Stamp duty to CBILS: Industry predictions for the Spring Budget 2021

Budget 2021: Ahead of Chancellor Rishi Sunak's (pictured) Spring Budget speech later today, industry experts have predicted a raft of potential measures coming into force, from an extension to the stamp duty holiday to practical supports for small to medium enterprises (SMEs).

The most pressing concern among many in the property market is the impending end of the stamp duty holiday, which removed the tax on purchases up to £500,000 and has vastly stimulated demand and activity, on 31 March.

Due in large part to the backlog resulting from the release of pent-up demand, there are many transactions that could fall through if they are not completed in time; there have been widespread calls for action from the government, either in the form of an outright extension or a tapering off for those who have already started the process.

In the lead up to the Chancellor's speech, various rumours have circulated about his intended measures, ranging from a six-week buffer for just those who need more time to complete, through to a three-month extension of the holiday as it is now.

Craig McKinlay, new business director at Kensington Mortgages, said: "Previously, there was a rumoured six-week extension, which kind of makes sense because you get the people who just fall outside. Otherwise, it's up to £15,000 that you might have to find at short notice - which is a hell of a lot of money.

"But since last week, there’s now the potential confirmation of a three-month extension. While this will prevent a bottleneck at the end of the month, when you consider the process of buying a home takes at least a few months, this will still be too tight for most.

"It will just drive another spike, because people who weren't going to move, may now say 'oh I might be able to buy in three months'.

"We'll likely see a big influx again and then potentially end up in the same situation further down the line. In our view, the current threshold should just be made permanent."

For McKinlay, this is a matter that goes beyond the need to stimulate demand during a pandemic, and the government should in fact be looking at long-term changes to the stamp duty threshold.

He said: "We did some work with CEBR which revealed a permanent cessation of the stamp duty under half a million could lead to a fiscal surplus for the UK treasury of £139 million a year - generated by higher transaction volumes, increased property prices, household consumption, and housing market activity."

Paresh Raja, CEO of Market Financial Solutions (MFS) agreed that an extension to the stamp duty holiday is warranted.

He said: “House price growth has been stagnating in recent months, and I believe this is partly due to the uncertainty surrounding the stamp duty holiday.

"Will the Chancellor extend the holiday to the end of June? Or will he stand firm on the current deadline date? Based on the success of the holiday, it makes sense for him to consider an extension."

Raja added: “The reality is that few buyers will be in a position to complete on a sale by the end of March, which is why anyone who wanted to take advantage of the holiday would have already acted weeks ago. That being said, I don’t believe the holiday has run its course.

"Prospective buyers know that completing on a transaction could take months, not to mention the time needed for a mortgage application to be received, processed and approved. If they act now, it is unlikely the transaction will be completed by the current deadline.

He also agreed with McKinlay that there could be negative ramifications: “If the holiday is extended, I’d anticipate an immediate spike in demand from buyers, similar to what we saw when the holiday was first announced.

"My concern is that a three-month extension might not be enough for buyers to get their finances in order.

"Two months after the stamp duty holiday was introduced on 8 July, a survey by Market Financial Solutions revealed that 32% of prospective homebuyers looking to take advantage of the holiday had been denied a mortgage.

“Should an extension to the holiday be announced, prospective buyers might still struggle when it comes to having the necessary finance in place.

"That’s why it is important for buyers to engage with lenders who are willing and able to work with them so that loans can be arranged ahead of any new holiday deadline.”

Roxana Mohammadian-Molina, chief strategy officer at Blend Network, added: “Pretty much all players in the property market are eagerly awaiting Mr Sunak’s announcement.

"We very much welcome measures such as the rumoured six-week extension of the stamp duty holiday, which has provided the opportunity for buyers to save up to £15,000."

However, she added that this alone would not be enough to cater for the market's needs in the wake of the pandemic.

Mohammadian-Molina said: "We as lenders and providers of development finance recognise the urgency for the UK government to introduce measures that tackle both the supply side and the demand side of the property market.

"While we welcome additional help for first-time buyers, we believe a sole focus on policies that support demand without tackling the supply side of the equation risk further inflating prices in the medium to long term.

"Therefore, we would like to see additional support for SME property developers and concrete measures to achieve the government’s target of 300,000 new homes per year by the middle of the current decade.

"One very concrete and effective way to support those SME property developers is to channel funding through alternative lenders and [peer-to-peer (P2P)] lending platforms.

"Throughout the pandemic we have seen how alternative lenders and P2P property lending platforms have demonstrated they can and must be part of the solution to the UK’s housing crisis by deploying funding to property developers.

