So, the new Chancellor has delivered his first budget. What were the key points? Well firstly, as expected, it was totally overshadowed by the Corona virus and a whole package of measures designed to help businesses cope with the effects. We won’t go into these here. Looking specifically at the housing market, it hasn’t really provided much to write about. The now customary promise to build more homes was there and there were probably three key things that are important for the housing market.
There was no stamp duty cut for anyone, but the expected surcharge for foreign buyers did happen. Interestingly this was at 2%, (rather than the expected 3%) and mooted to start in April 2021. That probably means an upturn in activity over the coming year before the surcharge kicks in.
There is a new £1 billion fund to help remove unsafe cladding from private and public buildings higher than 18 meters. Whether that’s anywhere near enough, only time will tell. Finally, there is an extension to the affordable housing program with a new £12bn settlement.
Bank Rate cut to historic low of 0.1%
No sooner had the Bank Of England reacted to the onset of Corona virus on March 11th with a cut of 0.5% in bank base rate, they followed it up with a further cut on March 19th to take the rate to its lowest in history, 0.1%.
For those on a tracker mortgage, some 11%, the drops will take effect in the next few weeks, and for those on Standard Variable Rates (SVR) the same will hopefully happen. Clearly, by their very nature, fixed rates will not change, but if you are close to the end of your current deal speak to your mortgage adviser to see what is available from your current lender or indeed whether to search the market for a more competitive rate. So, the message, as always, is keep in touch.
So, what has been the effect of the dramatic drop in bank base rate and what happens to interest rates in the wake of the Corona virus?
The Bank Of England will be looking closely at what lenders will do following the fall in base rate. The Financial Policy Committee (FPC) and Prudential Regulation Committee, who are responsible for the supervision of banks, building societies and major investment firms, will also monitor the situation closely. Already we have seen lenders drop their Standard Variable Rates, the latest being HSBC reducing their SVR from 3.69% to 3.54%.
The Monetary Policy Committee (MPC), who ultimately have the responsibility for setting base rate, said it expected a reduction in both lending activity and GDP over the next few months along with falls in inflation from 1.7% in February to below 1%, following sharp falls in oil prices and subsequent falls in fuel prices at the pumps.
Having said all that the bank went on to say ‘The nature of the economic shock from Covid 19 is very different from those to which the MPC has previously had to respond’ and, signalling a more upbeat tone, they also said ‘The scale and duration of the shock to economic activity, while highly uncertain, will be large and sharp but should ultimately prove temporary, particularly if job losses and business failures can be minimized’.
Lastly, we appreciate that these are times of uncertainty so whether you want to review your current mortgage or look to raise extra funds, please do contact your adviser.