your current credit score, size of deposit, the condition of your yacht, and your proposed usage. Each factor will be weighted by your boat finance company, to give you an overall figure. It’s important to remember that going through an independent boat loan provider will often garner steeper interest rates than making an equivalent application through the bank.

Taking out a home equity loan

Taking out a home equity loan to help with yacht financing is dependent upon the level of equity you currently have in your home. This could be a good avenue to follow, as a means to secure boat finance, but you should ensure you leave yourself with enough funds and security to continue making the payments tied to your house.

Refinancing

Refinancing, in short, allows you to renegotiate the terms you’re currently signed up to – saving you money and giving you full ownership more quickly. This is a potentially positive path to follow, if you feel you can get a better boat loan offer midway through your agreement. Naturally, this is only applicable if you’ve already entered an initial boat finance contract.

How much is too much?

You should be sure that you haven’t borrowed too much when applying for yacht finance. At the highest end of the boat loan cost spectrum, most lenders will not finance more than 50% to 60% of the overall price. Subsequently, this usually requires you to commit to some form of investment relationship in return.

In some cases the yacht itself may be seen as sufficient security. However, in some situations, lenders may ask for further security before agreeing to a loan for a boat – it is up to you as the buyer, to decide whether you wish to keep your boat finance separate from your other assets.

It is important to remember that higher-end yacht prices have dropped significantly since their peak in 2009 and the yacht finance industry has adjusted boat loan to value requirements in response – presently finding financing for a boat for more than 60% is a difficult task.

Blacktower FM, Wealth Management for Seafarers

Blacktower FM can help seafarers and cross-border individuals with all aspects of yachting financing, and associated wealth management.

Whether you earn your income in USD, EUR, GBP or another currency, whether you reside in the UK, the EU, the US or elsewhere, we can help you negotiate the many complexities and regulations that crop up with yacht financing

Contact our independent financial advisers today for more information.

Disclaimer: The above information was correct at the time of preparation and does not constitute investment advice. You should seek advice from a professional regulated adviser before embarking on any financial planning activity.

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However, around half a million British expats suffer a pensions shortfall of as much as £4,000 a year simply because they have chosen to live in a country or region without a reciprocal agreement with the UK and their pensions have been frozen.

Many of them feel it is unfair that they have no choice but to live on a lesser income or to take steps to redress the situation by consulting their expat financial advisers for inventive solutions. But, things may be about to change as MPs have created a parliamentary alliance to change the expat pensions law.

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Juicy lottery-sized sums are being offered to savers to tempt them out of gold-plated workplace pension schemes and into personal plans. We’ve explored whether you should consider taking a final salary pension, as well as the benefits and drawbacks of withdrawing.

What is a final salary pension?

A final salary pension, sometimes referred to as a gold-plated pension, is a special style of retirement fund that is based on your final or average salary.

The main difference between this and a defined contribution pension is that a final salary scheme gives you a guaranteed sum annually for the rest of your life when you retire.

To work out the value of your final salary scheme, consider a few factors: 

  1. Your final or average salary at your place of employment (confirm this with your employer)
  2. Your length of service
  3. The final salary scheme’s accrual rate (this is often 1/80th)

Your final salary pension will take each factor into account, and the resulting figure will be the guaranteed annual sum you are entitled to.

For instance, if you worked somewhere for ten years, and leave on a salary of £100,000, with an accrual rate of 1/80th, you will have a guaranteed retired annual income of £12,500.

It is possible to undertake a final salary pension transfer. Depending upon how long you expect to enjoy retirement, this could be a favourable choice. However, it’s important to consult a financial advisor to make your final salary pension transfer values work harder.

What are the benefits of transferring a final salary pension?

Assessing your final salary pension transfer value, you might consider it worthwhile to withdraw. We’ve outlined the main benefits of taking your final salary pension:

Receive the cash value of your final salary pension

Withdrawing from a final salary scheme allows you to receive a cash lump sum in return for forfeiting your guaranteed income in retirement. This final salary pension transfer value is the main reason to withdraw from a scheme, as it offers you financial freedom.

Remove ties with your employer

This is an especially important point if you’re concerned that your employer may not exist throughout your full retirement. For most, the pension protection fund (PPF) will cover your pension, but, for especially high earners, there is a PPF ceiling of £41,461 (as of April 2020).

Enjoy a flexible income in your retirement

A final salary scheme entitles you to a guaranteed annual income when you retire, but if you go down the route of transferring your final salary pension you will be able to enjoy a little more flexibility in how you receive your income. Usefully, by withdrawing from your final salary scheme, you can choose to take more out in your younger years.

Choose how you want to invest your pension

A final salary scheme is controlled tightly to accommodate all employees and their interests. When withdrawing from the scheme, however, you can take complete control over how your pension fund is invested.

The considerations you should make before transferring your final salary pension

While there are certainly benefits of going down the route of transferring final salary pension funds into various other pots, it’s important to consider what you’ll be giving up:

  • Entitlement to a fixed annual income for the rest of your life
  • A safe income that doesn’t fluctuate with volatile markets and share prices
  • Spousal and family benefits that come with a final salary scheme

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Towards the end of last year, because of favourable market conditions, I applied again to see the value of transferring her final salary . This one came in at just under £600,000.

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