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How to fund a staycation summer home with a holiday let mortgage

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With travel abroad still uncertain, buying a holiday let in Britain could be a good investment – not just for this summer but for years to come.

This year’s holiday season has been dubbed the ‘staycation summer’, as Britons opt to take breaks in the UK. 

If invest in a holiday let, not only will you avoid the stress of finding a spot that isn’t already fully booked – in the unlikely event you can manage to complete on time for this summer – but there is also money to be made by renting it out when you’re not there.

Rental prices on holiday accommodation across Britain have jumped by 41 per cent in the past year, according to Direct Line Travel Insurance. 

Staycation: Britons have embraced staycations as international travel has been restricted

Many opt to buy a holiday home outright, often by remortgaging their main home and taking advantage of any equity that has built up.

But for those who can’t do that, buying a holiday home with a mortgage is possible – though it can be trickier than getting a loan secured on your main home. 

First-time holiday let investors might be forgiven for not knowing where to start, as there are fewer deals around and they can be hard to find. 

This is Money asked mortgage market experts for their advice on getting a mortgage on a holiday home to rent out.  

Where can I get a holiday let mortgage?

Holiday let mortgages are a type of buy-to-let mortgage, but because you don’t have the security of a long-term lease like a traditional landlord, lenders will see you as more risky.

For this reason, you won’t get one at most of the big high street lenders. Instead, you will need to use one of a range of smaller, niche providers. 

These lenders don’t use automatic underwriting programmes, so they are able to consider borrowers’ individual circumstances on a case-by case-basis. 

Using these niche providers means it is a good idea to consult a broker. 

They will have relationships with smaller lenders, and sometimes have access to exclusive products and rates that you wouldn’t get if you approached them directly. These are known as ‘intermediaries only’. 

Rent rises: Average prices for some of the country’s top staycation locations

Brokers can also help you navigate the complexities of the holiday let market – for example by considering whether you need to take a specific holiday let mortgage, or a broader buy-to-let mortgage that permits the property to be used as a holiday let. 

‘It is not easy for the public,’ says Nick Morrey, product technical manager at mortgage broker John Charcol. 

‘They can Google, of course they can, but as it is a niche area for lenders there aren’t many who would put them on their consumer websites – especially if they have “holiday let” as an acceptable criteria, rather than a set product. 

‘Using an independent, whole of market mortgage intermediary is genuinely the best way to get access to all the lenders and deals available.’

According to buy-to-let mortgage broker Property Master, there are currently 22 lenders willing to offer loans on holiday lets, compared to around 100 for mainstream buy-to-let.

Angus Stewart, its chief executive, says: ‘The buy-to-let mortgage market for holiday lets is still relatively limited as many lenders shy away from holiday properties, preferring the longer lets of at least six months offered by conventional buy-to-let.’

However, he says the number of deals available is increasing as the UK emerges slowly from the pandemic and holiday properties become more popular.

‘The situation is improving and currently the number of mortgage options is up by around 45 per cent in recent months, twice the number in August 2020,’ Stewart adds. 

Paragon Bank re-entered the market this month, and is offering two and five-year fixed-rate mortgages with a minimum deposit of 30 per cent and rates starting from 4.20 per cent. 

Moray Hulme, its director for mortgage sales said: ‘With restrictions easing here in the UK but still so much uncertainty surrounding overseas travel, domestic holidays are already proving to be extremely popular again this year. 

‘To support those who want to invest in properties that cater to this market, we have refreshed our offering by adding four holiday let products.’

What are the interest rates and what deposit do I need?

Compared with getting a mortgage on a main home, or even on a traditional buy-to-let, borrowing against a holiday home is both more restricted and more expensive. 

Some lenders will only offer variable discount rates, which mean that your mortgage repayments can go up or down at any time.   

‘The smaller, manual underwriting lenders that operate in this space are almost the only option, and their products tend to be noticeably more expensive and sometimes not even available with fixed rates,’ says Morrey.  

Fixed-rate holiday let mortgages for individuals: example deals 
Lender  Fix (years)  Rate  Minimum deposit %  Maximum loan size  Fee 
Bath BS Five 4.09%  30%  £300,000  0.75% of loan (Minimum £999)
The Cambridge BS  Five 4.00%  25%  £500,000  £1,500 
Mansfield BS Five  3.85%  30%  £500,000  £1,499 
InterBay Commercial (intermediaries only)  Two 3.84%  30%  £1,000,000  1.5% of loan
Leeds BS  Two 3.59%  40%  £500,000  No fee 
These are a snapshot of advertised deals only: better offers may be available through brokers  

Where fixed rates are available, the lowest on offer are currently around 3.5 per cent, increasing to well over 4 per cent.

Some providers offer different rates depending on whether you are purchasing the property in your own name, or as part of a limited company. The latter may attract higher fees. 

