The high upfront cost of aircraft means that most buyers – whether airlines, flying schools or individual enthusiasts – will require finance to do so.
Clearly the complex nature of aircraft means the number of lenders able to understand – and fund – such assets is limited. The essence is simple as it’s a loan to the customer secured against the aircraft with a mortgage.
Once the customer has chosen the aircraft they want to buy and agreed a price, they will need to show the lender certain key information about the aircraft as part of their loan application.
That key information will be the Civil Aviation Authority registration documentation and airworthiness certificate (or similar).
We only lend against aeroplanes or helicopters which are listed on the UK’s Civil Aviation register and which have a current airworthiness certificate.
Once a lender has approved the application and released the funds, the borrower will typically make a pre-agreed number of fixed interest repayments.
Interest rates on such aviation mortgages are usually fixed, giving borrowers the peace of mind that their repayments will not rise with the base rate.
However, as they are secured against a valuable asset, lenders are often willing to show some flexibility in the pace at which borrowers repay the loan – for example allowing them to vary their repayments in line with seasonal income. Equally, lenders will often offer borrowers a range of payment terms, though five years tends to be typical.
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It’s worth remembering that well-maintained aircraft retain their value well, and the continued value of the underlying asset often allows lenders to offer secured finance at competitive interest rates.
But the core appeal of aircraft mortgages will always be one of availability of finance rather than cost alone. Most banks – and even many non-specialist finance providers – struggle to adequately understand aircraft as an asset class.
As a result, only specialist lenders – who have the expertise to gauge the risk and opportunity involved – are able to lend against aircraft.
Customers who use a dedicated lender for such a loan – rather than going to their bank – will also have the reassurance of not having too many eggs in one basket from their primary lender. This will also give them the flexibility to approach their bank in future if they need finance for other purposes.
The simple fact that aviation finance is a fairly niche product, which high street lenders seldom offer – let alone understand – makes it a compelling differentiator for brokers.
While the number of clients buying multiple aircraft – such as flying schools – may be limited, aviation enthusiasts tend to be a committed and loyal bunch. A private pilot who successfully uses a broker to secure finance for his or her aircraft is highly likely to use the same broker the next time, and to refer the broker on to their friends.
Brokers considering offering this sort of finance should research potential lenders thoroughly to ensure not just that their products are attractive and flexible, but also that the lender has a long-term, independent pedigree and a thorough understanding of this complex sector. Getting the right lender involved at an early stage is crucial and will help deliver a good outcome and experience for the customer.