“I don’t want to wait for interest rates to come down”
“For sale” and “sold” signs on the residential side of the property market have markedly increased in the past few weeks and we continue to hear encouraging news in the commercial property and finance space. The IFAs and partners we support are relaying that many of their clients and businesses have taken time to adapt to market conditions and current interest rates and therefore feel there is no point in waiting or pausing on transactions and sales. No one is saying this is a perfect market and I think many of us in the commercial finance broker space have given up predicting rates, but what we have seen is people want to get moving.
Impact of the election on interest rates
Whatever your personal views, the announcement of the general election has been cautiously received by the market. Whilst it puts an end to speculation, traditionally elections can make the market somewhat more jittery. History has shown us that following budget and ballot boxes can often be slumps given the uncertainty. UK equities certainly felt this following the Brexit referendum and the mini-budget in September 2022 following which the cost of borrowing soared in the UK with further volatility. This isn’t all negative however, as research generally suggests that elections can have a positive impact on the market. On average the FTSE tends to record double-digit percentage gains in the year following an election, this increases further when a government changes completely which could be welcome news for investors.
The Bank of England held the rate of interest at their last meeting on the 20th of June, but following further positive data including 0.6% growth year to date and the UK coming through recession, suggests there is a more balanced view within the pricing committee on when rates may be reduced, some predicting August.
If we look back historically in the last two decades, we have had interest rates as high as 6% so the current rate of 5.25% is not an outlier. Those of us in the Omega team with long enough memories recall double digit interest rates in the previous decades, however if we just focus on averages across the last two decades, it might be expected for rates to return to c4%. This is echoed in recent market information, many economists and mortgage heads suggesting a range of 3.50% – 4.50% for mortgage rates looking forward.
“I don’t want to wait for interest rates to come down”
Market sentiment and interviews with experts paid more than I am, suggest we are now seeing what is a more realistic interest rate outlook and whilst it may come down from it’s current 5.25%, expectations this will nosedive are wide of the mark. We all got used to lower rates and factored these into our cashflows, but the clients we are working with now have reset and rebalanced and decided that hesitancy is over; they want to get moving with property purchases and business plans. Lenders are also helping with some now offering 0% lender arrangement fees.
On speaking with our introducing partners and clients, it isn’t simply hesitancy over interest rates that has caused delays. Many property projects have overrun for a variety of reasons, including soaring costs, and when you factor in longer time periods or lead times, this has also negatively impacted many. We recently published short-term finance solutions and commercial bridging finance products that we can offer help to minimise disruption to projects and plans.
If your clients are waiting for falling interest rates, the long-term cost implications of such delays can often be far greater. Our recent conversations have moved from one of hinging hopes on immediate nose dive of interest rates, to people just want to get moving.
