Think Before You Borrow

August 2005

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Visitors to the forthcoming Southampton Boat Show in September are being reminded by the UK’s leading provider of marine finance, Bank of Scotland Marine Finance to consider the current financial climate when thinking about how to purchase a boat using finance. “In light of changes in the market since September 2004 buyers ought to be particularly vigilant regarding funding the boat of their dreams,” says Peter Whitehead, Director Marine Finance, Bank of Scotland.

He adds “I find that in general boat buyers are pretty knowledgeable about funding options, but as the last 12 months have seen changes in the housing market, buyers might wish to re-examine any pre-conceived opinions regarding finance.”

Recent years have seen double-digit house price rises¹ and with it, an increase in the number of cases where equity has been released² by homeowners many of whom are releasing equity from their homes for the purchase of bigger and more expensive assets.

A Marine Mortgage is an alternative way of funding the purchase of a boat. When a boat buyer takes out a Marine Mortgage to purchase a boat, the lender takes a legal charge on the boat as security against the loan.

If the interest rate alters and a boat owner has funded the purchase of their boat using a further mortgage advance, the amount of the monthly repayment (Typical APR 7.2 Variable*) will alter but the outstanding term will remain the same. This repayment adjustment rather than term adjustment is likely to suit boat owners looking to repay their loan by a set date.

A Marine Mortgage from Bank of Scotland Marine Finance is an equalised repayment mortgage where repayments the borrower will make throughout the length of the term are equal³. If the interest rate alters, the monthly repayment will not change and the term of the loan either reduces or increases to allow for the rate change. This term adjustment rather than repayment adjustment is likely to suit boat owners keen to retain control on their monthly outgoings.

Peter outlines the other benefits of taking out a Marine Mortgage from Bank of Scotland Marine Finance: “Customers have a choice between a 10 year or a 15 year mortgage, depending on the size of their loan and available funds for monthly repayments. A detailed biannual summary from their Marine Mortgage provider will also help customers to keep track of exactly what they are paying and how much they have repaid to date.”

Interest is calculated on a daily basis, which also allows customers to pay off lump sums of their Marine Mortgage agreement at any time to save on interest without penalty. Should they therefore wish to clear their Marine Mortgage in full, providing it has been running for more than 6 months again, they can clear the balance outstanding without incurring any penalty.

Boat buyers looking for further information on buying a boat using finance should visit Bank of Scotland Marine Finance on Stand E73 at Southampton Boat Show in September 2005. Alternatively call 0845 603 2362†.

Please note that boat buyers should always seek financial advice whenever they wish to invest or look at different funding solutions.

* In calculating the APR, no account is taken of any variation in the rate of interest charged under the agreement. The rate of interest is linked to the Finance House Base Rate and will vary as that rate varies from time to time.

1. Source – Nationwide and Halifax.
2. Further advances are also known as equity release, where a further advance on a house mortgage is made for the purchase of holidays, improvements, second homes etc. In 1997 further advances accounted for 3% of the total mortgage market with a value of £2,600 million. In 2004 further advances accounted for 7% of the total mortgage market with a value of £19,000 million. Source – Council of Mortgage Lenders April 2005 report.
3. In some instance the first repayment will differ from the rest as the total loan may not be exactly divisible by the number of payments that need to be made. However, the remaining repayments will be the same.

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† Telephone calls may be recorded for security purposes and monitored under our quality control procedure.