Pawn shops poised as Britons run up debt
LONDON (Reuters) - For people who need cash but are in debt and not sure property prices will support another loan, an ancient solution may be making a comeback: the pawn shop.
The practice of pledging valuables such as jewellery in exchange for loans was mentioned in the Bible and dates back over 3,000 years to the Chinese. Used by the Greeks and Romans, it has traditionally been viewed as a seedy business and portrayed as a recourse for the desperate.
But pawning, which also happens in North America, Scandinavia and Australia, is sprucing up its image in Britain to attract more affluent clients as people sink deeper into debt and high gold prices swell the loans their jewels can secure.
Pawn franchises with glossy signs can be seen in many towns. The outlets often resemble building societies, the trusted alternative to banks that are widely used by Britons for saving and home loans.
There are now about 800 pawn shops in Britain against just 50-100 in the 1970s and early 80s, said Des Milligan, Chief Executive of the National Pawnbrokers Association (NPA), established over 100 years ago to represent the sector.
The NPA estimates around 400 million pounds a year is borrowed from pawnbrokers across Britain, but cannot give historical comparisons.
Pawnbroking has long served the poor by tiding them over during financial ruts, but it is now reclaiming city centres and brokers say they are serving people from all walks of life.
"Over the last three to four years, we have noticed the amount of professionals coming into our stores increase," said marketing manager David Towse of pawnbrokers Harvey and Thompson, which has 77 shops across Britain and is one of two pawnbrokers listed on the London Stock Exchange.
The other is Britain's largest pawnbroker, upmarket Albemarle and Bond, which has 79 shops.
Shares in Harvey and Thompson have over the past six months outperformed the London market with an over 20 percent gain, although Albemarle and Bond have lagged the FTSE 100's five percent rise.
"It is part of a general trend that people are beginning to accept pawnbroking... The Dickensian image of the backstreet pawnshop is fading," Towse said.
Angie Liston, a real estate agent and first-time pawner who received 400 pounds against a gold necklace and her husband's watch, said she was surprised by how efficient the process was.
"(Getting the money) was very easy to do and it was better than standing all day queuing at the bank," she said when leaving a north London pawnshop. "This will sort out some extra bills we have and I'm sure we'll give it another go come the time."
DEEP IN DEBT
Pawnbrokers still bear a traditional symbol of three gold balls suspended from a metal bar, a relic from 15th century Florence where the Medici family of bankers had the image as their coat of arms.
The system is simple.
A loan is taken out against a valuable item which is later redeemed by the client during a contracted period up to seven months, when they repay the borrowed money plus interest.
A pawnshop can provide similar sums of money to a small bank loan. Typical loans range from five pounds to thousands with an average of 100 pounds, Milligan said.
But unlike a bank loan, there is little paperwork and no credit checks are needed as the pawn shop uses the valuable goods as security.
Interest is usually charged at the rate of banks -- around seven percent a month -- although it is often reduced for regular customers or large amounts, Milligan added.
Those who can't get the cash together in time to repay a loan see their jewellery move to the sales window. On average around 10-20 percent of pledges are not redeemed.
Britain is saturated in debt which is growing monthly with Britons owing some 1.3 trillion pounds, making them some of the most indebted people in the world, official data shows.
Around one trillion pounds is owed to lenders such as banks for mortgages and the rest is unsecured debt, like credit cards.
Insolvencies in Britain are also running at record levels, although the Bank of England says this is not a major problem if people can afford to pay back their mortgages.
"It's a totally different ballgame now from 20 years ago when I started out," said Stephen Pam, manager of independent Hatton Garden Pawnbrokers in London's banking district.
"Interest rates are now very low and people over-extend themselves or have big mortgages. That's when they come to a pawn shop."
GOLD WEIGHS HEAVILY
Another factor which may support pawning -- although the NPA sees this as just coincidence -- are recent highs in the price of gold. Brokers say these have sent the street value of jewellery soaring.
"We look at it very simplistically. We weigh the gold, we test the gold -- and it's worth more now," said a Wagonmark pawn shop assistant in North London, who declined to give her name.
Gold has gained nearly 10 percent this year and more than 65 percent in almost two years, as investors and funds poured money into the metal amid worries about firm oil prices, tensions in the Middle East and a weaker dollar outlook.
Gold hit a 26-year high of $730 an ounce in May last year. It surged to an all time high of $850 in January 1980.
Gold generally moves in the opposite direction of the dollar, which has been gradually weakening over the past year.
"We try to price things so that you would come back. We're not going to lend you too much, because then we won't see you again," said Wagonmark's shop assistant.
Pawnbrokers suggest a newly-wed couple could pawn their gold rings to cover the cost of a honeymoon more easily than with a standard loan. They also like to note that Christopher Columbus funded his voyage to the New World by pawning Spanish Queen Isabella's jewels.
(Additional reporting by Atul Prakash and Luke Yates in London)
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