This is where before the credit crunch; trackers were one of the most popular choices for contractor mortgage. However, in spite of the fact that base rate would go up or down on nearly a monthly basis, contractors were happy to accept the possibility of an increase in their payments because trackers were offered at a lower interest rate compared to fixed rates offering the opportunity to save money even if rates stayed the same.
However, during the financial crisis lenders narrowed this margin, resulting in little upside contractors to take a variable rate. That is changed in recent weeks and tracker rates are once again a viable option for many contractors looking to get a decent deal on their next mortgage. Tracker Rate mortgages follows the movements of the BoE base rate, usually at a fixed percentage above. For example, if you have a rate tracking at 1.2% above the base rate, which is currently 0.5%, you will be paying an overall interest rate of 1.7%. If the BoE increase their rates, your mortgage rate will go up accordingly and if the BoE reduce rates, your mortgage rate will fall. One would expect base rate to rise again when;
- A change in base rate looks less likely in the recent, with Carney now murmuring that the BoE could actually cut rates if the economic outlook worsens.
- Base rate is generally used by the bank to control the economy, decreasing the rate to stimulate growth and increasing them to slow it. Therefore, with little concern that the economy is growing too rapidly or will do in the near future, all signs point to no change for the time being.
Whether one opt for a fixed, tracker or other type of mortgage will depend on their personal preference and attitude to risk. The advantages of not being registered include less administration, with no VAT returns to complete each quarter and more competitive hourly and daily rates for some markets, such as within the financial and not-for-profit sectors. However, contractors choosing not to register cannot reclaim the VAT element of their overheads and expenses, and may be perceived by some potential clients as being too small to do business with.
There are several administration advantages to remaining non-VAT registered as follows;
- It is compulsory for any contractor limited company earning over the VAT threshold to register for VAT.
- The reduction in administration. When a business is VAT registered, it must add VAT to its client invoices, display its VAT number on invoices, secure VAT invoices and receipts for company expenses and submit a quarterly or annual VAT return.
There are processing expenses when non-VAT registered as follows;
- Common contractor business expenses, such as computers, broadband, mobile phone, travel and subsistence, are usually paid for by the contractor’s company at the gross cost including VAT. Where, VAT will also be charged on most expenses, apart from some travel and subsistence that is zero rated.
- When one submits a quarterly return, VAT registered contractor limited companies would have invoiced some VAT during the quarter, and would work out how much VAT was included in the expenses and this they deduct this amount from the money owed to HMRC.
- A non-VAT registered company cannot claim VAT on expenses. That is also the amount which will appear in the limited company’s accounts, and the amount that will receive corporation tax
- One key factor which should be watched is how stocks and bonds fare in the market. Other factors to be considered are unemployment figures, consumer price index, retail sales data, and even consumer confidence.
- Calculate your potential refinance savings using our refinance calculator (calculations are estimates and the actual payment calculations may differ). Visit this site for more information : http://www.mortgagebrokerco.com.au