In comparison, standard buy-to-let mortgages are typically available on rates less than 3 per cent, and in some cases far lower. 

Will rates head lower?  

Some experts are predicting that interest rates could fall if the current demand for buying holiday lets continues. 

‘We believe rates for these specialist products will start to trend lower as the demand for holiday lets increases, with more holidaymakers considering staycations, rather than foreign travel, particularly in the short to medium term,’ says Chris Baguley, commercial managing director at specialist lender Together. 

However, any falls will be slight, as mortgage rates across the board are already nearing an all-time low.  

‘Rates for holiday lets are staying level or dropping ever so slightly,’ says Morrey. ‘Bottom line is, they are pretty much the lowest they have ever been thanks to the base rate being only 0.1 per cent.’

What deposit do I need? 

The deposit required is also higher than average, with the vast majority of lenders requiring a down payment of at least 30 per cent of the property’s value.  

This is one of the drawbacks of taking a mortgage on a holiday let, and the reason why many buyers choose to remortgage their main home instead.  

Homes close to beaches are in high demand – but getting a mortgage for a holiday property can be costly thanks to higher interest rates and fees

Brian Murphy, head of lending at the Mortgage Advice Bureau, says: ‘For those who are interested in taking advantage of the staycation boom, there are key factors to bear in mind before entering the market. 

‘Although holiday lets are a growing market, there are fewer participants and mortgage products available compared to the more conventional assured shorthold tenancy buy-to-let mortgage.

‘This tends to be reflected by the products on offer, which are typically 70 per cent or 75 per cent LTVs, as well potentially higher interest rates than their more mainstream buy-to-let. 

‘Borrowers will therefore need to assess how they best go about raising the level of deposit required.’ 

Will I be accepted?

Affordability checks are tougher on a holiday let mortgage, too.

As well as the borrower’s income, lenders will want to assess how much they will be able to make by renting the property out. 

There are various ways they can do this, but the results can be very variable and might not take into account your own plans for how the property might be used. 

‘Some will consider what they could lend if the property were to be let on a normal Assured Shorthold Tenancy basis (let for 6 months to 2 years), which is not what will happen and sometimes a very poor return due to the location of the property,’ says Morrey. 

‘Others will look at an average monthly pr weekly rental income based on the holiday let charge for high, medium and low season, which can vary greatly. 

‘Another option is for the lender to look at the accounts for the income via the previous owner, which if they used it themselves for a fair bit could be significantly lower than the new owners might achieve.’ 

Baguely says that Together will look at a combination of the borrowers’ income and potential returns. 

‘Borrowing for a new holiday let will depend on the customer’s circumstances,’ he says. ‘We’ll look at the predicted income from their holiday let over the next 12 months and base the affordability assessment on 50 per cent of that figure.

‘Specialist lenders like Together can also look at other forms of income, such as the borrower’s salary, pension or bonuses, for example.’

Unlike residential loans, the arrangement fees you pay on a buy-to-let mortgage are often a percentage of the mortgage amount rather than a fixed fee. 

Baguley estimates that fees are usually between 1.5 and 2.5 per cent of the total loan amount.

There may also be restrictions in your mortgage agreement about how the property can be used. In many cases, this restricts how many days per year you are allowed to use the property yourself to 60 days. 

There are options out there for those wanting to fund their holiday let with a mortgage, but navigating this complex market is not for the feint-hearted – and with higher rates and fees it can hit you in the pocket. 

For those who can, the advice is generally to borrow elsewhere and buy your property in cash.  

‘Demand is high but we are seeing people use alternative methods of funding,’ says Morrey. 

‘Many are remortgaging their main residence, or other assets, to buy the holiday property or second home with cash. 

‘This gives them far better options than the relatively expensive specialist holiday let products with sometimes difficult requirements. ‘

This post first appeared on Daily mail

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HALF of 16-24s don’t know that a missed payment can damage their credit score

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Young borrowers are unknowingly putting their financial futures at risk, with many unaware about the damaging implications of missing loan or credit card repayments.

More than half (54 per cent) of 16–24-year-olds were unaware that a missed credit payment can impact their score and negatively impact their chances of securing credit in the future, according to research by Compare The Market.

Almost half did not know that their credit score would be checked when applying for a credit card, and 45 per cent were unaware their credit history was also checked when securing mortgages or personal loans.

Some 54 per cent of 16-24 year olds are unaware that missed loan or mortgage payments can impact their credit score, according to Compare The Market

In the wider population, more than two thirds of people knew that credit scores were used to check eligibility for credit cards, and only 71 per cent were aware they were used for mortgages or personal loans.

The research described a lack of awareness among many young people about what specific actions impact credit scores, and found that many were unsure how to improve their rating.

