The well-intentioned schemes were rushed into place by the Government as a consequence of the pandemic, to help resolve immediate financial issues. However, it was always going to be hard to assess the long-term impact and the scale of the financial burden such schemes might have on lenders and ultimately the Government-backed British Business Bank. 

1,670,939 government-guaranteed loans worth £79.3bn have been provided to businesses struggling as a result of the pandemic. These loans helped support their cash flows during the crisis through the Bounce Back Loan Scheme (BBLS), the Coronavirus Business Interruption Loan Scheme (CBILS) and the Coronavirus Large Business Interruption Loan Scheme (CLBILS). Broken down, this equates to 1,560,309 BBLs worth £47.36 billion, 109,877 loans worth £26.39 billion through the CBILS and 753 loans worth £5.56 billion through the CLBILS.

What the BBLS and the CBILS provided

The Bounce Back Loan Scheme (BBLS) was aimed at smaller businesses and provided loans of £2,000 to £50,000 and the Coronavirus Business Interruption Loan Scheme (CBILS) offered loans up to £5 million. Launched to help ease financial strain during the pandemic, both closed on 31 March this year (2021). The schemes were administered by the Government-backed British Business Bank which then accredited certain lenders who applied for the schemes.

These schemes promoted lending and access to fast finance, a lifeline to many smaller businesses when the pandemic struck. Under such arrangements, the Government provided a guarantee to the lender for the borrower’s loan repayments, up to 80% in relation to the CBILS and up to the full 100% for the BBLS approach. Interest payments for the first 12 months are covered by the Government and under the CBILS, the Government also covers any fees levied by the lender. 

In terms of security, under the BBLS framework and for CBILS facilities of less than £250,000, lenders were not permitted to take personal guarantees. If a personal guarantee is provided in connection with a loan under the CBILS, any recovery under the guarantee will exclude the guarantor’s main home and such recoveries will be capped at 20% of the outstanding balance. The lender may still require other forms of security to be put in place under either scheme and a borrower cannot benefit from both schemes concurrently.

Issues: what will happen if and when borrowers default?

In the event a borrower defaults under the BBLS, the lender is able to claim up to 100% of all amounts due under the facility (less any recoveries) from the Government if it confirms that it believes ‘no further payment is likely’. The lenders must undertake an ‘appropriate recovery process’ in accordance with their existing processes but can put in a claim on the guarantee from the Government prior to completing such a recovery process. 

The lender must repay the Government if it subsequently makes any recoveries however, the concern is that the process doesn’t encourage the lender to continue to pursue the borrower or other security provider for the sums owed if they can make a claim under the Government guarantee. 

This has far-reaching consequences as this approach may encourage many lenders of BBLS, of which there were 1,560,309 loans provided worth £47.36 billion, to make a claim under the guarantee from the Government, which is ultimately funded by the taxpayer. 

It is understood that recoveries under the CBILS are similar; the lender must follow its usual recovery process in a default situation which is in line with the approach for dealing with non-CBILS debt. This will likely involve the lender enforcing its security because a lender may be more inclined to take a full security package in connection with loans under the CBILS rather than BBLS loans as the value is likely to be higher and the Government guarantee is limited to 80% for all CBILS loans. 

As in relation to BBLS loans, the lender can put in a claim on its Government guarantee and if the Government has paid out and the lender makes recoveries, then 80% of those recoveries which relate to CBILS debt, should be returned to the British Business Bank. 

There is a process for apportionment of enforcement recoveries between CBILS and non-CBILS debt. Recoveries from any security which expressly relates only to the CBILS facility should be applied solely in satisfaction of the CBILS debt. Standard ‘all monies’ security should be applied first towards any prior and/or simultaneous non-CBILS debt and secondly, pro-rated between any CBILS debt and subsequent non-CBILS debt. 

Reliance on the Government Guarantee

Fundamentally at the core of the schemes is the reliance on the Government guarantee, which will undoubtedly raise issues around the eligibility of loans made, for example, were lenders’ underwriting processes sufficient? There will also be major concerns around enforcement as it is impossible to gauge how motivated a lender will be to pursue a borrower if the lender can lawfully call on the 100% guarantee for BBLS and 80% guarantee for CBILS. Ultimately given the state of the economy post-pandemic and the termination of broader schemes, such as Furlough under the Coronavirus Job Retention Scheme which ended at the end of September, borrower defaults are expected. 

