Latest news from Key’s Market Place Monthly

Desperate times and desperate measures!   That is certainly the way the monetary authorities are feeling as the world stares into the abyss of the first global depression since the Second World War.  With Bank of England base rate at 0.5%  (the lowest level ever ), and the recent announcement  that £75 Billion of new money would be created via  so called “quantitative easing”, there is no doubt that desperate measures are being taken to try to wrench the UK from its present  viscous downward economic spiral. 

The stability and the role of the Banks is an essential part of any turnaround going forward.  Whilst there is a mind numbingly colossal amount of banking risk (ie. toxic loans and assets) currently being transferred to the government and the taxpayer, the public has at least for the present regained some confidence in the stability of the system.  However, quite what the implications are for the stability of the finances of UK plc in the medium and longer term at best seem unpalatable, and we think it is not improbable to countenance further collapses in the value of sterling and / or IMF involvement with the UK in the next few years.

Are we near the bottom yet? Commercial property values have plummeted over the last 18 months, and yields for even good covenants appear to have leapt from around 7% in early 2008 to 11% and more now. Interestingly, some of our commercial property investor clients think values have stabilised in the last few weeks.  Even so, with yields of 11% plus and such low interest rates there are some bargains  just now if you can borrow the money ( or better still already have it yourself ! ).  

The outlook for interest rates is, as usual, a conundrum.  Whilst base rate sits at 0.5%, three month LIBOR is at 1.95% and the fixed rate cost of funds for 5 years is about 3%. Should you fix your borrowing rates?  We would definitely advise looking at the options at the present time.  Variable rates can hardly go lower.  In addition, there is a significant possibility that inflation may take off again as a result of the governments injection of money into the economy, exacerbated further perhaps if sterling sees fresh falls and import prices rise. Depreciation of sterling is not out of the question given the strategy to create new money.  With inflation would be increases in interest rates.  So if you borrow any significant amounts at variable rates, look at the protection options now before the markets have any inkling that rates are going up, or you will have missed the boat.

So how are the Banks behaving when approached to lend money?  There is a wide disparity in responses to new lending applications.  Some Banks have stopped all new lending, especially the smaller secondary lenders.  Many others have stopped lending to certain sectors eg. commercial property investment loans.

There is the recently introduced and much vaunted Government scheme, the “Enterprise Finance Guarantee”, by which lending Banks obtain a 75% government guarantee to support qualifying loans made to businesses.  This operates in many respects in a similar way and with similar restrictions to the now defunct “Small Firms Loan Guarantee Scheme Loan”.  We have seen some success with loans granted under the new scheme. The main aspect to stress as essential to the lenders is that the applicants business is demonstrably viable and can comfortably service the loan repayments.  It is clearly important therefore to present your case to a lender in the most attractive and professional way to maximise chances of an approval.

The good news is that we still have access to new lending for our clients at some surprisingly good rates.  Recent deals agreed have included £200,000 for a commercial unit at 2.25% over Bank of England Base rate, £150,000 for refinance of a wet trade only pub at 2.5% over base rate and £1,600,000 at 2% over LIBOR for acquisition of commercial investment property. We have also recently arranged a number of asset finance and specialised lending packages for corporate clients for a variety of purposes.

So whether you want to take advantage of low rates and acquire one of the many commercial property bargains out there, or need support with cash flow or your Banking arrangements, please contact one of the most experienced independents in the industry.  We will be delighted to hear from you.