‘Credit scores are used by lenders to understand whether a borrower can afford a product and assess their ability to pay it back on time,’ said James Padmore, head of money at Compare The Market.

‘Certain actions can impact your credit score, either positively or negatively and our research shows that while young adults believe they have a handle on credit, there is a significant knowledge gap.

‘Having a low credit score early on in life could unfortunately affect your ability to get a mortgage or a personal loan, for instance.’

More than half of young people did not realise a poor credit score could lead them to being ineligible for the most competitive deals, whether that be a mortgage, personal loan or credit card.

Nearly three-quarters did not realise that registering on the electoral roll could have an impact on their credit rating, while over two-thirds were unaware the length of their credit history could influence their score.

County Court Judgements, Individual Voluntary Agreements and bankruptcy,  all of which stay on a credit report for six years, were only known to have a negative impact by 43 per cent of young people. 

Be wary of Buy Now Pay Later schemes

Buy Now Pay Later schemes such as Klarna have become a popular form of credit, with five million people using these products during the pandemic, according to the FCA.

These schemes enable shoppers to delay or spread the cost of a purchase over a period of time rather than paying the entire cost in one single lump sum payment at the point of purchase.

Over half of Buy Now Pay Later users aged between 16 and 24 have missed at least one payment on these types of purchases in the last year.

Although most schemes run a soft credit search when a customer makes a payment – which won’t show up on an individual’s credit report – some products require a hard credit search.

This means if shoppers miss a payment or fail to pay back their debts in time, it could be marked on their credit report and impact their ability to apply for credit in the future.

How can people check their score?

A credit report not only details an overall credit score but also lists a person’s credit accounts, such as bank accounts, credit cards, utilities and mortgages.

It will also display their repayment history, including late or missing payments.

Young people will need to see their report first before they can better understand where they can improve. 

There are a number of ways to view your rating and history for free.

Experian and Equifax offer 30-day free trials of their service online, but you will need to remember to cancel before the end of the promotion to avoid subscription fees.

Ten tips to boost your rating

1) Register on the electoral roll at your current address

2) Use a credit card responsibly and always try to retain a good amount of available credit

3) Check your credit report regularly and ask for any errors to be corrected

4) Never withdraw cash from your credit card

5) Limit applications for new credit

6) If you have bad credit, stop applying for more credit  

7) If you don’t have a credit card, then get one – but just make sure you pay it off each month

8) Don’t miss repayments

9) Let your credit history mature

10) Don’t keep unused cards 

Experian will begin charging £14.99 once the 30-day free trial is over whilst Equifax reverts to £7.95 per month.

Checkmyfile also offers a free trial to check your reports with both Equifax and TransUnion UK – although after 30 days it begins charging £14.99 a month.

Alternatively, you are entitled to one free copy of your credit report every 12 months from each of the three main credit reporting agencies.

Free credit report options can also be found by visiting Credit Karma and Clearscore.

Why is it important to improve your score?

Your credit score reflects how reliable you are with credit, and it affects your ability to borrow money.

Having a good credit score will improve your chances of securing a mortgage, credit card or loan in the future and will give you access to better deals.

‘I would always recommend you keep tabs on your credit score especially if you are thinking about taking out a mortgage,’ said Andrew Montlake, managing director at Coreco Mortgage Brokers.

‘Lenders have more difficult credit scoring systems to pass if you only have a 5 per cent or 10 per cent deposit for example.

‘It is important to make sure there are no errors on your report and act to improve your score where you can before you come to apply for a mortgage.’

How can you improve your score?

There are number of ways people can improve their score, including by registering on the electoral roll at their current address, using a credit card responsibly and ensuring they don’t miss any repayments.

‘Just a few small changes can make all the difference to ensure you’re accepted for credit later on, such as registering on the electoral roll, not opening too many accounts at once and keeping your credit card balances 25 per cent under the limits,’ said Padmore. 

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Best UK bank accounts for small businesses

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Getting the best small business bank account is a way to make your firm’s money go further and make your life easier. 

Changing their small business current account may not be at the forefront of most owners’ minds. But with monthly fees, transaction costs, integrated accountancy software, automated invoices and international charges all to be considered, doing so can make a difference to your bottom line. 

Whilst owners of limited companies are required to have a business account by law, sole traders can use their personal current account for both business and non-business transactions.

A business bank account is just like a personal current account. The only difference is that you use it to conduct everyday business transactions such as paying staff, buying raw materials or paying for services

The prospect of monthly fees and transaction costs may leave many sole traders wondering whether it’s worth having a business current account.

But even if not legally obliged to have one, keeping your business separate can make it easier to manage cash flow and calculate tax liabilities at the end of each tax year. 

What’s more, some accounts include tools that can make keeping on top of your finances more straightforward.  

