'Posh' pawnbrokers boom as middle classes cash in assets
As the economic crisis wears on, the asset-rich but cash-poor middle and upper classes are turning to putting up their high-end possessions for short-term loans, sparking a wave of 'posh' pawnbroking.
With the heady days of easy credit long gone with the financial crisis, people are turning to the age-old industry of pawnbrokers. The process is the same as it has always been – put up their possessions as a collateral for a short-term loan with the idea of getting them back once the loan is paid off. But in the world of posh pawnbroking it's luxury watches, boats, fine art and fine wine that are being offered up.
Borro is one of the new breed of private lending company operating in the U.K. and U.S. that offers personal asset loans "for people who have more wealth in assets than in the bank". Among the items the company has handled are jewellery and diamonds, precious metals, luxury cars and antiques.
Founded almost five years ago by chief executive Paul Aitken, the company has no mention of "pawnbroking" on its international website -- reflecting an attempt by high-end lenders to move away from the commonly held image of dusty, dingy shops.
"We're not a pawnbroker. To me a pawnbroker lends out £100 for a bag of gold…We're a level above that" Aitken told CNBC on Tuesday.
"Our customers are just people that have an irregular income. They might have an opportunity and they need liquidity and a lot of their money is in assets. They are people who like to leverage those assets rather than sell them"
Aitken said Borro's customers ranged from entrepreneurs and small business-owners or people in the entertainment industry, including musicians and film producers, to retailers and property developers. The core of Borro's loans range from £5,000 to £50,000, Aitken said, though the company will consider loans up to £1 million with the interest rate between 2.99 and 6.99 percent per month.
In its near-five year history, it has lent around £60 million ($95 million) and it has a 90 percent pay back rate, just above the national pawnbroking industry average of 85 percent.
Rather than coming to the firm from the high street, many of Borro's customers approach the company through high-end financial advisors, private banks and art advisory firms. As Aitken noted, "Borro is simply an alternative money supply to bank lending."
With an estimated 2,250 pawn-brokers in the U.K, pawn-brokers had been able to fill the credit role vacated by banks when they tightened their lending conditions as a result of the economic crisis in Britain, according to the National Pawnbrokers Association (NPA).
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"Last year the total market increased by 15 percent with lending to middle-income customers and small businesses accounting for half that growth," the NPA's chief executive, Ray Parry, told CNBC on Tuesday.
"Recent developments in the market have been a growth in high-end pawns, such as cars, designer handbags and Rolex watches, with the traditional middle-classes increasingly using pawn shops and a growth in small businesses using pawnbrokers to ease cash flow."
"People are wanting a £5,000 - £10,000 loan nowadays and you can sort out a loan at a pawn-brokers much quicker than with a bank," Parry said. "And whilst these people do need the money, they're not willing to give up their possessions for good and they're hoping that better days will come."
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One London-based luxury pawn-broker which was founded in 1770, Suttons and Robertsons, feels so secure about the pawnbroking's future that it has expanded out of the capital for the first time in its near 250-year history. The company is opening branches in the north of England and even one in Spain, a country also suffering from the effects of the European credit crisis.
"Since 2008, business has definitely got busier," Phil Diaper, the company's operations director said, noting that there was a uptick in business in one of its pawnshops near London's financial district at the same time as many London bankers had been made redundant.
Despite the high rates of asset redemption, with interest rates of up to 7 percent a month the loans aren't cheap. Nonetheless, pawnbrokers are heavily regulated and the customers have the same rights and protection offered by the U.K.'s Consumer Credit Act as other consumer lending services.
"We're here to lend people money, not rip them off," Diaper said. "The middle classes are very laid back about borrowing money and this is high-end lending, anyway, we're talking about people that could afford the high-end assets in the first place. Since the banks' reticence to lend, people now see us a viable alternative."