LIBOR almost at Base Rate parity
I was looking back over previous market commentaries I had written and I came across this one from back in February when 3-month LIBOR was stubbornly refusing to reduce in line with Base Rate.
Today, 3-month LIBOR stands at 0.57%, almost at parity with Bank of England Base Rate at 0.5%. This has certainly eased the pain for those operators who were suffering from LIBOR’s refusal to fall quickly and they are now enjoying the same low interest rate environment as those on Base linked deals.
One of the curious things about the current commercial fund raising market is that the lenders who still offer a choice of Base or LIBOR linked funds are offering lower margins for funds linked to LIBOR than those linked to Base Rate. In some cases, the difference in the margin is as much as 1%. This is due to LIBOR being a faster rate, insofar as it will rise more quickly than Base Rate as and when rates start to rise again. There is speculation over the timing of rate rises but the consensus seems to be that this will not be for quite a while as per the comments in this article on Bloomberg.
Of course, there are still those clients that are stuck on minimum rate deals and within Interest Rate Management instruments. The break clauses for some of these clients can prove prohibitive and the desire to move where the client’s existing Bank may not be supportive of their future plans has to be offset against the cost of moving Banks. These costs can be kept to a minimum and many hedging products can be transferred over to a new lender.
We are seeing quite a few opportunities in the current marketplace where previously aggressive and helpful Banks are now actively seeking clients to refinance away from them to reduce balance sheet exposure. We are also seeing lots of activity where clients are expanding their existing homes or groups are looking to acquire closed homes.