Commercial and homebuyer loan costs rise

by Gill Montia

Story link: Commercial and homebuyer loan costs rise

The latest figures from the Bank of England show a marked increase in the cost of borrowing for both UK businesses and households.

Average interest rates for the most common form of commercial loan taken out by UK companies are two full percentage points ahead of rates for this time last year.

According to Citigroup, the international financial conglomerate, over three quarters of business borrowing in the UK takes the form of corporate loans fixed for up to a year, and the average cost of this kind of loan has increased by a full percentage point in the past two months.

Corporate borrowing on a five year fixed-rate is now on average two percentage points ahead of the autumn 2006 figure.

In its study, Citigroup also found signs of more difficult borrowing conditions for homebuyers, with interest rates rising sharply during August for borrowers wanting mortgages for a high proportion of a property’s value.

The differential between the average rate on a two-year fixed-rate loan for 95% of the value of a house and a similar loan for only 75% increased to 0.45 percentage points in August.

This compares with a differential of 0.29 percentage points in July.

According to Michael Saunders, a Citigroup analyst, the data shows the “early signs of the pass-through from the financial market crisis to the real economy”. He expects this to “exacerbate the slow-down in the economy, especially housing”.