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Welcome to the
eLocal
financial update
by Tina Webb
Professional Mortgage Advisor
I receive many questions about breaking fixed term rates
and then for how long to refix or to leave them on floating.
I will share some of the answers given.
Q: From a Commercial client: My landlord won’t put
down my lease payments even though times are tough at
the moment. He won’t even discuss the possibility of at
least not putting up the lease when it comes due. I may
have to look at relocating but that will cost and I may lose
business.
A: The landlord could be on a fixed rate term with the bank
and still paying high interest rates and therefore may not be
able to look at other options since he/she also has financial
commitments. The cost to break a fixed rate, depending
on the term, rate and bank, are fairly steep at present. This
is a commercial agreement just like between a bank and
borrower, an agreement entered into at the time. However,
the landlord would need to take into consideration that
you, as tenant may leave at the end of the lease and another
tenant may be hard to find which would leave the premises
without any income. You may obtain permission to sublet
if the premises lend themselves to that option. It is in
everyone’s interest to work out a suitable compromise if at
all possible to give some stability over the next period and
make it a win/win for all parties.
Q: If I break my fixed rate now, should I stay on floating
or refix. If I refix then should I do so for a short term or
longer?
A: Even though the news media are still saying that interest
rates are coming down these are mainly the short term
rates. The longer 3,4 and 5 year rates have been going up
steadily over the past 4 -6 weeks. Break fees only happen
when the rate you are paying is higher than the rate the
banks can ‘sell’ at the present time. If you are on 6% and the
bank can obtain 8% from new clients then historically there
have been no break fees since the bank can make more
money on ‘re-lending’ those funds. At present they would
make a loss which as a result is covered by charging the
client. Refixing for a short time is risky since a 1 year rate of
5.79% might seem attractive but when that rate expires in
a year’s time the rates then may be a lot higher again so any
saving in the short term will disappear rapidly over the next
few years. My recommendation would be to fix for 5 years
or longer if possible.
On a lighter note - Winners make things happen.
Losers let things happen. Why do banks charge a fee on
‘insufficient funds’ when they already know there is not
enough money?
Send you finance questions to editorial@elocal.co.nz names
will remain anonymous if requested. Put Tina Webb in the
subject line.
Here to help with
your business
problems –
eLocal’s ‘Business
Mr Fix-it’ Phil
Long-Taylor
Rising rents and struggling tenants
I find it interesting as to why landlords of commercial and
industrial properties are considering rent increases across the
board, in such times. I guess at the end of the day it is just
because they can. And who can blame them. Landlords are
in business as well. If they don’t get their rent the bank will
foreclose on them just as quick as any other business.
I believe it was Sir Bob Jones who once said something like
“Retailers deserve as big a rent hike as is possible”. I think he
means, they will grizzle and moan but they always seem to find
the money for a rent increase. They take it from their profit or
work heaps of overtime and don’t pay themselves a wage, just
to stay in business and they don’t like the idea of change even
when the ship is sinking.
I think that many people who go into business are too
emotionally involved and that allows others to use that
emotion to their advantage. In the game of business it is
fatal. I would go as far to suggest many aren’t even running a
business. It is an emotional journey, a hobby, an employment
opportunity, or even a lifestyle but definitely not a business and
therefore they are not even on the same page as the landlord.
Consider this: 85% of new businesses end within two years and
95% are gone by five years.
If you were to ask an accountant as to what average returns
after tax the average central Pukekohe small businesses was
making last year (not this year with a falling economy) you
might find they aren’t that impressive. Compare that to the
value of the average rental going forward. So why do they do
it? It is not as if the tenants don’t have a choice in the matter.
They can choose to move or shut up shop and I believe some
will do just that.
For example I know of a food/ refreshment shop which over
the past eight years has gone from a rental of $25,000/yr to
$89,000. In this case it is much of the profit gone and the
reason why they are shutting down that location.
I believe in these tough times two important rules in the
game of business are worth consideration.
1. If you don’t like something, shut up and put up with it
or, do something about it but for goodness sake. “DON’T
GRIZZLE”!
2. Consider your options, make a decision and do something
about it now, as anything is better than doing nothing at all.
Send your business related questions to Business Mr Fix-it
Phil at editorial@elocal.co.nz names will remain anonymous if
requested. Put “Mr Fix It”in the subject line.
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