More lenders are likely to follow the lead of ICS Mortgages in the coming weeks in raising fixed rate products, according to one treasury specialist who works with businesses on their financial planning and lending needs.
John Finn, Managing Director Treasury Holdings and Founder of the Treasury Hub, said the move upwards was entirely predictable after the European Central Bank indicated last week that it would bring its money printing programmes to a conclusion later in the year.
Although the ECB has not started raising interest rates at the base level, longer term funding rates have been increasing for some months.
“Fixed rates – or longer term rates – increase before short term rates. If you’re borrowing for three years, you’re looking out three years rather than, say, three months, so the fixed rates have increased by about 0.7% since just before Christmas even though there’s been no movement on short term rates,” he explained.
“It’s an indicator of what’s likely to come down the tracks,” he said.
“All the others will follow suit. I expect on fixed rates, they’ll all have risen in the next two weeks. All the lenders – that’s the start of it.”
Mr Finn said variable rates would likely rise over the coming months with trackers being spared until the ECB raises the base rate, which he reckons will happen in the form of at least one rate hike before the end of the year.
ECB rate rises would likely start with an increase in the deposit rate – which is currently negative – but that would be met with a commensurate move in the cost of borrowing, he said.
That may at least herald some good news for depositors.
“One would hope that if they’re raising the cost of borrowing that there may at least reflect that in the deposit rate and move from charging people for deposits to initially at least getting them back to zero,” Mr Finn said.
Businesses that had not fixed their borrowings had likely missed the bottom of the cycle but, he said, businesses that needed to borrow should do so now given that economic growth could weaken against the inflationary backdrop.
“Even though the economy is not exposed to high levels of debt compared to 2008 – borrowing is about a quarter of what it was – nevertheless, banks tend to tighten up,” Mr Finn said.
“If they’re tightening up in the US and Europe, they’ll tighten up here. You’d want to get in if you’re thinking of establishing loan facilities with the banks,” he concluded.