War in Ukraine, energy crisis, escalating inflation, a change in political leadership, rising interest rates, supply chain issues, labour shortages and more, are combining to create a volatile economy.
Given uncertainty over interest rates, it is understandable that some banks withdrew mortgage deals or suspended lending altogether during the Truss-era. But the banks that we work with remained, and continue to remain, open for business.
During this time, we have continued to have our lending proposals agreed by banks and lenders without any major issues. Pricing has risen due to the unavoidable rise in bank base rate, but margins have remained as they were and have perhaps improved.
A buoyant lending and land market
Some banks are even happy to compete for business and cut their returns to do so. We had one specialist business client buying a rural property who received two formal sanctions from lenders. The difference in pricing was 0.6%. We did not disclose pricing to the losing lender, but they voluntarily reduced their pricing by 0.83% to win the business. This competitive sparring during a period of economic turmoil is not a sign of bank uncertainty; it confirms that it is business as usual for many lenders.
There is no doubt that demand for land and rural properties remains very competitive and the market is buoyant. We had a client bid over 25% of the guide price on land and buildings in the north of England. They placed the 14th lowest bid! Banks and lenders are still keen to be in the rural market too.
Interest rate changes
However, we are moving into an interest rate territory that is unknown for many borrowers. With base rates now at 3%, it is the highest it has been since 2008. Analysts suggest rates could reach 4.75% next year.
We are now seeing lenders adjusting their stress-testing of agricultural proposals from a historic 6% interest rate to now up to 9%. Non-agricultural commercial proposals are higher. This makes a well-thought through and presented application and proposal even more important.
To fix or not to fix?
With rising interest rates, some may be considering if it is time to swap variable rate deals onto fixed rates. Some may be considering coming out of fixed rate deals, paying early repayment charges and securing on a new longer-term fixed rate with either the existing or a new lender.
There is no one size fits all answer. The decision must be based on each individual client’s own view of the market and their attitude to risk.
Whether you are in a commercial or residential deal, there are a several factors to look at:
- How much will it cost to exit the current deal?
- What are all the available options from your existing and new lenders?
- Have you got scope to make over payments or increase the monthly payments? If you have capacity, you may wish to consider making overpayments on a monthly basis, which will reduce your capital loan balance but will also help you get used to paying a higher rate. To some extent, this will help you demonstrate future affordability to lenders.
- How long do you think it will be before you can secure a new rate with your existing lender? Or how long will it take with a new provider? It may be prudent to give notice that you intend to exit soon, so you can look at the options and move quickly.
- Is your financial information up to date? Up to date information will allow you to move faster.
It is essential that you have professional advice before any changes are made. Our team can help you see if you can refinance your commercial mortgage, establish the fixed rate options with your existing or new lenders, establish how long it will take and calculate the exit costs. We could also help you lock in to those new fixed or variable rates now in case rates increase further.
Our personalised service allows us to understand individual circumstances and in working with our panel of banks and lenders, we can provide tailored, stress-tested solutions. Despite market instability, we remain steadfast and will continue to focus on the role we play in providing lifeblood finance to the farming and rural community.