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What Will Happen to Interest Rates and Asset Finance Rates in 2023?

This of course is the million-dollar question and while there is no absolute certainty around what will actually happen, it seems safe to bet that interest rates will continue to rise this year.

Unfortunately, this means that we all need to adjust and budget for a world where finance costs more for both individuals and businesses alike. This is a bitter pill to swallow after what has been an extraordinarily long period of very low interest rates where both personal and business borrowers have enjoyed record low borrowing costs.

Last year saw an unprecedented lift in funding costs and these were largely in line with increases in the Official Cash Rate (OCR).  While the OCR doesn’t immediately affect asset finance rates as quickly as it does with shorter term funding, it is still an influencer and serves as a prediction for future asset finance interest rate moves, both up and down. There is also generally a lag period in asset finance rates from any OCR movement and this lag will be dependent on how each finance company derives its funding.

To illustrate how dramatic the changes in interest rates have been, to follow is a comparison between 2022 and 2021. In 2022 the OCR went from 0.75% at the beginning of the year to 4.25% in November (an annual increase of 3.5%). This compares to 2021 with an annual increase of 0.25%, where the OCR stayed at 0.25% from March 2020 through to October 2021 and then only lifted to 0.50%.

With the Reserve Bank continuing its efforts to reduce inflation there are some predictions that the OCR will peak in 2023 at 5.5% - if this is the case then this represents a lift of another 1.25% in interest rates that may need to be anticipated over the course of 2023.

If the predictions are correct then, while the pace of interest rate change is likely to be less than it was in 2022, it still represents an environment where the cost of borrowing is going to increase and that borrowers need to be aware of and to budget for. While this is not great news, finance is still a necessary tool to enable businesses to achieve their goals and acquire the assets that they need to make this happen.

Like all other funders, Speirs Finance has also seen its cost of funds increase and we have worked hard to manage the need to increase our asset finance rates to customers. While interest rates do contribute to increased repayment costs, it’s important to remember that there are also other contributing factors that influence the level of your repayments. How your Business Asset Finance is structured can be a much bigger influence on repayments – stay tuned for a future article on this.

Our team experienced Business Asset Financiers can help you lock in your future funding requirements and, where possible, minimise the impact of increased interest costs by working with you to structure loans appropriately. Please contact us for any planned business asset funding opportunities so we can assist you to make 2023 as happy and prosperous as possible.