‘Business accounts make it easier to calculate your taxes at year end – in fact, some business accounts offer dedicated tools to help you do this,’ says Michelle Stevens, banking expert at the personal finance comparison site, finder.com.

‘Typical features are tax calculators, invoice creation services and integrations with software packages such as Xero or QuickBooks, so it’s worth comparing the different options to find tools you’ll use.’

How to choose a business account

When picking an account, the first thing many small business owners look to is the headline monthly charges and transaction costs. 

This is especially true for sole traders, who might not need any of the special features that business bank accounts offer and just want to get a good deal.  

‘As a sole trader, you’d likely want to keep costs down wherever you can, which is why a business bank account with no monthly fees may be an attractive option,’ says James Andrews, senior personal finance editor at Money.co.uk.

But for small business owners, the transaction tools an account offers might be more important – especially if they handle the books themselves. 

‘As a small business owner, you may not have the luxury of having extra staff to handle all the book keeping involved in running a business,’ Andrews continues.

‘This is why some business bank accounts offer services such as instant invoicing, automated expense categorisation, and VAT returns.

Comparison of the business accounts
 HSBC Santander Natwest  Barclays  Lloyds  Metro  Co-op  Virgin  Starling  Monzo  Tide   
Monthly account charge  £6.50  £7.50  £0  £6 for ‘Mixed Payments’ plan OR £6.50 for ePayments plan  £7  £0 for balance > £5,000 £5 for balances below £5,000 £7  £6.50  £0  £0  £0   
Cash & cheque deposits  Yes  Yes  Yes  Yes  Yes  Yes  Yes  Yes  Yes  Yes  Yes   
Overdraft available  Yes  Yes  Yes  Yes  Yes  Yes  Yes  N/A  No  No  No   
FSCS Deposit protection Yes  Yes Yes  Yes  Yes  Yes  Yes  Yes  Yes  Yes  Yes   

‘You may have to pay a small monthly fee for access to these services with your bank account, but it may be a cheaper alternative to hiring a dedicated bookkeeper.’

At their simplest, business accounts offer a cheque and paying-in book, but many banks will offer additional perks such as an interest-free in credit balance, or 18 months free banking, to secure your custom.

When comparing accounts, it is important to look at both the rewards and charges while bearing in mind how you will use it to pick one that is right for you.

To help you on your way, This is Money lists the best small business accounts on the market. Here’s how they compare at a glance.

Monthly account charge: £6.50 (free for the first 12 months)

Key benefits: 

  • No monthly account fees during first 12 months
  • Same-day overdraft of up to £30,000 
  • Apply for a business credit card in app 

From 1 June, HSBC’s Kinetic account will offer 12 months of free banking to customers, so there are no maintenance fee or standard account charges during the free banking period.

What is a business overdraft?

Like a personal overdraft, a business overdraft provides you with access to additional funds that you can use as and when you need to. 

They can help with short-term cashflow issues and unexpected expenses, and may be preferable to a business loan because you only pay interest on the overdrawn balance. 

You can apply if you have a limited company and are the only director and sole shareholder registered with Companies House, or if you are a sole trader and the sole owner of the business for which you are applying. 

Customers can also apply for an overdraft of up to £30,000, with funds available on the day of approval. They will only pay interest on what they use.

An interest rate margin of 9.9 per cent over the Bank of England base rate each year applies.   

The HSBC Kinetic app also includes an instant access savings account to help you plan for future expenses; automatically categorises your transactions; and offer personalised cash flow insights so that businesses can get a closer understanding of their incomings and outgoings. 

The small print:

Depositing cheques through branches costs 50p per cheque.

Cash paid in through a branch costs £1 per credit plus 1.10 per cent of the value deposited.

ATM cash withdrawals levy a fee of 0.60 per cent on the amount withdrawn.

At present customers cannot make international payments and payments are limited to £25,000 per day.

Monthly account charge: £7.50 (free for the first 18 months)

Key benefits:  

  • Free everyday banking for start-ups up to 18 months
  • Business overdrafts from £500-£25,000
  • Arranged overdraft fee of 1 per cent of agreed overdraft amount (£50 minimum) 
  • Arranged overdraft interest rate of 5.10 per cent EAR 

This account is currently only open to existing Santander customers who are looking to open new business current accounts, but the bank says it continues to review this position.

The account offers 18 months of free banking to customers in their first year of trading – as long as they have no more than two directors, owners or partners and it is their company’s first business current account with Santander.

The account can be managed at Santander cash machines and Post Offices branches nationwide, as well as through online and mobile banking.

The small print

After the free business banking period, you’ll automatically see your account revert to its £7.50 monthly charge.

This will allow you to deposit up to £1,000 in cash per month and includes all your standard day-to-day banking. 

If you go over your monthly cash deposit limit, you’ll pay 70p per £100 cash deposited.