Fraud cases are also inevitable. Reportedly strike-offs of companies from Companies House increased to 39,601 in the first three months of 2021 compared to just 4,695 in the same period in 2020 which means many companies were incorporated but left inactive and could be an indicator that some companies were being set up for nefarious purposes such as CBILS and BBLS loan fraud. Increased powers for insolvency practitioners may be necessary to investigate dishonest directors in these scenarios and lenders can apply to court to restore companies to Companies House to pursue them but this is not ideal. 

The next few months to a year will certainly be telling in terms of the true fallout when borrowers predictably, and perhaps unavoidably, default under the Government’s £79.3bn coronavirus loan schemes. 

About the author: Alexander Pelopidas, partner at Rosling King, provides advice to a variety of clients in the private and public sectors in relation to finance, corporate and commercial matters with a particular focus on the real estate finance market. For more information visit www.rkllp.com or email Alexander directly at alexander.pelopidas@rkllp.com. 

This article is intended merely to highlight issues and not to be comprehensive, nor to provide legal advice.  (more…)

Bosses at Royal Mail say £200 million will be spent on a buyback of shares while £200 million will be handed out as a special dividend. The company said it made the decision as it greeted a structural shift, “We believe the Covid-19 pandemic resulted in a structural shift, with a permanent step up in the level of parcel volumes compared to pre-pandemic levels, driven by increased online e-commerce activity.”

Royal Mail’s revenues have jumped from £5.7 billion to £6.1 billion while pre-tax profits were up from £17 million to £315 million in the six months to September compared with the same period last year.

Thanks to the changes, Royal Mail has said it expects to become debt-free within the subsequent two years. Its net debt has been reduced from £1 billion to £540 million in the past 12 months alone, with domestic parcel volumes up 33% compared to pre-pandemic levels. 

Key statistics from both reports include:

• 97% of consumers now make monthly retail purchases online.

• Half of UK stores now offer same-day in-store pick-up.

• 73% of consumers have bought products directly from social media in the past month, and 35% would be interested in a virtual reality (VR) shopping experience.

• 98% of restaurants have had to reorganise their business in order to survive the past 12 months.

• One in four consumers consider contactless technology to be critical to their dining experience.

• 91% of restaurants expect to earn revenue from takeaways in the next twelve months; while one in five expects the majority of sales to come from delivery and takeout sales.

Following the launch of these reports, Finance Monthly speaks to Justin Carty, owner and director of Square seller Coffi Co about the pandemic, the evolution of Coffi Co over the past 18 months, and the company’s goals for the next five years. 

Throughout the peak of the pandemic, what were the toughest challenges that Coffi Co faced?

The last 18 months has presented unprecedented challenges to businesses of all sizes. For Coffi Co, one of our most difficult challenges was adapting to changing regulations to ensure we could keep our employees and customers safe, while still remaining open. 

In a month’s time, we went from implementing social distancing, to closing up all of our shops. From there we totally changed our business and how we operate. We set up a home delivery service, click-and-collect offering and built a Coffi Co app to make it easy for customers to get their Coffi Co favourites, in a way that suits them best. 

This month brought about an incredible amount of change, but having the right platforms in place ensured we could transition from in-store only to click and collect and home delivery quickly, which was essential to our business. For us, Square was invaluable in helping our business transition during this time of incredible change - enabling us to stay open and continue serving our local community in Cardiff. 

How has your business evolved over the last 18 months?

How we operate as a business has wholly changed over the last 18 months. A year and a half ago, all orders would have been made directly at our shops in Cardiff, but now we only use our order-ahead app. It is simple to register your details and once you’ve signed up the ordering system is simple and easy to use. The response from the app is so positive that all business activity is now driven by Square and their order-ahead app. It’s reliable, very efficient, and has allowed us to continue trading during one of the most unpredictable years to date.

