Real Estate Finance Insights

Real Estate Finance Insights

Chancellor Rishi Sunak's 2021 Budget was designed to continue to support individuals and businesses, begin to fix the economy and start to build a forward-looking green economy. 

But what was in it for Britain's property development and investor community?

Initiatives such as the extension of the Stamp Duty holiday and a new mortgage guarantee scheme (more of which later) will be welcomed by the sector, but the measures taken to protect household income are equally significant. 

By extending the furlough scheme to the end of September and providing additional support for the self-employed - giving the economy time to reopen and recover as the country emerges from lockdown - the Chancellor has both delayed and lowered any future unemployment peak. For owners of private rented schemes, this means a higher proportion of rents will continue to be paid from existing occupiers, with more new occupiers likely to have the confidence to commit to new tenancies. As a residential lender, I believe this will support debt serviceability and investment values for landlords. 

Due to this support, and alongside the use of mortgage holidays, there has not been a flood of repossessed homes coming to the market. This would cause increasing supply and put downward pressure on prices of existing stock and GDVs of developments coming towards completion. Together, these measures will indirectly continue to support the successful growth of SME housebuilders and investors and drive the supply-side.

On the demand-side, the Stamp Duty holiday for properties priced up to £500K introduced last year was due to finish at the end of March. The extension to June was widely anticipated, but a further extension to September for properties priced up to £250K was a surprise. 

Whilst some will debate the benefits of lower transaction taxes offset by higher house prices, there's no better indicator of the significance of this measure than the surge in the share prices for listed housebuilders immediately following the Chancellor's Budget delivery. The lower threshold will still apply to around 45% of all house purchases, so remains a major stimulus.

The widely trailed mortgage guarantee scheme is similar to the Help to Buy: Mortgage Guarantee scheme launched in 2013 and sees the return of the 95% LTV mortgage. The scheme allows lenders to purchase a 'top slice' government guarantee up to 80% of the purchase price, at a commercial cost, and is designed to help low equity and first-time buyers struggling to save for a deposit.

Again, there was a surprise, with the mortgages available on properties up to £660K - above the average house price in all regions of the UK in January 2020 - and therefore clearly aimed at supporting a broad portion of the property market. It will come into force in April, with a number of High Street banks already signed up. We'll have to wait and see what interest rates will be attached to these products - I anticipate they'll be on the high side, with long-term fixes highlighted as a preference in the government's budget supplementary guidance released yesterday. The existing, tougher, Mortgage Market Review affordability criteria may also continue to be a barrier to entry whereby households now have a deposit but cannot afford the mortgage.

The scheme is again expected to support house prices by increasing the number of participants in the market, rather than making properties more affordable. There may also be implications for the rental market with both Build to Rent and private landlords seeing their 'Generation Rent' customer base given government support to buy instead. Landlords will have to continue to work hard to provide high quality, well located spaces with excellent shared amenities to avoid this.

It was a confident performance from the Chancellor, and confidence is a large part of what makes the economy tick. However, there are undoubtedly some choppy waters ahead. Public sector borrowing is at its highest since the war. This debt needs servicing and is subject to fluctuating interest rates. President Biden's trillion-dollar stimulus package stoked inflation fears in the US and recently caused a bond tantrum across sovereign markets, demonstrating our vulnerability to macro-economic forces. Tax rises are also coming down the line, including a large hike - from 19% to 25% - in Corporation Tax. 

However, when it scrutinised the Chancellor's plans, the Office for Budget Responsibility (OBR) adjusted its forecast for UK plc. Unemployment is anticipated to be lower than its prediction back in November 2020 with 1.8m additional people staying in work, and the economic recovery is expected to be quicker when restrictions are lifted. That's welcome news, and not just for the property market.  

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