Staying afloat if you plan to finance a life on the water

Some 15,000 people are estimated to live afloat on canals, rivers and coasts throughout the UK.

Many are permanently moored, while others mix cruising and mooring to suit themselves, according to the Residential Boat Owners Association.

"Liveaboards" come from all walks of life and live in a wide variety of vessels from permanently moored houseboats to moveable narrow boats and Dutch barges, which will be on display this week in the inland waterways section of the London International Boat Show.

But unless you've got the ready cash or are prepared to pay high personal loan rates, abandoning life ashore and buying a floating home can be tricky to finance.

You won't get a mortgage for a residential vessel from standard high street lenders because they deal only with land-based properties. Instead you will need to go to a specialist in marine finance and the choice, even there, is limited when it comes to buy ing a residential rather than a pleasure vessel.

The leading specialist in the market is Collidge & Partners, which in a joint venture with RoyScot Larch, a Royal Bank of Scotland company, offers mortgages on all sorts of inland-waterway based vessels with a permanent, residential mooring agreement.

"We'll lend on new and used narrow boats, Dutch barges and custom-built houseboats or other vessels that have been converted to houseboats. We'll also lend to people who want to convert a vessel such as a barge into a houseboat, but we'll only make the payments direct to the boatyard carrying out the work," says proprietor Chris Collidge.

The marine financier will not, however, risk lending on sea-faring vessels whose owners could conceivably disappear abroad and default on the loan, though it might consider a mortgage on a dumb-boat with no engine in a secure coastal mooring.

Around three quarters of the mortgages granted are on used vessels, already with a permanent mooring, while 25% are on newly built boats for residential use in which case it's incumbent on the borrower to find a permanent mooring first.

"Residential moorings do become available as new marinas are built around the country, but it's harder to bring new boats into metropolitan areas, particularly London, where new or vacant moorings are rare," Mr Collidge says.

Mortgage terms can run from two to 15 years, with 10 years being typical. Interest rates are variable and are charged at an APR of 9.9% on loans of £5,000-£25,000 and an APR of 8.8% on loans of £25,000 plus.

The maximum loan to value (LTV) is 80%. But it is crucial to understand that this means 80% of the value of the boat itself, which provides the security for the advance. It does not take into account the value of the mooring, which on popular waterways can cost up to several thousand pounds a year.

Mr Collidge warns: "It is common to find that a considerable percentage of the asking price for a boat is goodwill to reflect the value of the mooring. So, in fashionable areas such as central London, you may find that the marine surveyor values the actual boat at well below the purchase price."

If, for example, a boat priced at £60,000 is valued at just £40,000, the maximum mortgage loan you'll be offered is £32,000 (80% of £40,000), so you will need to find the other £28,000.

Prices for residential vessels can start as low as £15,000 for a modest, old narrow boat and be as high as £250,000 or more for palatial vessels in prime moorings. But mortgages advanced by Collidge & Partners are more typically on vessels with asking prices ranging from £30,000 to £90,000.

One competitor in the market is Barclays Marine Finance, which offers mortgages at both fixed and variable rates on residential narrow boats and Dutch barges, but not on houseboats without engines on permanent moorings.

The typical variable rates are between 6% and 8%, depending on the amount borrowed, and the typical fixed rate is currently 8.9%, set for the whole term of the mortgage which is typically 10 years. The maximum LTV is 80% of the cost of the boat.

Barclays does not charge any redemption penalties on its marine mortgages, so borrowers are free to pay off lump sums or repay their entire loan early without penalty if they choose.

Related sites

· The Residential Boat Owners Association, www.rboa.co.uk

· Collidge & Partners, 01843 295925 or www.collidgeandpartners.co.uk

· Barclays Marine Finance, 0800 445644 or www.marinefinance.barclays.co.uk