Having the right technology in place has enabled Coffi Co to adapt to changing regulations, implement new offerings and even open new locations, all while adhering to government guidelines to keep both staff and customers safe. One of our main challenges was not having the right tools to manage queues until we found Square. We were a modern operation surrounded by payment systems providers that were stuck in a different decade. Due to the scale of our business, we required a bespoke solution - and have implemented Square for Restaurants POS, which we use alongside Square KDS, Square Terminal and Square Stand. 

Square was able to understand our needs and work to deliver a tailored solution for us, helping to ease the pressure on staff serving queues at the till, so they could focus on other parts of the business. We can now utilise these staff members to run our stores in the day to day operation.

Choosing the right technology has set our business up for growth and success. In the last year we have opened a new seafront location in Penarth and also a Gin and Bake lunch offering, to provide food and drink to our Cardiff community. While the last 18 months have been incredibly challenging for Coffi Co, it also has provided us with the opportunity to evolve and grow in entirely new ways.

What are your goals for the coming years?

At Coffi Co, our ambition has always been to provide the best dining and drink experience for those visiting us in Cardiff. In the next few years, we hope to expand our offerings even further - as now we offer venue hire, and we’re breaking new ground, as we’ve recently opened No. 73 by Coffi Co, luxury rooms and suites for those visiting the city. 

On top of growing our business, we’re committed to continually giving back to our community. During lockdown, we provided free coffees and meals to NHS and frontline medical workers - and we’d like to embrace this community spirit as part of our business and how we operate moving forward.

The Institute of Directors said sentiment had “fallen off a cliff” in September, contributing toward fears that the UK was headed for a dose of 1970s-style stagflation. 

The IoD’s warnings came as Bits continued to panic buy petrol and diesel and road while road traffic fell considerably. Online clothes retailer Boohoo said its profit margins were being tightly squeezed by the higher shopping costs.

The IoD said that the sharp drop in business confidence from +22 points to -1 points in September means a return to February’s pessimism when the UK entered into its third lockdown and many businesses were forced to once again close their doors. 

The IoD’s chief economist, Kitty Ussher, said: “The business environment has deteriorated dramatically in recent weeks. Following a period of optimism in the early summer, people running small and medium-sized businesses across the UK are now far less certain about the overall economic situation and the IoD Directors’ Economic Confidence Index fell off a cliff in September.

“A higher proportion of our members expect costs to rise in the next year than expect revenues to rise. This is not helped by the government’s recent decision to raise employers’ national insurance contributions, which acts as a disincentive to hire just when the furlough scheme is ending.”

In the second quarter of this year, the Office for National Statistics upgraded its growth estimates for the UK from 4.8% to 5.5%. However, activity has slowed down since the middle of the year due to rising infection rates, the “pingdemic”, and supply chain shortages.

UK businesses receiving a portion of the £1.1 billion in funding include a solar power startup, a protein bar company, a VR gaming company, and a producer of kombucha drinks. The Future Fund closed its applications at the end of January 2021, having been established to "innovative companies which are facing financing difficulties due to the coronavirus outbreak."

The government has said that these convertible loans may be an option for companies reliant on equity investment and unable to access other government business support programmes, either because they are pre-revenue or because they’re pre-profit. If not repaid, the loans would convert into equity stakes at the next funding round, with external investors required to at least match the amount contributed by the government. 

158 largely loss-making businesses are now backed by the UK government through the fund. 1,200 startups took loans, meaning Chancellor Rishi Sunak will likely be left with stakes in hundreds of other businesses. 

It remains unclear as to how the government intends to monetise any investments upon maturity of the loans, with firm commitments yet to be revealed.  

In the bank’s latest survey of over 550 market professionals, it was uncovered that 58% of respondents expect a change of up to 10%. Meanwhile, 10% of respondents are forecasting a sharper sell-off in the equity market, and nearly 31% of investors believe that the markets will reach 2022 without seeing a decline. 

The survey revealed that the greatest risk to the current relative market stability was new variants of the Covid-19 virus that are vaccine-resistant. 53% of survey respondents said that this was the factor that concerned them most. Other prominent concerns included economic growth that is weaker than expected, higher than anticipated inflation, a central bank policy error, and waning vaccine efficacy. 

Other survey respondents also expressed concerns over the debt burden, geopolitics, fiscal policy being tightened too rapidly, and a tech bubble bursting.

