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commercial mortgages, refinancing

How rising rates could mean it's a good time to refinance 

Capitalise Apr 12, 2023

In March 2023 the Bank of England raised interest rates for the 11th time in 18 months up to 4.25%. The continuous rise of interest rates are an attempt to tame inflation, however UK consumers will be impacted by higher prices in relation to wages. 

The investment side of the commercial property market is being significantly affected. Higher borrowing costs are weighing on investor demand due to the skyrocketing mortgage repayments, which is in turn dragging down the value of commercial properties. But it’s not just investors who will feel the squeeze; business owners operating from brick-and-mortar premises are also likely to feel effects of higher inflation.

Here are the things you need to know about high interest rates, how it can affect your business and what you can do about it.


Changes to working styles 

The pandemic caused many workers to change their lifestyle and move from the office to work from home. Now, in a post-pandemic world, hybrid working is here to stay, with at least 40% of working adults working from home at least one day a week. 

Working from home seems to be most popular on Mondays and Fridays, but this doesn’t change the space requirements for companies. Most businesses are left still having to pay for office space that is empty 1-2 days a week.

A lack of demand for office spaces has caused the value of commercial properties to rapidly decline, falling by 13% in 2022. And with property owners being squeezed for mortgage repayments as interest rates have soared, there are fewer investors jumping to borrow and invest in commercial property. 

Exacerbated by the turmoil in the banking sector, weaker economic growth and higher borrowing costs, the conditions for a downward demand cycle have been created for the commercial real estate sector. 

What this means for your business

If you run a physical shop or restaurant, you will already have noticed the fluctuating customer numbers affecting your cashflow. As fewer people go into the office, there is far less foot traffic in the city on weekdays. Meaning less people to go shopping, buy coffee or eat out. 

The problem in the commercial real estate market could also be affecting your business’ monthly outgoings. If you own the property your business trades out of, you’ll notice the rising interest rates have caused your mortgage repayments to increase at an unsustainable pace. 

Or if you’re renting your shop premises, your landlord will likely be passing their higher mortgage repayments on in the form of your monthly rent increasing. 

With friction being added to your cashflow on all sides from fewer customers, rising stock prices and larger bills, your business will need to act to protect itself. 

If you have existing debt on a variable rate, or a fixed rate that is about to expire, the good news is that with falling inflation expectations, some really interesting products are on the market for commercial mortgages.


Refinance business debt

The Bank of England’s Chief Economist has hinted that interest rates may rise again in May. With the possibility of rates still increasing and uncertainty in the wider economy, planning ahead can help put your business in a more secure position. 

If your business uses any forms of borrowing on variable rates, such as a business overdraft of credit cards, looking to refinance your existing debt onto a fixed rate loan can ensure you’re not caught short by increased interest rate rises. Or worse still, banks pulling or reducing your overdraft as a result of the banking issues.

If you think you’ll need funding in the future, it's worth planning to apply earlier rather than later, instead of waiting until it’s too late and lenders are swamped with applications, or rates are too high to be affordable. 

Business loans

To refinance existing business loans, you’ll need to gather information on how much your remaining balance is for each loan and what the current interest rates you are paying are. This will help a specialist to see which lenders would be able to compete with your existing rates, how much you would be looking to refinance and what options might be most suitable for you. 

By refinancing multiple business loans into one facility, your business will have repayments consolidated into one monthly repayment, making it much easier to manage your cashflow. 

To see what refinancing options your business could be eligible for, check your funding eligibility here. 

Commercial mortgages

If your business has debt secured against your commercial property, you could consider refinancing your mortgage. This would allow you to free up cashflow for your business, to ease pressures or allow you to invest funds in areas that could help your business grow.

If your fixed rate mortgage is ending soon, it would be wise to explore the market for alternatives, the standard variable rate (SVR) that a lender moves you onto from a fixed rate, is rarely market leading. 


Getting prepared

When you’re ready to refinance, you’ll need to get the following documents prepared: 

Remortgaging a commercial property: 

  • Your business’ financial information, including your revenue and profits for the last year

  • Recent business bank statements
  • Details on the property, such as property type and address
  • Amount of income your business generates from the property 
  • Current monthly repayments on the mortgage

Refinancing a business loan: 

  • Your business’ financial information, including your revenue and profits for the last year
  • Recent business bank statements
  • Details on the existing loan(s) you want to refinance, such as balance remaining and current monthly repayments.

Although you won’t be able to control what happens in the wider economy, if you’re a business owner, taking some time to review your financial position and existing loans could make all the difference. If there is an opportunity for you to refinance, you could give your business a financial safety net and lessen the impact of rising and unstable interest rates. 

You can check your options for free from your Capitalise for Business account, or connect with our team of funding specialists if you have any questions.

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