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Aspiring Lawyers - Interviews & Vacation Schemes
Commercial Awareness Discussion
Open Discussion: Interest Rates, Mortgages, Savings Rates, and the Banking Industry
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<blockquote data-quote="simran228" data-source="post: 145038" data-attributes="member: 29608"><p>High interest rates mean that consumers and businesses are less likely to borrow funds since the cost of borrowing is very high. This means that there will be a decrease in debt financing leading to less investments. According to YouGov data, 40 per cent of SMEs (small and medium-sized enterprises) had to stop or pause an area of their business due to a lack of funding over the last couple of years and 39 per cent of SMEs surveyed said they were unable to access funding because it was too expensive. Although banks may lend less, the higher interest rates will ultimately benefit the bank who will receive higher interest rates. However, lack of borrowing and investment will lead to less expansion and deals and commercial law firms will see a decrease in revenue. Global mergers and acquisitions (M&A) activity fell 36% year-on-year in the second quarter. This decrease in sales will lead to a decrease in profit, harming the law firm.</p><p></p><p>There is also an increase in defaults because consumers and businesses are unable to pay higher interest rates. This can lead to bankruptcies for individuals and insolvencies for businesses. Insolvencies have increased in recent months, reaching over 2,500 in May this year which is 40 per cent higher than May last year. A clear example of higher interest rates harming businesses is seen with Thames Water. Thames Water and its holding companies have total gross borrowings of £15.9bn and Thames Water's current debt amounts to 80% of the value of the business. Interest payments on more than half of Thames' debt rise with inflation which has pushed the company to the brink. This is harming banks who may have to result repossessing and selling securities. This presents further difficulty, especially in residential mortgages with homeowners selling at discount prices. Figures by estate agent Zoopla show that 42 per cent of sellers are accepting discounts over five per cent on the asking price to secure a sale which is the biggest discount recorded by the estate agent since 2018. This increase in defaults and insolvencies may bring in revenue for a law firm's insolvency and restructuring department. This work will include working with administrators, creditors and possibly selling parts of the business. There may also be an increase in revenue for the employment department if there will be a large number of lay-offs. Businesses may struggle to pay employee wages and law firms may have to negotiate severance contracts for these employees. In this way, a law firm's insolvency and restructuring department as well as its employment department may see an increase in revenue, leading to an increase in profits for law firms.</p></blockquote><p></p>
[QUOTE="simran228, post: 145038, member: 29608"] High interest rates mean that consumers and businesses are less likely to borrow funds since the cost of borrowing is very high. This means that there will be a decrease in debt financing leading to less investments. According to YouGov data, 40 per cent of SMEs (small and medium-sized enterprises) had to stop or pause an area of their business due to a lack of funding over the last couple of years and 39 per cent of SMEs surveyed said they were unable to access funding because it was too expensive. Although banks may lend less, the higher interest rates will ultimately benefit the bank who will receive higher interest rates. However, lack of borrowing and investment will lead to less expansion and deals and commercial law firms will see a decrease in revenue. Global mergers and acquisitions (M&A) activity fell 36% year-on-year in the second quarter. This decrease in sales will lead to a decrease in profit, harming the law firm. There is also an increase in defaults because consumers and businesses are unable to pay higher interest rates. This can lead to bankruptcies for individuals and insolvencies for businesses. Insolvencies have increased in recent months, reaching over 2,500 in May this year which is 40 per cent higher than May last year. A clear example of higher interest rates harming businesses is seen with Thames Water. Thames Water and its holding companies have total gross borrowings of £15.9bn and Thames Water's current debt amounts to 80% of the value of the business. Interest payments on more than half of Thames' debt rise with inflation which has pushed the company to the brink. This is harming banks who may have to result repossessing and selling securities. This presents further difficulty, especially in residential mortgages with homeowners selling at discount prices. Figures by estate agent Zoopla show that 42 per cent of sellers are accepting discounts over five per cent on the asking price to secure a sale which is the biggest discount recorded by the estate agent since 2018. This increase in defaults and insolvencies may bring in revenue for a law firm's insolvency and restructuring department. This work will include working with administrators, creditors and possibly selling parts of the business. There may also be an increase in revenue for the employment department if there will be a large number of lay-offs. Businesses may struggle to pay employee wages and law firms may have to negotiate severance contracts for these employees. In this way, a law firm's insolvency and restructuring department as well as its employment department may see an increase in revenue, leading to an increase in profits for law firms. [/QUOTE]
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Commercial Awareness Discussion
Open Discussion: Interest Rates, Mortgages, Savings Rates, and the Banking Industry
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