How we coped with interest rates at this level, I honestly don’t remember.
One thing I’m sure of is that borrowers would shudder at the thought of interest rates reaching anywhere near this level again, especially in view of some of the high income multiples available in the residential marketplace and the low profit margins that many businesses now have to work to.
But while I am confident that we are not in imminent danger of rates reaching 15% in the foreseeable future, we have recently seen the second interest rate rise in a year, the previous 0.25% increase being in August. This must be a sensible time to take stock.
At this time, your clients should look at the borrowings they have and be deciding on the best way of ensuring they can continue to service those borrowings in the longer term.
LIBOR rate is running at a rate of about 5.25%, which indicates that the market feels there is likely to be at least a further 0.25% base rate rise in the not too distant future. This being the case, now is a good time for clients to consider putting a little protection in place to offset the effects of future rate rises.
In the commercial finance sector, as in the residential sector, highly competitive fixed rate funds are available if you know where to look.
While commercial lenders may not generally advertise the availability of fixed rates, most have the ability to fix if you ask.
But the best way to access the market is to use the services of a commercial specialist to act on your behalf in obtaining the best deals to suit your clients’ requirements.
As an indication of what is available, a leading commercial lender is presently offering either a two-year fixed rate at 6.09% or a five-year fixed rate at 6.2%.
Other lenders with fixed rate funds available tend to quote on a deal by deal basis based on a margin over the cost of funds to that lender.
Again, a market specialist will be able to guide you through the process and ensure that your client gets the best deal for to match their circumstances.
You should remember that the early repayment ch-arges on fixed rate mortgages are likely to be higher than on variable rate deals, especially if repayment is made during the fixed rate period.
This needs to be weighed against the comfort of knowing exactly how much payments will be for the term of the fixed rate. It will allow clients to budget, plan cash flow and plan for business expansion, safe in the knowledge that they are not going to find themselves burdened with a substantial increase in interest payments.
Fixed rates may not be the right option for everybody but they are something that everybody should consider, especially in a time of rising interest rates. andy young is managing director of The Business Mortgage Company