Roughly every 6 weeks, there is baited breath as another interest rate announcement is made by the Bank of England. As with residential mortgages, the costs of commercial mortgages are the highest they have been in years. There is an entire generation that is used to being able to borrow around the 1% mark or sometimes even lower. These borrowers are undoubtedly asking when will things return to normal.
For those of us old enough, we remember interest rates much higher than they are now and despite being lulled into a false sense of security by years of low interest rates, we know that the sub-1% interest rate is not normal. It may be a few months more before interest rates start to show signs of coming down. There are still hawks on the monetary policy committee calling for more rises.
Unless there are more signs of inflation falling, we are unlikely to see interests rates fall by any great amount in the immediate future. It is, however, highly unlikely they will drop to anything like the levels of 2019.
There is always an element of risk with borrowing that interest rates may rise but hopefully with the encouraging signs of inflation coming down over the last few months, it is (hopefully) unlikely interest rates will rise much further and indeed that into the spring, we may even see interest rates starting to come down.
Even without interest rates falling, we are seeing lenders bring their own product rates down. After a year of poor lending, many lenders are keen to do business this year. Sometimes offering what may be an attractive rate now, but fixed over a longer period – hedging their bets that rates will come down and they will make money in the long term.
It is always worth keeping commercial mortgages under review. Know exactly what your interest rate is, what the term of the loan is and any early repayment charge. As product rates start to come down you may then want to switch products to a lower rate, but beware being fixed into longer terms. This would be betting against interest rates falling in that period.
When looking to re-finance commercial properties, you should also bear in mind the associated costs – the product arrangement fees, sometimes the upfront interest payment or requirement for a deposit account, valuers fees and the legal fees (both for the lender and for you). Add this to an early repayment charge and you need to be certain you will be better off in the long run.
To discuss this or any other related matter, please call Tamzin, start a live chat or email us at info@hartbrown.co.uk.
*This is not legal advice; it is intended to provide information of general interest about current legal issues.