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Steve Cox: buying or renting premises; commercial mortgages and HMRC changes
Q: My business, which I run from home, now needs its own premises. What should I consider when deciding whether to buy or rent?
Q: My business, which I run from home, now needs its own premises. What should I consider when deciding whether to buy or rent?A: There are a number of factors to take into account, including the financial implications, what may be best for the actual business and also whether you want to be responsible for another property.
From a cash perspective, you need to calculate the difference between the servicing cost of the mortgage and the probable rent payable on a similar property. You must also bear in mind that if you decide to buy, it is likely that a lender will require a deposit of 25/30 per cent of the purchase price. Is this cash available and what impact would a cash outflow to fund the deposit have on the working capital position?
If, as you imply, you are moving to cope with an increased level of sales, will this increase the working capital requirement?
By purchasing premises you are also investing in the property market. The commercial property market has been through a difficult period and whilst recent signs suggest the corner has been turned and some commentators suggest now is a good time to buy, others remain cautious.
Renting provides an element of flexibility, particularly if you are able to negotiate "break clauses" within the lease, as you are then free to relocate if necessary, thereby ensuring that your premises always meet the ongoing needs of the business.
However, as a tenant, you would, of course, be subject to the terms of a lease which you should ensure you are comfortable with prior to signing.
Q: My commercial mortgage is linked to Bank Base Rate, which has been extremely beneficial over the last 12 months. I cannot believe, however, that rates will remain at this level for the foreseeable future. Should I fix?
A: Many economic commentators believe that the next movement in variable rates will be upwards. What is, of course, not known is when this change will take place or by how much.
A basic rule of thumb is that when fixed rates are higher than variable rates, the financial markets believe that interest rates are going to move upwards in the short term.
Today's variable rates are below fixed rates and if you did opt for a fixed rate it is likely that this would result in higher mortgage servicing costs. By remaining on a variable rate linked mortgage, whilst repayments might be lower there is no certainty in respect of future servicing costs as Bank Base Rate is almost certain to rise.
As fixed rates offer certainty of servicing costs they are particularly useful for those borrowers with a fixed income stream, eg rental income. However, early repayment charges can be significant should circumstances change, eg the property has to be sold.
In summary, no one knows when rates will move or by how much. Any decision should therefore be based on individual circumstances.
HMRC has changed its bank account details.
In 2009, HMRC changed its banking arrangements and consequently all bank sort codes and account number details have changed.
HMRC has continued to accept payments made using the old bank details but during 2010 the old accounts will be closed and payments to these accounts may be returned.
This could lead to your payment being received late by HMRC and as a result you may be subject to a penalty or interest charges.
Bank account details for HMRC can be found at www.hmrc.gov.uk.
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