It’s an interesting yet awfully uncertain environment we are living in with the current Base Rate at 5.00% and clear market signals that further rate rises are just around the corner.
How high can rates go? According to some, rates could go as high as 7%. The five-year swap rate (i.e the fixing rate that all banks use) has more than doubled from where it was this time last year. The reality is that rates can end up higher than 7% or lower than they are now. No one expected the current level of rates from the all-time lows not so long ago and no one knows where rates are heading.
Whilst for many this may be nothing more than dinner-party or ‘school-gate’ discussion; for those businesses (especially property firms) who rely upon bank borrowing; this makes a huge impact upon the cash-flow serviceability of the loans as well as covenants.
We are seeing some clients with existing hedges restructuring in order to be hedged for longer and/or for a larger amount. Caps are becoming increasingly popular with clients entering into them with their lenders as well as via our independent cap providers. Cap volatility has come down from all-time highs leading to cheaper (relatively speaking) premiums.
Whether you have existing hedges or not, please feel free to reach out to explore the various hedging options available. Don’t bury your head in the sand – there are always options to consider depending upon your specific borrowing circumstances.
We work with a panel of independent cap providers who are able to offer both Base Rate and SONIA caps. Please click here to view our article on independent interest rate caps. We are also able to source independent interest rate swaps and more information can be found on this by clicking here.
To give you a feel for current pricing, a five-year SONIA cap for £5M protecting 5.50% will cost approximately £120K.
Please get in touch with any questions you may have and a member of our team will be able to assist you.
You can reach us on 0207 183 2277 or at firstname.lastname@example.org.