BASE RATE, BUDGET AND THE VIRUS – WHAT DOES IT ALL MEAN?

Well, today has been, erm, bloody odd to be honest.
Firstly I am in Dubai, so whilst sat sipping coffee, I got a message through from a friend saying “base rate reduce by 0.5%, what do you think.”  Before my next swig of the sweet necessity in my life, I headed to BBC to see the truth.
Base rate had indeed been cut by 0.5%, as an emergency measure, to stimulate the investment market, because of CORONA VIRUS fears.  Wait, what?  I am supposed to be scared of Corona Virus?  (more on this later)

So firstly, lets look at the base rate reduction to a record low and the relaxation of capital rules (meaning lenders can lend more money to borrowers than previously) in isolation.

GREAT NEWS!!!  For borrowers and those investing money.  There will be many sat on a variable rate mortgage who have just seen a substantial saving on their monthly expenditures (thus more cash flow) and lenders will likely reduce the fixed rate mortgage offerings in the coming days.
More money available to lend, at cheaper rates.  Sounds pretty bloody good to me.
When money is liquid and rates are low it is time to fill your boots.
Remember this decision has been driven by fear.  As my favourite spiritual guide, Warren Buffet, famously said ‘be fearful when others are greedy, and greedy when others are fearful.’  Those words have been ringing in my ears all day, drowning out the incessant chat of CV.

BAD NEWS!!!!  For savers.  Your already abysmal saving rates, just got a whole lot worse. The decision was made to stimulate investment and to stop people hoarding (in every way) through fear.  They are literally punishing you into some action (I hope), in order to stave off a CV induced recession.  So, if you want to get more than terrible savings returns you need to take some educated action, or work with someone who can.

So by midday Dubai time, (8am UK), I had already got rather excited.  So much that I had even forgot about the 2020 Budget scheduled for later in the day.  Once I remembered, I started to get even more excited (sad I know) about the impending changes that Rishi Sunak would surely make in our industry to stimulate the need for housing and property development…..

So, as I sit (whilst drinking coffee with a UK property investor based in Dubai) watching and recording updates on the budget, waiting for something momentous in our industry to get my teeth into.
Planning reform – lets bring more houses into operation?
Stamp Duty incentives –  are they going to drop the 3% surcharge, or increase the lower threshold?
Clause 24 – will they abandon the unfair (IMO) tax on landlords turnover, whom own properties in their own names?

Nope.
Corona Virus.
The budget was pretty much a budget aimed at Corona Virus.
Wait, so should I be shitting myself now?  I will be honest, I still don’t know, but a budget aimed in the large at a Virus and our countries protection will certainly go some way in fuelling project fear.

What did happen for our industry, well to be honest, not much.  However here is a snapshot.

•  Entrepreneurs relief – this will remain, but the lifetime allowance has been reduced from £10m to only £1m
  Simply, entrepreneurs relief is the tax reduction (to 10%) on the proceeds of the sale of a company (a significant saving on the capital gains tax that would be payable).  So previously on a £10m lifetime of business sales, you would pay £1m in tax.  Now anything above £1m you will pay 20% + tax on.
•  Stamp duty surcharge for foreign buyers of properties in England and Northern Ireland to be levied at 2% from April 2021.  This will not apply to Ltd companies with offshore directors and shareholders apparently.  Which begs the question, “what is the point?”  The point is they said they would do it in their election manifesto, and they hope that Joe Public overlook the detail and think that they are being helped.  Anyone “in the game” knows that this is business as usual, as international investors will continue to buy in UK ltd companies without the surcharge.  Basically, a cheap vote winning load of nonsense (being polite).
•   Business rates.  Probably the best one but still missing on detail.  A £3000 cash grant available for those who qualify to pay small business rates relief.  Allegedly the business rates system for the high street will have a full assessment later in the year, but we have heard that before.
•  More than £600bn is set to be spent on roads, rail, broadband and housing by the middle of 2025 – how much his housing?  Need more detail.  £650m package to tackle homelessness, providing an extra 6,000 places for rough sleepers.  I like this, but it doesn’t scratch the surface as that is less than 25% of the current rough sleeping numbers (of those reported), not to mention the many who are not on the streets, but are still classed as long term homeless (due to being in temporary and/or emergency residency)

In the coming days more detail may come out, and there may be some hidden nuggets (I will edit the post later for anything worthy), but it seems this budget is all about Corona, and no need for a lime, although I am feeling a tad bitter.

Now, as someone who doesn’t really watch the news, I will be honest – this was soooooo not on my radar.
Beyond seeing the videos on social of all the balloons in Costco fighting over bog roll (I swear to god, in years to come they will look back and wonder what the f**k their ancestors were on) and hearing about the new found value of hand sanitiser from memes offering a Rolex trade for 100ml of hand cleanliness, I thought this was a massive hype train.  I will be honest, I still do.
After looking at stats today (inspired by the budgets commitment to the cause) I can’t help but feel that the development of social media, whilst having a great influence in many areas, can turn a mole hill into a mountain.  It is clear that people are sick, and sad that so many have died, but as a numbers guy the stats just do not justify the reaction in my opinion.
Action absolutely should be a thing, and it is good that the government have taken it, but it seems to be at the expense of everything else that may have been in the budget (take out CV and next to nothing happened in many areas) .   I feel like they can, and will stabilise things very quickly.
To put it into context, a good friend shared some stats comparing China (the worst impacted and seeming origin of CV, that is now seemingly stabilising) death rate VS deaths through road accidents in the UK in 2018.

Death rate in China due to CV to date – 1 in 454,401 (1.435bn population / 3158 deaths)

Death rate 2018 UK traffic accidents gave you a 1 in 37,536 chance

Effectively you were 12 times more likely to die of a road accident in the UK in 2018 than you are to have died of CV in China to date.
Did we ban all cars?  Tell everyone to lock themselves up and to not get in a car?

(also before anyone says that “it was contained in one small part of China quickly) – that small part of China is 60 million people in population…….. (UK population is 66.44 million as of 2018, with 33.6m holding a driving licence) )

So, my conclusion, albeit semi-researched at best, is that CV is actually a thing…..I wasn’t previously sure.  However it is nowhere near as big a thing as being made out, and as usual it’s often the reaction to an event which makes the situation worse than the event itself.  Great the government are taking action, as they should.  However, my concern is that the impact of the reaction may well cause more harm than good.  Markets have already reacted, base rates have fell and governments (and their people) are scared.  For me it will breed opportunity (see Warren Buffet above) but for many others it may well fast track a recession that could have been delayed.

PS I have been asked many times today “are we on our way into recession” – my answer has been we are always on our way to a recession……. a fall follows a rise as sure as night follows day.  I have done a video on the property cycle (Pre CV) on YouTube that you can watch here:

YOUTUBE VIDEO ON THE CYCLE

Next question – “well does that not worry you.”

Answer – “nope.”

OK I will elaborate.  It doesn’t matter what the market is doing as long as you have the right strategy in the right market, at the right time.  You can make money in an up, a down, a still, and a swirly twirly market if you know what you are doing and are applying yourself well.  For an investor, as sad as the reality is, a recession often brings great opportunities.
Remember Uncle Warrens words.
‘be fearful when others are greedy, and greedy when others are fearful.’
and
‘observe the masses and do the opposite’
They have never been truer than during a recession.

Nor has the following, which I will sign out with love with…….(speak again soon)

PS by the next blog post I am hoping CV has been and gone……