Nicholas Baker is Head of Business Mortgages at Christie Finance, an independent commercial mortgage broker and part of the Christie Group plc. Here, he provides us with his thoughts on the commercial finance market and what he feels are the possible challenges and opportunities that lay ahead in 2015.
In his well reported ‘forward guidance’ policy, Bank of England Governor Mark Carney had asserted that the Bank would not consider raising interest rates until unemployment fell to 7% or below, which he said at the time might take in the region of three years and an additional 750,000+ jobs.
Since then, much to the Government’s delight, growth has picked up at speed and unemployment has fallen faster than the Bank expected. However, the growing recovery has brought with it the looming spectre of an earlier than anticipated rise in interest rates. Many observers, myself included, predicted a rate rise by late 2014 instead of now potentially early 2015.
One may have been forgiven for thinking that any interest rate rise would have business owners and potential buyers quaking with fear and halting plans to seek commercial finance to buy or expand their business. We certainly don’t see that at Christie Finance – 2014 was typified by market conditions continuing to improve during the year, and a noticeable increase in terms of clients seeking commercial funding and in lender appetite for new business across our specialist sectors for acquisitions, refinance and development.
In addition to an increasing number of enquiries from existing operators looking for help in reviewing their existing finances; interest from prospective purchasers including first time buyers is up. These borrowers are clearly not disturbed by a potential hike in rates and how this may affect the availability or indeed affordability of commercial finance.
The year ahead
The recent news of inflation falling from 1% in November 2014 to 0.5% this month is a strong indication that interest rates will remain low for some time and good news for individuals looking to invest in a commercial property. This drop in inflation has been helped by a good harvest and the slide of food and commodity prices most notably oil. The risk of a further drop is predicted in February and the Bank of England may keep interest rates low for sometime ahead.
This can only mean good things in the short term for people looking to invest in commercial property. As inflation keeps the cost of finance down together with individuals across our sectors benefiting from more disposable income due to a low inflationary environment.
Moreover, when rates do eventually rise and they will, history tells us that at first this can have a positive effect on UK property, as this tends to lead to a sustained rally in commercial property asset prices which can withstand against minor and gradual rate increases.
My view remains that the availability of commercial finance will continue to ease throughout 2015. At Christie Finance we believe that purchasers and operators of business, who receive the most appropriate and independent advice will continue to secure the commercial finance they require.