Each monthly fee also includes all other standard transactions, which are unlimited,  such as cheque deposits, Bacs direct credits, debit card payments, standing orders, direct debits, bill payments. Cash withdrawals are limited to £500 per day.

You can apply for a business overdraft with the account and – if accepted – borrow between £500 and £25,000. An arranged overdraft comes with an annual fee of 1 per cent of the agreed overdraft amount, with a minimum fee of £50.

Monthly account charge: £0 

Key benefits: 

  • 18 months free day-to-day banking 
  • No monthly fee
  • Arranged overdraft of up to £25,000  

The account offers 18 months free banking for firms in their first year of trading, with a projected or existing annual turnover under £1million. 

This covers payment in or out of your current account made by direct debit, standing order, debit card, online banking or ATM withdrawals. 

Customers will also be able to benefit from access to the accounting software, Free Agent enabling them to monitor cashflow, invoices and record expenses at no extra cost. 

Customers can also apply for NatWest’s business credit card, subject to approval and will not pay the £30 annual fee in the first year, with the fee waived from the second year onwards, when they spend £6000 or more each year.  

The small print: 

After the 18-month free period, standard charges apply meaning that any online payments, direct debits and standing orders in and out of the account will be subject to a 35p charge each time. 

Also, any cash payment in or out of your current account will be subject to charge of 70p for every £100 moved. 

Finally non-automated payments in or out, made by cash or cheque at a NatWest or Royal Bank of Scotland branch, are subject to charge of 70p each time. 

You can apply for a business overdraft with the account and, if accepted, borrow up to £25,000. 

Like with HSBC, you only pay interest on the amount you borrow – although any arranged overdraft comes with an arrangement fee of up to £375.

When using the card abroad, there is also a non-sterling transaction fee of 2.75 per cent of the value of the transaction. 

Monthly account charge: £6 for ‘Mixed Payments’ plan or £6.50 for ‘e-Payments’ plan 

Key benefits:   

  • 12 months free day-to-day business banking for start-up businesses
  • Loyalty rewards 
  • Unsecured overdrafts of up to £50,000 available

If you are a new business then it would be best to opt for the Start-up account to take advantage of the extra perks. 

Although its 12 month free banking offering is less than others, its account comes with some interesting loyalty perks and a choice of fee structures depending on how you use it. 

Business banking basics

Owners of limited companies are required to have a business account by law.

If you are a sole trader then you can use your personal account for both business and non-business transactions, or set up a second personal bank account for business purposes.

Read our five of the best bank accounts round-up to check the best of these.

However, not all banks allow this, so it is important to have a look at the fine print of your account details.

If there is a lot money running through your account, your bank may threaten to close your account and tell you to open a business account. 

Why open a business account? 

There are two major reasons why you’d want to open a business account.

Firstly, allowable expenses – such as some travel costs – are tax deductible but making accurate calculations for these for your tax returns can be difficult if they are mingled with personal costs.

Secondly, a dedicated bank account can make your start-up appear more professional, as customers can make payments to an account held in your business name rather than your own name.

Some people can be finicky about paying into non-business accounts.

What do I need to open a business bank account?

You can only open a business account if you are aged 18 or even. You’ll typically be asked to prove your identity and address and provide other documents depending on what type of business yours is.

How much can I pay into my business account? 

The minimum and maximum balance varies from bank to bank. You may be charged a fee if your balance gets too high or low.

How long does it take to get a business account? 

Online applications should take no longer than 10 days to process.

How do I switch my business account? 

You can switch your business account within 7 working days through the Current Account Switch Services between participating banks or building societies.

To do so, you must have fewer than 50 employees and an annual turnover not exceeding £6.5 million.

The owners of larger businesses can ask their new bank to arrange this.

Are deposits protected by the FSCS? 

Financial Services Compensation Scheme (FSCS) protects consumers when financial services firms fail.

The small business threshold for FSCS is an annual turnover of less than £1million.

FSCS does not apply to all business types – check the FSCS website for eligibility.

Not all banks trading in the UK and offering business bank accounts are members of the FSCS and hold a ‘compensation licence’. 

 

The ‘Loyalty Reward’ offers an increasing proportion of your charges back each month depending on how long you have held your account. 

For example, those with an annual turnover under £100,000 get 5 per cent back in years one to five, 10 per cent in years five to 15 and 15 per cent back for anything over 15 years. 

The amounts also increase depending on the size of your business. 

It comes with either a ‘Mixed Payments’ plan of £6 a month for businesses that mainly use cash and cheque, and an ‘e-Payments’ plan of £6.50 a month – for those more likely to do most of their banking online with electronic payments. 

