「经济学人」A high-interest-rate phenomenon

Auction houses are on a lending spree

Buying art can be a nerve-racking experience. But investors have long been able to console themselves with the thought that, if their purchase plummets in value, they will at least have something nice on their wall. Now they can also console themselves that they will have something to borrow against.

That is because there has been a boom in “art-secured lending”. Until recently this was only available to the wealthiest clients of private banks. In the past five years, though, auction houses and boutique lenders have become more involved. Deloitte, a consultancy, reckons that such outfits increased their lending by 119% over the period, compared with a 31% rise at banks. Last year non-banks doled out as much as $8bn against art and collectibles, or 23% of all such loans, up from 15% in 2019.

The boom has been produced by changes in both the economy and the art market. As central banks raised interest rates in 2022, banks tightened lending. Insiders say private banks became more exclusive, making loans only above $10m, up from as little as $1m before. This created a gap in the market for auction houses, which have more knowledge about the art they lend against.

Meanwhile, demand for lending grew, paradoxically because of a bearish art market. According to ubs, a bank, prices for the most sought-after pieces fell by 40% last year. As a consequence, “many collectors decided to leverage their art instead of selling it,” explains Philip Hoffman of Fine Art Group, an art-investment firm and boutique lender.

Young owners are especially keen. According to Deloitte, 83% of collectors under the age of 35 say financial considerations are a reason they buy art. Sayuri Ganepola of Christie’s, an auction house, notes that the rise in demand for art-backed loans has coincided with more young people entering the market.

In turn, this is changing how auction houses finance themselves. Sotheby’s recently announced it would tap bond markets to lower its financing costs. In April it also issued an asset-backed security worth $700m and comprised of 89 loans against more than 2,000 works of art, including Basquiats and Rothkos. It was able to do so because it has information on the performance of its loans stretching back at least 15 years.

How long will the boom last? As interest rates fall and lending standards relax, demand for art-backed loans may fall. Art prices are also volatile, so lenders only accept work from established artists, which puts a limit on the market. But for those in search of ready cash and with a Picasso to hand, a new way of accessing funds has opened up.(May 30th 2024)

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