by Lauren Harvey, Assistant Accounts Manager at The Accountancy Partnership

As the Bank of England is predicted to continue hiking interest rates in November, business owners with variable-rate mortgages, or those coming to the end of their fixed-rate mortgage, will soon be facing more expensive loans, which could be critical to the overall health of the business.

With long-term loans set to become less affordable, Lauren Harvey, Assistant Accounts Manager at The Accountancy Partnership explains what business owners with mortgages should be considering.

“Recent economic volatility has seen the pound suffer, and this financial uncertainty could well lead to the Bank of England once again raising interest rates in November.

“In the residential housing market, this has seen record numbers of mortgage products withdrawn due to fears of rising rates, but it is not just homeowners who will be impacted by this. Businesses that are looking to get a commercial mortgage, are on a variable rate mortgage, or coming to the end of a fixed-term mortgage will likely have to bear the financial burden of loan repayment becoming more expensive too.

“It is now crucial to consider whether the business really needs to own premises, if the benefit is worth the cost, and if it is adding value. If the answer to any of those questions is no, business owners may need to re-evaluate their plans, or look at options to help get more value out of the property.

“For some businesses, especially smaller ones with office space, it may be that a co-working development could be a better option. The benefits of this are two-fold as the business would no longer be solely responsible for its energy bills which are also being squeezed.

“Organisations that do need their own premises, for example, those with workshops or warehouses, should consider how they can maximise value from the space. For example, could workshops be leased out to other business owners or hobby artists on evenings and weekends, or is there enough warehouse space to loan out? Could space be made within an office to rent out a hot desk or two? Rent is likely to increase with inflation, so keeping existing premises could be a smart long-term business strategy if it is being used to its full potential.

“As we face recession, business owners should be assessing cash flow and potential restructuring options to make savings across all areas. In the case of mortgages, limited companies can claim tax relief on interest so those operating on other structures may want to see if it would be appropriate to revisit their plans here. Careful cashflow planning will help to keep finances clear and to spot any major issues sooner rather than later.

“Although the small business community needs to be aware of a potential interest rise and its impact on commercial mortgages, it is important not to panic. Mortgage lenders change rates and pull deals fairly regularly so extensive research is required in any circumstances. If you have a mortgage offer, this is still valid and should be honoured, and if you’ve already applied, it should be honoured at the rate it was upon application.

“The current economic standing in the UK is no doubt daunting for small business owners and it is often worth consulting a professional for the most up-to-date advice on how to make the best financial decisions for your business. If you have further questions about commercial premises, mortgages and inflation, visit www.theaccountancy.co.uk.”