Fixing The Rate Of Your Commercial Mortgage – The Ship Hasn’t Sailed

 

A few days on from an interest rate hike I’d ask you whether the benefits of looking to fix the rate of your commercial mortgage still outweigh the down sides – and suggest that they do.

From twelve months ago, when the Bank of England was sounding out banks and financial services companies on how prepared they and their systems were for the chance of a negative base rate, we evolved to an economy as we transitioned out of the pandemic restrictions of heated demand and shortness of supply – also called inflationary pressure.

A near perfect storm of contributing factors are driving a seemingly endless upward pressure on costs:

•       Demand outstripping supply of almost every raw material
•       Delays in materials and manufactured goods in the supply chain globally
•       Record freight costs, and restricted availability of freight, to get the same goods and materials to the UK
•       Chronic shortage of HGV drivers within the UK to distribute at all stages of the supply chain
•       Combination of factors has driven energy costs up – and these are still rising
•       Several sectors of the economy suffering chronic staff shortages and an inability to recruit

As I write this we are heading back into another possible economic storm caused by the new rapidly spreading Covid variant, Omicrom. Already hospitality, retail, events and entertainment sectors have had the rug pulled from underneath them when entering their busiest period of the year – the path back out of the pandemic period is again not a straight one.

Cost pressures are feeding through to virtually every business in the economy – and these are not costs that UK companies have much if any control over at all. And that brings me back to my question – is it still a good time to fix the rate of your commercial mortgage?

If you feel that inflationary pressures are going to mean that the next move in rates will continue to be upwards, then fixing your mortgage at a currently available fixed rate would make sense.

And when we talk about price rises – energy prices up 4 to 6 times, and many materials up 20%, 30%, 50% or doubling – then the 5% CPI number for November would seem to be a very modest number that has to move higher in the coming months?

But psychologically, fixing your commercial mortgage rate is exerting control over a major cost to your business – not to mention the physical roof over your business!

If you are budgeting and forecasting for your business for the coming year in 2022, then unfortunately with some costs you might be as accurate with a coin toss as a calculator; but with a major cost like the mortgage fixed for a 2 year or 5 year term (or longer) you would be adding accuracy to your budgeting, and hedging against future interest rate rises that would immediately add to the call on cash flow to your business if you are on a variable rate mortgage.

Which takes us full circle to the question of whether the upside to fixing the interest rate on your commercial mortgage outweighs any downside.

Many of our clients are applying personal finance logic to their commercial mortgage decisions – and deciding that fixing the rate now removes the risk of increased costs if interest rates continue to rise, at a time when they already face so many increases in costs that they have no control over.

 

We help clients source the best commercial mortgage solution for their business from our whole of market panel of lenders – why not let us help you fix the cost of the roof over your company?

Mark Grant, December 2021.

mark@fiduciagroup.co.uk

Run A Business? Resolve To Give Yourself A Break This New Year.

 

Like everyone, I am hoping that the major supermarket chain’s advert “This Christmas, nothing’s stopping us” is spot on, and the Omicrom variant does not require further restrictions to come in to force that would limit our ability to spend this year with family and loved ones.

The decorations have been up for a couple of weeks at our house, and my thoughts have turned to New Year’s. 

And not where the evening is going to be spent and who with, but what I will be giving up on January 1st, and how many hours or days until I break this year’s resolutions.

And over the month of December, I don’t go through this ritual alone; no, I will join the office or WhatsApp banter about what I am giving up and how this will be the year that I stick it out – and as usual I will place the side bets that I will stick at it longer and more effectively than the colleague/friend concerned.

Ironic really, as most of the gambling is done as I am pledging to cut down on…erm, a flutter on the football; or the number of kilos I will shed is inflated and thrown out there as I wipe the crumbs from my mouth of the latest mince pie I am sampling. (Why believe the Which? survey when you can buy a box of mince pies from every supermarket and eat them yourself?)

I question, and have come to the conclusion, that New Year’s resolutions in this format are actually bad for us: I do myself so much mental self-harm during the aftermath of the latest ‘epic fail’ at sticking to them that I would have been better doing everything in moderation in the first place. I’m fairly sure that the excess in the run up and the resolution fail are fairly equally balanced in terms of damage to me!

What I need to do is give myself a break. One drink doesn’t mean I need to prop up the bar the whole of January. A couple of left-over chocolates don’t mean that I should carry on eating sweets for the whole month – because I will still be having a very healthy month by recent standards if I just get back on with my resolution.

Business owners and management must approach the end of 2021 with the same trepidation. No matter how well laid the plans have been this year, the utterly unique and unpredictable nature of the economic environment has made it virtually impossible for companies to have the right plans and preparations in place for whatever happens next.

Case in point: Demand. Who foresaw the simultaneous scale of global demand leading to chronic supply chain issues in the ‘just in time’ model – combined in the UK with the fallout from the Brexit trade deal having completed; suddenly whole sectors of the UK economy faced staff shortages and there was a lack of haulage drivers to deliver the goods and materials that we could source.

You only have to look at the last two weeks to confirm that the one certainty of 2021 is that you cannot be certain of what comes next, and of exactly how that will affect and impact you: 11 days ago additional mask wearing in shops and on transport was going to be followed by an update in 3 weeks – 4 days ago we were urged to work from home again…

But I do believe that if we break down our company resolutions into manageable pieces then we can identify a path through pretty much whatever gets thrown at us.

By this I mean don’t just have one strategy, one set of targets, one ‘Plan A’ if you like, and if something derails that two weeks into January just throw your arms up in acceptance that you have been knocked off your chosen course – and accept whatever happens to you as a result.

We have seen this year that the companies who have fared better are those that have been pro-active and have tried to get ahead of the game to find out what their options are, what is available to them and how to make the most of the situation that has been forced on them.

We are looking at 2022 as the year of the company that has the resolve to trade their way out of the appalling economic conditions that the pandemic has inflicted on us, but that has a flexible approach to how they achieve that. One slip, one bump in the road, one resolution in their strategy that is not kept through their own fault or events beyond their control, will not derail their end game and targets.

Business owners and directors have to give themselves a break when things change out of their control next year, because what might have been a ‘given’ in scenario analysis historically cannot be relied on to repeat itself in 2022.

There are too many unknowns, too many consequences of those unknowns – the only positive response will be to have the flexibility to adapt to the new reality and move forward again from there.

Flexible resolve will put you in a position to always quickly adapt to the ‘Plan B’ that at New Year’s you didn’t even realise that you needed yet – but business will need this flexibility and positivity to keep the direction of travel forwards. (And like the Government, it may be a good idea to have a Plan C and D up your sleeve too.)

So, I will practice what I preach, and one custard cream won’t mean I have to beat myself up like I haven’t eaten the whole biscuit tin. Just like your business shouldn’t halt due to a cancelled order, staff absence or supply chain delays – have the flexibility to see past that issue, adapt to whatever the new reality is and stick to those resolutions as closely as you can.

And give yourself a break.

 

Mark Grant, December 2021.

mark@fiduciagroup.co.uk