The small print:

If you choose the ‘e-Payments’ option you won’t pay anything to make electronic payments, but cash and cheque payments will cost you. Cash is £1.50 per £100 and cheque is £1.50 per cheque. 

The mixed plan charges 90p per £100 for cash payments, 65p for cheques and 35p for electronic payments. 

There is a useful calculator on the site to help you find out which will be most cost-effective for your business. 

It will also review your account each year and notify you if switching plan could save you money. 

Barclays offers unsecured overdrafts of up to £50,000 to help with your day-to-day cash flow.  

Barclays will charge you a 2.75 per cent non-sterling transaction fee for using its debit card abroad to make purchases, withdraw cash, or get refunded. 

This fee will also apply whenever you do not pay in sterling, for example when you shop online at a non-UK website. 

Monthly account charge: £7 

Key benefits

  • 12 months free day-to-day business banking for new businesses 
  • Includes free electronic payments

The Lloyds business account for new and small businesses is available to start-ups and smaller businesses with an annual turnover or balance sheet value of less than £3million. 

The 12 months free day-to-day banking includes no monthly account fee, electronic payments, cheques and cash withdrawals. 

It is currently warning customers that new business accounts may take up to four weeks to open due to high demand.   

The small print:  

After the free business banking period, you’ll automatically see your account revert to the bank’s standard charge of £7 a month. 

Electronic payments in and out are not charged but any cash payments in or out will be. 

The first £1500 per month of cash payments made will be subject to a 1 per cent charge, and anything over that will be subject to a 0.9 per cent charge. 

Overdraft limits start at £500, and if you set up a planned overdraft you will only pay interest on the funds you’ve used.  

Lloyds will charge a non-sterling transaction fee of 2.99 per cent of the value of the transaction when spending abroad. 

Monthly account charge: £0 if balance stays above £5,000 for any whole month, and £5 for balances below £5,000. 

Key benefits

  • No charge for non-sterling transactions or purchases in many European countries
  • Business manager as a key point of contact 
  • Branches open 7 days a week 

This account is available to businesses with an annual turnover or balance sheet value of up to £2million. 

It does not charge fees for non-sterling transactions, or purchases in countries that are part of the Single European Payments Area. This includes France, Germany and Italy. 

Account holders will be given a business manager as a key point of contact and are able to go into their local Metro Bank branch to discuss their account seven days a week. 

Business customers can meet them in person, send them an email or give them a call. 

The small print:

There’s no monthly charge for this account as long as the balance remains above £5,000 every day within the month, otherwise you will pay the monthly fee of £5. 

Up to 50 selected transactions, including cash and cheque deposits as well as ATM withdrawals, are free each month and the bank levies 30p on each transaction thereafter. 

The 30p charge applies to these transactions on balances below £5,000 from the outset. 

Arranged overdrafts up to £25,000 have a variable interest rate of 10 per cent EAR.

There is also an arrangement fee of 1.75 per cent or £50, whichever is greater.

This rate may be varied from time to time but the bank must give you at least two months’ written notice.

For overdrafts over £25,000, Metro will agree either a fixed or variable margin with you that is above the Metro Bank base rate.

Monthly account charge: £7 (free for first 30 months)

Key benefits: 

  • 30 months free day-to-day banking for new customers 

For the first 30 months, all automated credits and debits including standing orders and debit card payments are free – although this is subject to you maintaining a credit balance of £1,000 or more.

What do consumers need in order to set up a business account?

James Andrews, senior personal finance editor at money.co.uk replies:

To make it as quick as possible, it’s worth gathering as much information as possible before you try to open your online business bank account. 

Some important documents you might need include: 

A document to prove your identity 

A document to prove your UK address 

Further documentation to prove your company address 

Companies House registration documents 

Registration forms

You can also deposit £2,000 in cash and 100 cheques per month for free – but if you exceed this you will incur a charge.  

Customers can manage their account through a brand new mobile app, online banking, telephone banking and postal banking. 

They can also manage their account at a Co-operative Bank branch, as well as any Post Office. 

The small print:

During the free banking period, once you exceed your upper limit of depositing £2000 cash and 100 cheques, you are charged at 75p per £100 for cash deposits and 25p each time you pay in a cheque.

At the end of the 30 month free banking period, you’ll be automatically transferred on to the standard Business Directplus tariff with a £7 monthly charge.  

You will also then be charged 35p for automated debits, including debit card purchases, and 50p for cheques issued.  

For borrowing up to £25,000 you can have an arranged overdraft variable rate of 6.28 per cent. 

Interest rates for overdrafts above £25,000 are discussed upon application.

Monthly account charges: £6.50 per month

Key benefits:

  • Fee free day-to-day banking for 25 months
  • Cashback when using its debit card
  • Strands Money Management tool
  • Virgin Start-Up support

Virgin’s fee free day-to-day banking is available for 25 months for new bank customers with turnover of less than £6.5million, who switch their main business current account; or start-ups opening their first account within 12 months of beginning trading.

