Commercial lending rates “in a downward spiral

BFQ Commercial Finance has reported a downward trend in rates for commercial, business and property funding.

The specialist broker says lower rates are being fuelled as the number of commercial lenders in the UK marketplace continues to proliferate and more lenders enter the market. This trend is driven by continued demand for finance and demand from investors looking for higher returns on their capital.

As well as the new entrants vying for business, BFQ Commercial is also seeing the High Street Banks competing for market share within the ‘trading business’ market. For example, there is one major bank who will offer funding with no set-up fees, a three year fixed rate of 4.89% and no early repayment fees.

In the meantime, a newcomer has reduced its commercial rates across the board, starting from 2.5% per annum, and a set-up fee of only 0.75%.

In the investment property sector similar trends are being observed. In addition, as the three month LIBOR rates have increased in the open market to around 0.7%, the disparity between challenger bank and mainstream bank rates has reduced – in favour of the challenger banks. This is because several of the challenger banks maintained an artificial LIBOR ‘floor’ of 0.75%, which for a long period created a disparity of about 0.5% when compared with other lenders who had no floor and/or used base rate as their reference rate. As a result, some of the challenger banks are looking more competitive, more especially for professional buy-to-let investors, BFQ Commercial Finance said.

Short term property finance is also exhibiting a marked downward trend in rates. For example, BFQ Commercial has received recent quotes of 0.75% per month for short term speculative commercial property funding, and no exit fees. This is a notable reduction from only two or three years ago when a similar deal would have been priced at 1.25% per month. In the meantime, short term residential finance is available from around 0.4% per month.

However, BFQ also point out that the Bank of England have stated they may well be putting up bank rate over the next few years and this could impact the sustainability of the downwards spiral in rates in the medium term.

BFQ Commercial Finance’s Mark Flower said: “The current market is very good for businesses, developers and property professionals to raise funds at very competitive prices. We’re seeing lower rates across virtually all sectors of finance, even unsecured business loans. However, it’s vital that those seeking funding for a project make use of an experienced broker that can source funds from the whole market to ensure the right finance is obtained in respect of the funding need and at the best price for that requirement.

“There is a sense that the cost of finance will rise if the Bank of England increase rates, but that could depend on how the various lenders are funded and there will still be low rates available from specialist and niche lenders that brokers such as BFQ have access to.”