Good News about Commercial Mortgages – well sort of.

Anyone who has a Commercial Mortgage will (or should) be familiar with LIBOR.  So they should also be quite pleased that LIBOR has reached a record low.

LIBOR is the rate which determines the cost of most commercial mortgages and many other forms of borrowing.  The rate coming down may bring good news in that interest rates on mortgages and other loans may follow suit.

Having said that, a recent Moneyfacts article reported that:

On an unsecured loan the rate is set at outset and repayments are fixed. Most secured loan repayments move with base rate or LIBOR, but despite being in a low interest rate environment the average rate has increased from 9.9% to 12.4% in the last two years

Just before things started to go badly wrong some of the independent Commercial Mortgage lenders were starting to offer variable rate mortgages.  Good example would be Commercial First – although they have shut-up shop for new business they had a significant market share of small commercial loans.  Many of the later loans were sold on variable rates.

Anything that reduces outgoings for businesses right now is going to be good news, but anything that gives banks good reason to start selling commercial mortgages again is going to be even better news.

Sadly, the majority of Second Charge loans (homeowner loans) were sold on fixed rates – at the peak of the property boom Second Charge loans were being sold at an incredible rate, and by a market that faced no significant regulation.

Second Charge loans on homes are very often linked to LIBOR ( which often comes as a shock to homeowners) and are notoriously slow to change with the main rate – if at all.

Are you on a LIBOR loan? – have you seen a change in rates?

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