The past year has seen global stock markets recover well from the pandemic due to central bank stimulus, government spending, and vaccine rollout programmes. Since the crash in March 2020, global markets have almost doubled, with the FTSE 100 is almost up 8% year-to-date.  

However, economists are concerned that the recovery seen so far is beginning to lose pace as the Delta variant continues to spread across the globe. Deutsche Bank’s survey found that 44% of global investors expect lockdown restrictions to continue as they have been, while 34% of respondents believe further restrictions will be introduced. 

With the pandemic’s influence on the transformation of the traditional ‘office’ for the post-COVID world, tell us a little bit about your offering and how this trend has affected WorkSuites?

People want to be back in the office and are tired of competing with their dogs, partners, and children for time to get stuff done. However, they are also used to the ease of working from home even though they are less productive. Companies are now allowing their employees to work a “hybrid work week” from a remote office location instead of asking them to go to the corporate office every day. Organisations that traditionally have a huge headquarters are now downsizing to smaller offices and incorporating flexible office space and remote working options instead. Flexible office space, or coworking, allows workers to have an office close to home for a few days a week and then work from home the rest of the time. This model is very attractive to workers needing a place that will boost their productivity and doesn’t require a long commute twice a day.

Workers are also concerned with social distancing and returning to the workplace safely. And while coworking is known for its large, open, communal workspaces, the pandemic has made this type of working less desirable. During the pandemic, we had to get creative, which meant coming up with new hybrid coworking memberships. They come with private office use as well as more spacious daily desk rooms and other amenities. Our new hybrid coworking allows workers to go to a physical office and benefit from human interaction, while also having privacy at the same time.

What are your predictions for the future of workspaces post-COVID?

In a survey completed by Gensler, known as the US Workplace Survey 2020, the architectural firm discovered that post-pandemic, 52% of the surveyed employees desired a hybrid-work model with some on-site office work and significant time spent at home or working remotely. We do not think this is going to change anytime soon. The way people can work has evolved and the hybrid work model accommodates every kind of worker, while helping large companies attract and keep great employees. For over 20 years WorkSuites has specialised in private offices for small companies and entrepreneurs in DFW and Houston. We believe that executive suites and coworking will always be our clients’ best and most affordable option and will also continue to be our bread and butter. The flexibility and value of our industry now checks all the boxes for both small and large businesses.

WorkSuites has made it through two recessions and a pandemic because we can easily accommodate companies that need to suddenly downsize or the newly laid-off worker that decides it’s a good time to finally become an entrepreneur, as well as companies that are thriving and growing. Our model is easily scalable. We provide all the amenities and services needed to start or run your business so you can focus on growing. 

From a financial point of view, what are the advantages of your offering?

Running a business can be expensive but WorkSuites makes running your office affordable and easy. Our clients pay one monthly fee that includes everything you can think of. You get your own professional receptionist, mail and package handling, telephone service and answering, high-speed internet, a fully furnished office, printers and copiers, unlimited coffee, a full-service kitchen and a break room, a variety of coworking spaces, meeting rooms, podcast rooms and so much more. If you decide you want to start a business or enter a new market tomorrow, in most cases, we can have you up and running the next day.

CBZ Holdings is a financial services conglomerate that is listed on the Zimbabwe Stock Exchange. It owns subsidiaries whose activities are banking, short- and long-term insurance, risk advisory, asset management, agro-yield, property investments and mortgage finance.

It’s been an extraordinarily difficult year for many. How have you navigated the COVID-19 pandemic and the challenges it’s presented CBZ with?

The COVID-19 pandemic has compelled CBZ Holding to renegotiate its business view and its way of doing business. In this regard, the Group is working towards becoming “an Intelligent Enterprise” as it shifts from top-down decision-making by:

• Empowering teams guided by purpose;
• Performance driven by data and powered by technology;
• Razing rigid structures that emphasise territory and control; and
• Creating a porous organisation with modules that plug and play as unprecedented events evolve with the pandemic impact on business.

Bank Operations

• Limited branches opened to the public for Money Transfer Agents transactions twice a week and other banking facilities were available through our 24hr Contact Centre which is equipped to attend to all Group issues as well as all social media platforms.
• The Bank’s renowned mobile application CBZ Touch assisted customers to continue transacting in the comfort of their homes. In addition, the internet banking and e-platform facilities aided customer operations.

