When Tory ministers can no longer afford to pay their mortgages, you know the cost of living crisis has entered new territory.
This week, George Freeman MP revealed a £1,200 increase in his monthly mortgage payment was behind his decision to quit his £118,000-a-year role as science minister last year.
Although he received zero sympathy in the court of public opinion, I admire his honesty — plus the media frenzy that followed was an ingenious way of advertising his availability for a lucrative second job.
Other well-heeled but cash-strapped professionals are finding a more discreet solution to their financial woes in the thriving market for luxury pawnbroking services.
For 250 years, Suttons & Robertsons has been the best-kept secret of wealthy Londoners who find themselves in a spot, with branches in Belgravia and Kensington. In the past year, it has seen a 30 per cent increase in first-time pawnbroking customers, and a similar-sized increase in the value of its loan book. I met managing director Jim Tannahill to find out why.
“Mortgage rates are never far away from the conversation,” he says, as an assistant whisks a gleaming drawerful of gold sovereigns off his desk. With repayments taking up a much bigger chunk of people’s monthly incomes, even the rich are losing financial resilience. “People don’t seem to have much of a safety net.”
Funding school fees and unbudgeted ski trips commonly feature, he says, folding away a loupe, stored with a set of digital scales that knock spots off the ones in my kitchen. With bonus season expectations falling short this year, yet more custom may be heading his way.
Around 90 per cent of his loans are secured against gold, jewellery and luxury watches. Having initially thought I’d bring something with me for him to value, I come to the realisation that I own absolutely nothing that would make the grade.
Down in the basement strongroom, every pledged item wrapped in brown paper tells an intriguing story about its owner’s circumstances. My eyes boggle at an emerald ring the size of a cough sweet. There’s quite a collection of Cartier panthers; small enough to conceal in your palm, but valued at around £100,000 a pop. Someone will no doubt be missing them.
A specially-built rack stores all the fine art, the edges of gilt frames glinting under the strip light. Only paintings with a resale value above £10,000 will be considered. I imagine someone trying to explain the empty space above their fireplace. “Ah yes, the Constable’s away being cleaned this week.”
Last month, Suttons advanced £47,000 against a Banksy after its owner was hit with an unexpected tax bill. January, Tannahill says, is always busy for this reason — but this year has been busier than usual.
There are bundles of green Rolex boxes in white sleeves down here, all with their original documentation. In the past, he advanced £100,000 on the watch collection of a solicitor buying into a law practice who couldn’t raise the money fast enough elsewhere.
The handbag section is more colourful, with rows of Hermès bags stored in their original russet-coloured packaging (I’m told Burberry and Mulberry bags are too ubiquitous to lend money on). Collectors take note: the original packaging adds 10 to 15 per cent to an item’s auction value.
This is crucial, as it’s the cash value of an item at auction that informs the size of loan a pawnbroker will advance, loaning about 20 per cent of this figure against jewellery; and up to 30 per cent for watches. “The retail price is just the retailer’s wish,” Tannahill says, noting that customers are often stunned at the difference.
Across town in the City of London, James Constantinou, founder of Prestige Pawnbrokers, reports a 200 per cent increase in overall inquiries from pre-pandemic levels, with demand for loans of over £50,000 showing the strongest growth.
“As the cost of living crisis bites, people tend to start thinking outside the box,” he says. The sharp rise in interest rates has prompted a lot of wealthy people to rebalance their property portfolios. “Many clients are in the process of selling properties, second homes, or homes overseas but the market’s a bit glued up at the moment and deals are taking longer.”
Business owners are also key clients with the higher cost of borrowing and increased staff wage bills proving a challenge as payments and value added tax rebates take longer to come through.
The wealthy, Constantinou says, will never borrow without an exit plan. Their cash flow may be lumpy, but it is usually pretty reliable. “You could borrow £100,000 from me for £2,900 if you only needed the money for a month,” he adds.
Luxury items he has raised finance on in the past week include a classic E-Type Jaguar collection, a Ferrari and a Lamborghini. Levels of repeat business are high.
Pawnbroking is regulated by the Financial Conduct Authority. Depending on the amount borrowed, monthly interest rates of 3 to 5 per cent typically apply. The standard loan term is six to seven months, but interest is only accrued while the loan is outstanding. Most items tend to “stay in” for three to four months, and there are no penalties for early redemptions.
Costly, perhaps, but the real attractions for the well-off are speed and discretion. If you’ve got the assets, borrowing secured on luxury items can be arranged more quickly than a bank loan or bridging finance, with no credit or affordability checks. “The credit check is on the item we’re lending on,” says Tannahill. “The worst that’s going to happen to you is that you’ll lose the item.” This, he says, happens in fewer than 5 per cent of cases.
Ironically, the lack of credit checks is what’s fuelling growth at the lower end of the pawnbroking market, as one in five people struggle to meet the borrowing requirements of mainstream lenders. The demise of payday and doorstep lenders means that if your credit rating is shot to pieces, pawnbrokers are one of the few legal places left to turn to.
H&T Group, the UK’s largest high street pawnbroking chain, says it expects to report record profits in its full-year results next month, up 40 per cent year-on-year.
However, cost of living pressures have tarnished the other side of the pawnbroking industry’s coin — the resale value of forfeited watches and jewellery. Regardless of their income level, consumers are less willing to spend their money on bling. This is being evidenced on the high street and in the secondary market for fancy watches, where average prices have fallen for seven straight quarters.
That won’t tempt me to buy one — and the same goes for expensive jewellery or designer handbags. The luxury I savour is stashing money in my savings accounts, pension and stocks and shares Isa. I can’t flaunt it on my wrist or ring finger, but I can thankfully afford to pay my mortgage and my tax bill.