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.