During the 25 months free banking offer, no charges apply to cash or cheque deposits and withdrawals, direct debits or other automated transactions.

Business customers who use their debit cards will automatically earn cashback of 0.35 per cent on spending, with the potential to earn up to £500 per calendar year per debit card on up to eight debit cards per business current account.

It’s worth noting there are a few exclusions on the types of transactions that generate cashback. This includes gambling, money transfers, tax payments, travel money, cash, debt repayment, buying stocks and shares, travellers’ cheques and foreign currency.

The account also gives businesses access to the support provided by Virgin StartUp.

The small print:

After the 25 month free banking ends, online payments are charged at £0.30 per debit or credit payment.

Furthermore, cash paid in or out of the account will be subject to a 0.65 per cent charge.

For debit card payments in the EEA, there is no charge if the currency is pound sterling, Euro, Swedish Krona or Romanian Leu, but there is a charge of 2.75 per cent of any transaction value (min £1.50) for all other currencies and payments outside the EEA.

For debit card cash withdrawals in the EEA, there is no charge for Pound Sterling, Euro, Swedish Krona or Romanian Leu.

For all other currencies and outside the EEA, the charge is 3.75 per cent of transaction value.

There is no maximum account balance, but there is a limit to how much cash can be paid in or out, amounting to £250,000 each year. 

Its overdraft facilities are currently treated as a separate product to its business account.

Interest rates and the arrangement fee are individually negotiated and the amount customers can borrow and the amount charged will depend on their individual circumstances.

Monthly account charges: £0 

Key benefits

  • No monthly charges 
  • Same-day set up 
  • Accountancy software integration with Xero, QuickBooks or FreeAgent

The Starling Business account is open to sole traders, limited companies and limited liability partnerships. 

The bank says customers can download the app and apply for an account in minutes. 

Customers can benefit from free UK bank transfers and instant payment notifications when they pay or get paid. 

Keeping your business banking separate from your personal account means it will be far easier for you to manage cash flow, as well as work out your tax liability at the end of the year

You will also be able to set up payments, edit standing orders and export statements in CSV or PDF format directly via the app or on desktop. 

Starling Bank has no branches, and the account can only currently be opened through its smartphone app.  

The small print:

Starling Bank does not charge on electronic payments, domestic transfers, ATM withdrawals or when using the card abroad.  

You can deposit cash at the Post Office, and 10 cheques up to the value of £500 can be deposited via the app – any more than this and it will need to be sent via post.   

The bank does not offer business overdrafts. 

However, it does offer US dollar and Euro accounts for people trading overseas, as well as free use of its card abroad. 

The monthly cost rises to £2 a month for a Euro account and £5 a month for Dollar account. 

For those looking for more options, a full service account, including automated invoices, tax calculation and VAT returns is available with Starling for £7 a month.  

Monthly account charges: £0 

  • No fee option available using the Lite account 
  • Allows you to budget and categorise spending 
  • Enables you to add receipts to payments on the go 

Monzo, which has become a current account favourite over the past five years, now offers a business account with integrated accounting and fee-free spending overseas. 

Monzo is a fully regulated bank and its customers benefit from their money being protected up to £85,000 under the FSCS. 

Customers are not subjected to fees for bank transfers in the UK, and just like with Starling, you can rely on instant notifications the moment you pay or get paid. 

Monzo offers its business customers two payment plans, Pro and Lite

It has the benefit of 24/7 customer support and enables users to keep on track of payments with in-app digital receipts. Money can also be saved into pots allowing firms to put money aside for costs such as bills, without worrying about spending it on anything else. 

Those who decide to opt for the £5 a month Pro account they can benefit from extra features such as integrated accounting tools, invoicing and multi-user access for limited companies with more than one director. 

The small print

Despite being an app-based account, there is also the ability to pay in cheques by posting them to Monzo while cash deposits can be made at a PayPoint for a £1 fee. 

Withdrawals from an ATM are fee-free in the European Economic Area. Outside the EEA it allows customers to take out £200 cash for free every 30 days, but beyond that it charges 3 per cent. 

At the moment you can pay in £5 to £300 of cash in one go into Monzo, and up to £1,000 every six months. 

The daily limit for bank transfers on Monzo business accounts is £50,000. 

Also, although the personal Monzo accounts have an overdraft option, its business accounts do not. 

You have the choice of two accounts. Business Lite, which has no monthly fees or the Business Pro which costs £5 a month. 

Monthly account charge: £0 

Key benefits

  • Business loans of up to £150,000 
  • No additional charges for card use abroad 
  • Accountancy software integration 
  • Three clearly set out payment plans 
  • Mastercard is free to use worldwide  

Tide is a purely digital banking app which claims to allow customers to open an account in less than five minutes using their mobile phone. 

