Alpa Bhakta is CEO of Butterfield Mortgages Limited
With the UK government moving to support the transition of businesses back to the workplace, the UK is now entering its recovery phase of the COVID-19 crisis. At this critical time, it is vital for employers, investors, and the wider community to consider the necessary precautionary measures needed to safely transition out of lockdown.
As expected, this is easier said than done. While the government is actively promoting a transition back to the workplace, employers and employees are naturally hesitant. There is still a great deal of uncertainty surrounding the COVID-19 pandemic, and bigger concerns over the long-term implications the virus will have on the economy.
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Jumpstarting the economy
Government initiatives to help alleviate the economic damage of COVID-19 have, in general, delivered measured success. The furlough scheme has helped safeguard millions of jobs at risk of redundancy. More important for our purposes, however, is the stamp duty land tax (SDLT) holiday that Chancellor Rishi Sunak implemented on the 8 July 2020.
The temporary stamp duty holiday for the first £500,000 of all property sales in England and Northern Ireland until next March aims to encourage buyers to return to the market. With the housing market a key driver of economic growth and productivity, it is hoped the holiday will incentivise first-home buyers through to property investors to take advantage of this tax break in the coming months.
So far, the holiday has been well received. Figures from Rightmove show that enquires by prospective buyers shot up 75% in the two weeks following the tax holiday’s announcement. What’s more, Nationwide’s July house price index revealed 1.5% annual house price growth.
While it may take some time to properly analyse this policy’s effectiveness, these initial signs are promising nonetheless.
What should be considered a priority, however, is ensuring that buyers actually have access to the financing needed to take advantage of the discounts on offer through this SDLT holiday. Otherwise, one cannot help but feel as though this policy reform will only have a limited success.
Responsible lending from responsible lenders
Back in March, the government agreed that those with mortgages who had been adversely affected by COVID-19 could be offered forbearance by their lender; essentially a mortgage payment holiday scheme.
However, it has been reported that those who took part in this scheme could be denied mortgages over the coming months. I recently explained in the Daily Express how lenders, when considering whether an individual is in a position to take on more debt, may consider the applicant’s participation in the mortgage repayment scheme a negative mark.
A recent study commissioned by Butterfield Mortgages Limited showed this is not an unrealistic proposition. In fact, 50% of the homebuyers and homeowners we surveyed stated that they had recently been denied a mortgage despite having an agreement in principle, with a third (31%) actively losing their deposit as a result.
Responsible lending must be demonstrated, then, as government efforts to get the housing market active again take shape.
As we see the return of 90% loan-to-value (LTV) loans to the market, lenders are – in theory – eager to lend. But we must not overlook the importance of responsible lending.
Loans should not be deployed to those buyers who are not in a position to take on more debt. At this point in time with so much uncertainty still in the air, we want to encourage good practice so that we are protecting the financial security of homebuyers.
Those seeking to pursue a property purchase and utilise the SDLT holiday should speak with a mortgage provider or financial planner soon, to understand the options available.
I am optimistic that lenders will take a responsible, helpful attitude when reviewing applicants given recent events, and that we can all enjoy the benefits of a strong UK property sector resurgence sooner, rather than later.