Interest rates and their effect on Property Development Funding
England’s Bank Rate increased by a whopping 0.75% last week fuelling market interest rates rises! Many borrowers are now questioning how this will affect their property development funding. The good news is, with us, it doesn’t!
Onyx is a self-funded lender which means we are not bound by market base rates and therefore inflation and increases in interest rates do not affect us. As such we will continue to fix our interest rates, not charge exit fees and offer up to 100% of purchase and build costs.
Interest rates and the market
The Sterling Overnight Index Average (SONIA) is England’s overnight interest rate benchmark and is the most up-to-date means of measuring the market. Last year this rate sat at 0.05% - at the start of November this was at 2.19% and analysts predict it could increase as high as 4.7% next year
The market must also consider changes in the Bank Rate, also known as ‘the Bank of England Base Rate’. This has seen significant coverage in the news recently as the move by 0.75% in the past week is the biggest rise since the 1980’s. The Monetary Policy Committee (MPC) sets the Bank Rate which enables the Government to keep inflation in check. This rate also has a substantial influence on what banks charge people for borrowing and saving. The current rate is set at 3%, and is expected to grow again with the next announcement on 15th December 2022.
Bank Rate fluctuations over the last 10 years (Image source Bank of England)
In a nutshell, rises in the Bank Rate and SONIA, mean increased interest rates which in turn escalate borrowing costs.
Lenders who ‘borrow from the market’ such as high street banks and many other commercial lenders make up the majority of the market. When interest rates rise, the cost of borrowing rises and these costs are more often than not passed on to the end customer. This means many companies are hesitant to fix costs at this time or are removing their products entirely.
How self-funding lenders work
Self-funded lenders like Onyx follow a very similar process to high street banks in their approach to lending, terms and appetite for risk. However, the main difference is they loan from their own capital reserves and are therefore not affected by fluctuations in market rates such as SONIA and the Bank of England base rate. This enables them to choose their own terms and charges that they pass on to customers.
Dan Richards, CEO at Onyx says: “The rise in the base rate by 0.75% this week is of huge concern to the financial market with many offers being pulled during these uncertain times. While Onyx is unaffected by the changes, we are still keeping a very close eye on the current situation and here to offer support and guidance to clients who may need to consider alternative funding options.”
Market vs. Onyx
| Market lenders | Onyx |
|---|---|
| Customer cash contribution required | Loans up to 100% of purchase and build costs |
| Bound by market rates | Unaffected by market rates |
| Variable interest rates | Fixed interest rates |
| Charge construction valuation fees | Free in-house construction valuations |
| Exit fees | No exit fees |
Onyx Property Finance are experts in providing financial solutions for property developers. Speak to an expert today and get 100% of your purchase and build costs with fixed interest rates for the lifetime of your loan: info@onyxmoney.co.uk.
