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London landlord Great Portland Estates today became the first major property company to pay its way out of an expensive bet on interest rates.
The firm, which owns shops and offices in the West End, City and Southwark, paid a hefty £18.2 million break fee to end an interest rate hedge on £190 million of debt.
The deal, engineered by finance director Timon Drakesmith, will save Great Portland £8.5 million a year in interest payments and is expected to be followed by a flood of similar deals from other indebted property companies.
Self-storage group Big Yellow recently paid £15.2 million to end one of its costly hedges.
It follows the dramatic fall in the cost of borrowing - the Bank of England has cut interest rates from 5% in October to 0.5% today - which has left firms tied in to expensive deals.
Great Portland was paying an average of 5.2% on its total debt burden of £371 million, or £19.3 million a year.
After today's deal on its £190 million hedge, it will now pay 2.9%, or £10.8 million, saving it £8.5 million.
It is rare for banks to lend over £10 million without requiring some sort of hedge which locks part of the loan in to a fixed interest rate.
