|SME don’t have enough cash to pay debts –
Analysis by UHY Hacker Young found that the balance sheets of more than 13,500 SMEs showed the average firm had only 95% of the cash needed to pay debts due in the next 12 months. UHY audit partner Martin Jones said: “It’s worrying to see British SMEs struggling to pay their short-term debts already. Coronavirus disruption is going to make the situation even worse over the coming weeks and months. A lot of SMEs have seen their incomes drop precipitously almost overnight. Cost-cutting isn’t going to fix the problem – many will need emergency support from the government, as well as swifter payments from their debtors to make it through this crisis.”
|Is a Stamp Duty holiday on the cards? –
On the day of the 2020 Spring Budget, the Bank of England announced it was cutting interest rates to 0.25% in a bid to curb the economic disruption caused by COVID-19.
Hours after this decision was made, the Chancellor announced a series of reforms to bolster public services and provide financial relief to businesses and consumers. For what was originally touted as Boris Johnson’s first big opportunity to lay down his fiscal plan for the UK, the 2020 Spring Budget was very much dominated by COVID-19.
Since then, a surge in COVID-19 cases has resulted in an indefinite lockdown period in a bid to stop the spread of the virus. The Government has responded by offering financial relief to businesses, including support grant funds, loan schemes for SMEs and large companies, and businesses rates relief.
What’s more, the interests of consumers and investors is also being addressed. Since the middle of March, homeowners and buy-to-let landlords are able to apply for a three-month mortgage payment holiday. So far, over 1.2 million homeowners have taken advantage of this scheme, meaning they did not have to make any mortgage payments during this three-month period. It is important to note, however, that homeowners will still owe the bank the same amount of capital and it shall continue to accrue interest.
The Government has not yet indicated when lockdown measures will be loosened. Some speculate a few more weeks while other believe a few more months is more realistic. Either way, the Chancellor will need to decide whether a second round of financial relief packages is warranted, or at the very least an extension of what has already been announced.
Do we need a Stamp Duty holiday?
When it comes to the property market, in particular, some commentators are worried that COVID-19 will have a direct impact on house price growth in 2020. This has less to do with confidence towards real estate as a safe and secure asset and more to do with the fact that prospective homebuyers will need to financially recover from the impact COVID-19 may have had.
At the moment, it is difficult to tell whether this will be the case. Nationwide’s House Price Index for March revealed a 3% annual increase in house prices – the highest monthly price gain recorded since January 2018. This was attributed to the surge in demand for property witnessed following Boris Johnson’s resounding victory in the 2019 General Election.
With the Government now discouraging people from moving to a new house unless absolutely necessary, there is likely to be a significant drop in the number of sales taking place. The question is how long it will take for momentum to return to the market once lockdown measures have been removed.
With recent reports showing that house prices are likely to fall over the coming 12 months as a result of declining sales and a perceived lack of buyer/seller confidence, industry bodies like the RICS and NFB are in favour of a Stamp Duty holiday.
They argue that by removing this tax for a fixed amount of time, buyers will be more willing to take on new property transactions – thereby boosting house sales and contributing to the rise of house prices. Of course, any such reform would need to be carefully considered and implemented.
Stamp Duty is paid once a transaction has been completed, meaning there is a significant gap in time from when an enquiry is first made through to this tax being paid. This poses practical questions. For example, will the holiday period cover buyers who complete on a sale within a given timeframe? And would the holiday apply to all buyers, including buy-to-let investors? These are just some of the details that will need to be confirmed.
Preparing from the coming months
While not wanting to downplay the seriousness of COVID-19, it is important not to let negative forecasts about the property market overshadow the positive movements we saw during the opening months of the year. For now, the virus outbreak is posing immediate challenges which the Government is attempting to address through targeted reforms. Should the pandemic be contained over the coming weeks and lockdown measures lifted, I am confident we will see a subsequent surge in activity.
However, should cases increase and lockdown measures continue for the summer, the Government will naturally need to revisit its relief schemes so that ample support is provided for businesses, consumers and investors.
At this point, it might be worth considering an extension of the mortgage relief holiday and the introduction of a Stamp Duty holiday as well.
|Chancellor unveils ‘bounce back’ micro-loans scheme –
Yesterday afternoon, Chancellor Sunak announced the Government was implementing a new micro-loan scheme for UK businesses. Mr Sunak shared that businesses will be able to apply for new ‘Bounce Back’ loans for up to 25% of their turnover for a maximum of £50,000 – with the Government paying the interest for the first 12 months. The loans will be 100% backed by the Government and available from 9am next Monday (4th May). Mr Sunak insisted that the process for getting this loan would be quick and simple: “There will be no forward-looking tests of business viability and no complex eligibility criteria… There will just be a simple and quick standard form for businesses to fill in.” We will share further details with you over the coming days.
|House moves and viewings to resume in England –
House moves and viewings will be able to resume again in England from Wednesday, under new UK government coronavirus rules.
|Insolvency law shake-up to protect UK companies during pandemic –
Legislation introduced in the House of Commons yesterday temporarily bans landlords from making legal claims for rent owed by businesses hit by COVID-19. The move, described by Colin Haig, president of restructuring trade body R3, as the biggest shake-up of insolvency laws for two decades, is designed to head off a rash of coronavirus-induced bankruptcies. The Corporate Insolvency and Governance Bill also includes a relaxation of “wrongful trading” provisions that hold bosses personally liable if a firm continues to operate when insolvent and introduces “light-touch” administration to allow companies hit by the pandemic more time to get back on their feet.
|Homeowners warned against extending payment breaks –
UK Finance has written to the Financial Conduct Authority to warn that it would not be in the best interests of homeowners to allow borrowers to extend a three-month holiday on repayments to up to six months. The trade body said, “around 60% to 70% of customers can demonstrate affordability to resume full payments at the end of their current payment deferral”. There are concerns borrowers could run into difficulties when faced with the bigger interest bills while banks worry they will be accused of failing to provide enough information when customers sought an extension, leading to a rush of complaints.
|Lenders give 1.9m mortgage holidays –
Figures from UK Finance show that 1.9m mortgage payment holidays have been taken by borrowers in the last three months, equivalent to one in every six mortgages in Britain. On average, £755 is being deferred each month. In addition to mortgage holidays, UK Finance said banks have offered 962,000 credit card payment deferrals and 689,000 breaks to personal loan customers during the coronavirus pandemic.
|Lenders introduce raft of new borrowing restrictions –
The Times’ Kate Palmer reports on fresh hurdles for first-time buyers as lenders attempt to limit the number of risky borrowers on their books. Banks and building societies are declining mortgages to those with deposits gifted by family members, buyers with small deposits and those who have been furloughed or work in sectors at high risk of job cuts, for example. UK Finance says lenders fear the ability of borrowers to keep up repayments in the future and are factoring in a sharp fall in house prices next year. Palmer says landlords are also facing restrictions, with banks favouring properties with high efficiency ratings and limiting lending to portfolio landlords.