It can integrate with online accountancy services such as Xero and FreeAgent, and allows users to automatically tag all income and expenditure with labels of their choice. 

Something unique to Tide is that you can register your company with Companies House and apply for a business current account at the same time for free. 

Another feature relates to company expense cards, where you can have up to 35 for each account and can set individual spending limits.

Tide now offers FSCS protection on new accounts – having partnered with ClearBank, a fully licensed bank.

Tide now offers FSCS protection on new accounts

Like Monzo and Starling Bank, Tide does not have any branches, but you can open an account through its website or smartphone app. 

The Tide Mastercard is free to use worldwide, in any currency. 

For small business owners, it may be that Tide’s free account that is most appealing. But there is also the more expensive Plus account which costs £9.99 + VAT a month and the cashback account costing £49.00 + VAT each month. 

A business might opt for the Cashback account if the benefits outweigh the costs. The account comes with 0.5 per cent cashback when using the Tide card as well as a dedicated account manager. 

The small print:  

ATM withdrawals are subject to a £1 charge and there is a 20p charge for every transfer in and out of an account. 

Tide does accept cash payments – you can deposit cash at the Post Office, albeit with a £1 charge for doing so. 

For limited businesses, the account balance limit is £1,000,000 and for sole traders, it’s £500,000. 

Transaction limits are £250,000 per single payment up to £2,000,000 a month for limited businesses, whilst for sole traders it is £15,000 per single payment up to £150,000 a month.  

Lesser-known business accounts

Monthly account charges: £0

Key benefits

Offers free small business account for sole traders and limited companies with up to 2 owners and a balance of less than £100,000 or £50,000 for sole traders. 

With Mettle your account is managed purely via an app. 

You can create and send invoices from your phone and can be synced with account software like Free Agent, which customers receive free access to through the account

There are no monthly charges or transactions fees but there is also no access to credit, Government-backed loans, international payments or cheque deposits 

Monthly account charges: £0  

Key benefits

Receive 1 per cent cashback on purchases, and issue multiple debit MasterCards with limits for your employees. 

An ANNA business account comes with an instant invoice generator and HMRC-recognised VAT filer. 

The account helps you to control expenses and automate bookkeeping. 

It allows for two free UK transfers in and out each month and up to £100 per month in free ATM withdrawals. 

Account charges: £69 per year

Key benefits: Cashplus provides an instant online decision when opening your account, with no paper forms and no interview required. 

You will get your account number and sort code within minutes of completing your application, Cashplus says.

The account is available to limited companies, partnerships, sole traders and charities. Funds are also FSCS protected.   

But it is worth noting that only the first three electronic payments and transfers each month are free of charge – after that it’s 99p each.

Monthly account charges: £0

Key benefits: It is a business account with multi-currency wallets and smart debit cards. 

Revolut says users can track expenses, set up teams and permissions and accept online card payments easily. 

It can also be integrated with your accounting software of choice. 

It also offers multi-currency accounts, allowing you to hold, exchange, send and receive funds in 28+ currencies – always at the interbank exchange rate.

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UK extends its lead as the largest financial centre in Europe

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Britain is the largest financial centre in Europe and has an even bigger lead over its rivals than previous rankings have suggested, according to new research.

The financial sector is roughly three times the size of its nearest European rivals, France and Germany, data from think tank New Financial showed, and is second only to the US globally.

The UK has a score of 35 out of 100 when judged on 42 metrics of domestic and international activity, focusing on the value of business it commands.

Trading centre:  Britain’s financial sector is roughly three times the size of its nearest European rivals, France and Germany, the latest data from think tank New Financial showed

The US scores 84, while France and Germany score 13 and 12 respectively. But China, Japan and Hong Kong are all creeping up on the UK, with scores of 29, 19 and 14 respectively. 

Domestic activity has stagnated since the Brexit vote in 2016, and while international activity has grown faster in the UK than the EU, Hong Kong and Singapore have been stealing market share.

New Financial analyst Panagiotis Asimakopoulos said Brexit will have dented the UK lead in foreign equity trading, foreign bank assets, trading of complex financial assets known as derivatives and clearing, where money is transferred from buyer to seller.

But he said: ‘Even if 10 per cent to 20 per cent of the UK’s international activity were to relocate – a very big ‘if’ – the UK would still be more than double their size. 

However, four of the top 10 financial centres are countries in Asia that have been catching up rapidly.’

It comes as Chancellor Rishi Sunak is trying to exclude the City of London’s financial services companies from a global tax overhaul targeting the world’s most profitable businesses.

He fears British banks will join the likes of Google and Amazon in having to redistribute profits. The EU has pushed back – it expects all companies to pay their fair share.

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