When is a Fixed Rate Loan not a Fixed Rate Loan?

More than 60,000 small businesses in the UK have fallen victim to banks selling fixed rate business loans with a secretly embedded swap.

In spite of banks being aware of forecasts of a big fall in long term interest rates they aggressively sold these fixed rate loans on the basis that interest rates would sky rocket.

These structured products consisted of a variable rate loan with an embedded fixed rate swap which the bank would sell to a trader on the derivatives market. The trader would receive the higher fixed rate from the customer and would provide the bank with the floating rate. The bank would receive a significant commission from the trader and would be protected from the risk of rises in interest rates.

Apart from the fact that customers were exposed to interest rates far in excess of variable interest rates the real problems occur when attempting to pay the loan off early as significant break clauses apply due to the banks also passing on the cost of them breaking the swap with the trader. As such break clauses with as much as 50% of the loan could apply.

Such break clauses have significant effect on the customers ability to manage their own financial affairs and dispose of their own property and has lead to firms going bankrupt as a result.

Browell Smith & co Solicitors has had a number of successes in this area whereby the break clauses have been waived and customers have been compensated for the difference in the fixed rate and variable rate which would have been received.

Should your business have been effected by any of the above and you wish to discuss this further please contact us on Freephone 0800 107 3000 (24/7).

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