Vanessa Hale

Director, Research

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Economic overview

With millions of people affected across the world by the COVID-19 public health emergency, the macro picture is changing constantly. New data is emerging around COVID-19 cases, central banks and governments are seeking to support their unwell citizens, we are witnessing pressured healthcare systems and challenged economies. On the latter, with a triple shock of supply, demand and financial markets impacted by the global pandemic, the intervention is wide-ranging and for the most part rapid.

With the unfolding events, a UK recession is unavoidable. That said the upside risks include a rapid recovery and the fiscal policy measures feeding into growth quicker than anticipated. The extent of the economic shock from COVID-19 is difficult to quantify, although there are lessons we can take from China in order to understand the impact. The latest Chinese PMI data indicates that the economic shock is more severe than the 2008 financial crisis with the services sector taking a bigger hit than manufacturing. Historic analysis shows that each index point above or below 50 adds or subtracts 0.1% from the quarterly growth rate, and the latest Chinese data would suggest that COVID-19 is likely to have halved China’s economic growth in Q1 2020. The next release (24 March) of UK PMIs will be key to understand the impact on the UK economy so far.

Turning to the UK government intervention, at the Spring Budget two weeks ago, the government announced a wide-ranging £30bn fiscal stimulus package, closely co-ordinated with strong monetary action. As the public health emergency evolves rapidly into an acute economic crisis, however, the government has been forced to expand drastically on these measures. In addition to earlier measures, as of Friday (20th) evening, all pubs, restaurants, gyms, leisure centres and cinemas across the country were requested to close. Take-aways are excluded from the new measures, and the closures will be reviewed on a monthly basis.

Recent government measures impacting homeowners and renters:

Interest rate cuts

The Bank of England announced two emergency cuts in interest rates in the space of eight days in response to the financial impact of COVID-19. The Bank's Monetary Policy Committee first cut the base rate from 0.75% to 0.25% on 11 March, only then to reduce it again to 0.1% on 19 March – the lowest level ever.

Homeowners with tracker mortgages will see an immediate reduction to their monthly mortgage payments. However, many homeowners on fixed-rate mortgage products will not directly benefit, although we expect this cut will stimulate re-mortgaging activity.

Mortgage holiday

The government has agreed with mortgage lenders that they will offer repayment holidays of 3 months to households in financial difficulty due to COVID-19. This will also apply to landlords whose tenants are experiencing financial difficulties. The government will also introduce interest payment holidays for people struggling to pay back Help to Buy equity loans because of COVID-19.

For homeowners in financial difficulty due to COVID-19, the mortgage holiday will offer much-needed breathing space when it comes to repayments. According to the BSA, lenders will make efforts to ensure forbearance offered under these circumstances will not result in an adverse impact on the customers’ credit scores. However, interest will still be accrued over the payment holiday, meaning that the monthly mortgage cost will increase once payments resume, to cover the added interest.

Tenant evictions

Emergency legislation will be brought forward so that landlords will not be able to start proceedings to evict tenants for at least a 3-month period. This applies to private and social accommodation. After that point, landlords and tenants will be expected to work together to establish an affordable repayment plan, taking into account tenants’ “individual circumstances”. These measures will provide relief for tenants faced with the threat of eviction, and potential homelessness, over the coming months.

Additional recent government measures:

Chancellor Rishi Sunak said the economic intervention he announced is unprecedented but necessary. In summary, the recent changes cover:

1. Loan schemes

• £330bn of state loan guarantees to aid businesses with cash flow – some 15% of UK GDP – with the option to provide more if demand exceeds this.

• Short-term bridging finance for Corporates in the form of commercial paper bought by the Bank of England – a form of quantitative easing to directly inject liquidity into large businesses.

• Business interruption loans for SMEs of up to £5m, interest-free for 12 months (up from 6 months) – up from the £1.2m limit outlined in the Budget. We understand they will be available from today, Monday 23rd March.

2. Direct financial aid / deferments

• Cash grants of up to £25,000 for retailers and hospitality businesses under the £51,000 rateable value threshold to help with rent and wage bills.

• £3,000 grant for the smallest businesses announced last week increased to £10,000.

• Universal Credit standard allowance to be increased by £1,000 a year and working tax credit increased by same amount. Sunak also outlined help for self-employed people - suspending the minimum income floor for universal credit. That means self-employed people can now access, in full, Universal Credit at a rate equivalent to Statutory Sick Pay for employees.

• Deferring VAT for all businesses until the end of June (represents an additional £30bn injection into the economy). This means no business will pay VAT until June and will have until the end of the financial year to repay those bills. That should help companies struggling with a cash flow crisis.

• Introduction of the coronavirus job retention scheme. Companies and organisations will be able to apply for a grant from HMRC to cover the wages of people who are not working due to coronavirus shutdowns, but who haven’t been laid off. It will cover 80% of the salaries of these retained workers, up to £2,500 per month.

• Further support for the self-employed through the tax system, with the next self-assessment payments will be deferred until Jan 2021 from July 2020.

• For renters, nearly £1bn of support provided by increasing housing benefit and Universal Credit, thereby allowing the Local Housing Allowance to cover at least 30% of market rents.

Vanessa Hale, Head of Insights and Residential Research, Strutt & Parker

Guy Robinson, Head of Residential Agency, Strutt & Parker

Louis Harding, Head of London Residential, Strutt & Parker

Kate Eales, Head of National Lettings, Strutt & Parker