The Budget, interest rate cut and coronavirus – what next?
The British Prime Minister Harold Wilson once said that a week is a long time in politics and while he was referring to events happening in the mid-1960s, the same could be true of the situation we find ourselves in. This blog was meant to be about the Budget and whether new Chancellor Rishi Sunak did enough for the housing market but with the spread of coronavirus, it has turned into something very different.
Indeed, the Budget would have been a very different one were it not for coronavirus. Tackling the situation created by the virus is rightly the government’s immediate priority to ensure it keeps the public on side while it demonstrates that it is dealing with the fast-changing circumstances with care and consideration.
Subsequently, there was no stamp duty reform as many had hoped for, MT Finance included. Instead, the Chancellor announced a 2 per cent stamp duty surcharge for foreign buyers, which came as no surprise, as it was mooted in the Conservative party manifesto ahead of the general election. But even with this extra tax on buyers, it might not turn out to be such a huge issue and have much of a detrimental effect given that sterling is at such a low level. With values in the prime market taking a well-publicised hit, non-UK property buyers are still purchasing at what they consider to be below-market level. The other plus is that the surcharge will not be introduced until 1 April 2021, giving buyers time to do their deals, even if coronavirus means we are on lockdown for several months.
Just a few hours before the Budget, the Bank of England announced it was cutting interest rates by half a percentage point to 0.25 per cent. While it wasn’t a surprise that the Bank reduced rates – we expected this to happen at the Monetary Policy Committee’s March meeting – the timing did catch people unawares, demonstrating how serious the situation has become. There is also speculation that the Bank will need to cut rates again to as low as 0.1 per cent over the coming weeks, after the US Federal Reserve cut rates over the weekend.
While those with fixed-rate mortgages won’t benefit from the reduction in base rate – and there are a lot of borrowers in this position as these deals have been incredibly popular over the past few years – lenders might follow the lead of Italian banks and offer a ‘holiday period’ of two or three months when the mortgage does not need to be paid. Already some lenders have said they will do this for those directly affected by the coronavirus but anyone having difficulty paying their mortgage should get in touch with their lender as soon as possible.
Lenders can only be sympathetic and helpful if they are kept informed. This is a preventative measure, about managing potential payment issues in the future and avoiding too many borrowers getting into mortgage arrears if they can’t work and therefore can’t pay their mortgage. There are many people without much of a financial cushion and if they are in a job, such as the service industry where they work as a waiter or waitress and rely on tips but can’t work, they may struggle to pay their mortgage. This saving on their mortgage will make a real difference.