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An update: how the market reacts

Business News

Last week the Chancellor released a mini budget that surprised the markets with a string of tax cutting measures. The plans set out to abolish the 45% rate of tax, reverse the hike in National Insurance contributions, and increase the stamp duty threshold to £250,000.

In an already fragile economy where inflation is running at a 40-year high, the tax-cutting measures coupled with massive government borrowing, sparked turmoil in the markets. We saw a drop in the value of the pound, a surge in borrowing costs and the International Monetary Fund warn the proposals would add fuel to the cost-of-living crisis.

So, what does all of this mean for the commercial lending market? We spoke to Pilot Fish advisors to find out what they are experiencing.

What are we seeing in the market?  

Richard Jones, Pilot Fish CEO shared, “in May 22 we saw base rates rise for the first time in years to 1.0%. At the time, rates were predicted to rise to 2.5%. This forecast remained stable until September when it jumped to 4.5%, followed by another leap to an anticipated 6% peak. No one can forecast rates with absolute certainty, as recent activity demonstrates. What we can be certain of is that volatility will be with us for some time yet”.

The economy has experienced rapid and unpredictable change following a new government, war in Ukraine, the pandemic and Brexit. As Richard explains, “for the last 20 years, borrowers could receive an offer of terms and expect the rates issued to remain the same after the lender due diligence and legal process. Market volatility means lenders are revising rates daily, retracting terms and even increasing rates as a case progresses. This leaves borrowers facing great uncertainty until the loan is finally completed.”

This is particularly evident in the mortgage market. Director of Commercial, John Shevlane explains, “the investment markets have been hugely impacted by recent events. Many mortgage providers pulled their fixed rate products temporarily this week to allow the markets time to settle down.”

How can clients navigate the current market?

John Shevlane advises, “clients with terms locked in should endeavour to satisfy all pre-offer conditions so that their loans can complete swiftly. We are working very closely with clients to ensure this happens.”

For clients who haven’t secured terms, or who do not have an immediate need to refinance, John recommends a serviceability review. “I would suggest clients speak with their broker to prepare a contingency plan to mitigate future risk. It is time to plan rather than panic.”

Richard Jones suggests businesses start to take practical steps to ‘recession proof their business’ and protect cashflow by preparing for higher costs in the coming months. Put together a cashflow forecast so you can identify any potential shortfall and act early. 

However, Richard confirms the message Pilot Fish shared in May still stands, “lenders will continue to be cautious about the economic outlook and the robustness of a business as a recession is widely forecast. But lenders are still there to lend”.

Do you expect to see further changes over the next 12 months?

The rate differential between high streets and specialist lenders is expected to continue to narrow.  We have already seen instances where the high streets have not been the lowest rate offered. This is a huge shift from the recent past.

We highly recommend seeking advice from an experienced broker before committing to finance over the next 12 months. Your broker will provide a whole of market assessment. You can then rest assured that you are choosing the very best option for your personal circumstances.

John Shevlane anticipates the investment markets may reach a level of steadiness. “Once the government outlines its detailed fiscal plan in November, we hope the markets will regain confidence.”

Richard Jones shares a similar sentiment, “we would hope that this period of adjustment is short lived and that a steady and more predictable landscape returns in the short to mid-term”.

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