Invest & Fund: Higher base rate alone will not boost lending pricing
Invest & Fund has debunked the “misconception” that all borrowing becomes more expensive as the base rate increases and reaffirmed its “robust and confident funding approach” in the current climate.
The peer-to-peer development lending platform said there was a “popular doomsday narrative” last year that the retail mortgage market would collapse if the base rate rose higher than three per cent.
Instead, lending pricing is formulated from several factors, Invest & Fund said, rather than the base rate alone. The five-year sterling overnight index average, or Sonia, and “straightforward competitor and market competition” also play a part in formulating pricing.
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“The sentiment behind the Sonia is based on a projection of where rates will go and the confidence the market has in the Bank resolving the crisis, so if that’s leaning towards parity, there is a problem; if that’s below base rate, or ideally tracking down, it means there is a confidence in the market that rates will come down based on the action the Bank is taking today,” the firm said in a blog post on its website.
“Furthermore, the Sonia is overnight, so unlike Libor, which tracks over a set period, it gives you a snapshot of what’s happening today.
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“So, we are optimistic that any decisive action taken by the Bank will reflect well in these rates; it’s the reason why, in the retail mortgage markets, the cost of borrowing dipped as the base rate was increasing because pricing comes from the confidence in the action, not from a reaction to fundamentals and news.”
Invest & Fund said that providing affordable capital driven by all these factors is paramount and it will continue to work closely with its partners to maintain “a robust and confident funding approach”.
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The P2P platform also equated the Bank of England’s ratesetters – the monetary policy committee (MPC) – with contestants on the ITV show Britain’s Got Talent.
“To achieve the coveted golden buzzer of approval from a government demanding decisive action, they need to undertake a tricky balancing act to protect the pound’s purchasing power and, on the other hand, not unravel a decade of business and capital market growth,” Invest & Fund said.