"We hope the government will recognise the key role of alternative lenders and invites them to the discussion table on how they can be a strong ally to help solve this country’s housing crisis.”

For Phil Mabb, property finance broker at Bridge Development, another key element to the Budget must be the extension, in some form or another, of the support provided by the Coronavirus Business Interruption Loans Scheme (CBILS).

Mabb said: "If you look at the logic of it all, CBILS was brought out and it took two or three months for any lenders to actually get to grips with it. There wasn't enough resource, enough money, and lenders are still coming to the market now.

"There is still a legitimate demand - there are still people who were affected by COVID-19 that haven't been able to benefit from CBILS as a product set, so we need an extension, further facilities and possibly new lenders to come to market, though I suspect it will be more a case of existing ones rolling out further funding lines."

For Mabb, the extension of CBILS, or implementation of the next stage of its evolution, is almost a certainty.

He said: "I'm confident that it's not a case of if, but when, and more importantly how it's going to be structured."

Mabb pointed to discussions around implementing something similar to the British Business Bank's Enterprise Finance Guarantee (EFG), which facilitates lending to smaller businesses that are viable but unable to obtain finance from their lender due to having insufficient security to meet requirements.

However, with more than two million UK SMEs having taken out government-backed loans since the onset of the pandemic, the Federation of Small Businesses (FSB) has predicted that repayments could see the demise of around 250,000 businesses within the next 12 months alone.

Luke Davis, CEO of IW Capital, said: “Throughout the year we have seen such a fast injection of cash into SMEs in the form of government-backed loans, that are simply not tailored to the business’ growth trajectory.

"This has therefore left these businesses in a worse off position than before, as they are now drowning in debts that they cannot pay off.

"Yes, the government has introduced schemes that aim to aid the repayment of these loans, but overall they will just delay the inevitable unless we see a more practical solution.

“Funding from private investors will be a key part of our economic recovery and the success of small businesses that were previously creating jobs at a rate three times as fast as large firms.

"Private debt is much more manageable and flexible than government debt, so encouraging investment into these businesses is something that needs to be promoted and supported in the upcoming Budget."

He added: “We need to see more practical support needs offered to businesses, too many have been overlooked and we are now seeing the shortcomings of the government’s COVID relief strategy.

"Private capital has proven to be fundamental in helping UK businesses weather the storm, and recover and grow post-pandemic."

One issue that has been less widely discussed, dwarfed by debates around stamp duty, moratoriums and CBILS, is that of the government-backed Enterprise Investment Scheme (EIS), which encourages investors to back early stage businesses.

Through the scheme, over £22bn has been raised for 31,000 small firms. The scheme was extended in 2011 - increasing income tax relief from 20% to 30% - and the amount invested increased by 87%, providing an extra £472m.

According to IW Capital, a similar extension in the Chancellor's budget announcement could result in a comparable rise in interest and funding.

Another 87% increase, for example, would see investment each year rise to around £3.4bn. The immediate extra hit to public finances would be around £150m.

Davis said: “The last time EIS was extended, the amount of capital flowing into small businesses looking to grow increased a huge amount.

"This time round there is, if anything, more demand from investors for this kind of opportunity and more demand than ever from ambitious entrepreneurs.

"It is hard to see a way for the Treasury to make such an impact on the economy and growing SMEs, which are so vital to our public finances, outside of the EIS.

"It has proven to be one of the most successful schemes brought in over the last 25 years.

"In our experience, the businesses that receive this investment go on to grow and create jobs, one of the firms we supported in March has since almost doubled its workforce.

"This has an obvious impact on public finances in the form of increased income tax revenues and the taxes growing firms pay, and the services they provide."

He added: "Investment into UK SMEs, and the extension of EIS and loan support schemes, would be far more efficient than any government loan scheme, and vital to the resurgence of the UK economy, with the SME community making up 99.9% of private sector businesses."

Finally, the market is looking out for the government to extend various other support measures, including the moratorium on repossessions and evictions, as well as the furlough scheme.

Conversations around the large deficit that is yet to be repaid, created and exacerbated by the pandemic and the ongoing support systems in place to help businesses and individuals weather the storm, tend to converge on one point: now is not the time for the government to consider recouping its losses.

McKinlay said: "We may also see an increase in the moratorium on repossessions and then of course, will they extend the furlough scheme and payment holidays? Those are the big ones to watch out for. While they will come at some point, I’m not expecting any tax increases at this stage, as the government doesn’t want to strangle any recovery."