Staff Welfare

• Focused on moving business to digital platforms to enable staff to work from home. Purchased more than 1000 laptops and servers and trained staff for online work processes.
• Provided comprehensive end-to-end medical care and support for staff and their dependents affected by COVID-19.
• To mitigate the effects of the COVID-19 pandemic, we organised virtual roadshows for staff under the theme “COVID-19, Work and Wellness”. The roadshows were an integral part of business continuity in reassuring staff to remain engaged and provide exceptional service to customers.
• Provided access to alternative power solution options to all employees’ homes to facilitate the transition of the workplace from the office to the home.

Stake Holders Engagement

• The Group donated an ambulance to assist the Health Sector with readily available transport for pandemic needs and Personal Protective Equipment (PPE) worth USD50, 000.00 to major hospitals in the country.

Has the pandemic sped up digitalisation in the banking sector in Zimbabwe?

The banking sector in Zimbabwe had already embraced digitalisation. The challenge faced was mainly on the part of customers that were not keen to adapt to digital banking as they preferred visiting the bank for their transactions. The pandemic sped up customers’ adaptation whilst the banks took advantage to improve processes and systems for complete digitalisation. Some of the innovations that we introduced were:

• Contactless VISA Chip’n’Pin cards were introduced to replace the magnetic stripe cards.
• Introduction of Microsoft Teams to enhance information flow and collaboration among staff and with customers.
• The Bank now has over 10,000 POS terminals across various merchants in Zimbabwe. The POS and iPos terminals accept both local (ZimSwitch) and international cards (VISA and MasterCard).
• The Bank implemented a new internet banking solution, Oracle Banking Digital Experience (OBDX), which is accessible via web browsers such as Internet Explorer, Google Chrome, Mozilla etc. OBDX is a modern, secure and user-friendly internet banking system that is complemented by an Android and iOS mobile application, it allows users to transact using their mobile devices and the application can also be accessed via Google Play Store and Apple Store.

Digitalisation is expected to result in bank closure branches in Zimbabwe in 2021. How is CBZ dealing with this?

With the uptake of digitalisation and most staff working from home, it made business sense for CBZ to close a number of its branches. We converted 2 branches to Money Transfer Agents for diaspora remittances collections and some branches were converted to Agencies. We are set to open virtual branches as we drive to reduce the approximately 42 brick and mortar branches we have countrywide. The first virtual branch is expected to be operational by the last quarter of 2021.

The pandemic sped up customers’ adaptation whilst the banks took advantage to improve processes and systems for complete digitalisation.

What do you expect for the rest of 2021? Do you think we can put the current crisis behind us?

When the pandemic crisis presented itself in the first quarter of 2020, it never occurred to us that we would still be here a year and a half later. Therefore, as a business, we continue to build resilience amid the COVID-19 pandemic through:

1. • Managing risk, capital and liquidity.
   • Employee health and wellness.
   • Implementing client relief plans.
   • Preserving and creating value to maintain a strong balance sheet.
   • Effective communication across stakeholders and staff.
   • Supporting communities.

Namely, the spike in both transactional activity and house prices. While many sectors were reduced to emergency survival operations, the property market basked in largesse. On reflection, the sheer scale of the property boom over the last 18 months makes it difficult to remember that, in the early months following the onset of the pandemic, this sector faced as many challenges as any other. The most immediately striking of which was the need for the sector to adapt to social distancing restrictions. 

Estate agents and conveyancers, in this uncertain initial period, struggled to translate their offering to digital platforms, having lost the ability to perform on-site property viewings. In turn, activity slowed, as buyers were unable to assess these large investment assets with their own eyes. Should a residential property transaction have been completed in this period, there were significant obstacles to actually moving property, with removals firms, decorators, and tradespeople, all operating at a restricted capacity, if at all. 

There were more fundamental issues clogging up the liquidity of the market. For one, obtaining wet signatures on crucial documentation became a tiring process. It was not until late July 2020 that HM Land Registry announced it would now accept witnessed electronic signatures.  Equally disruptive was that, on the financial side, mainstream lenders took a particularly cautious approach given the prevailing economic uncertainty, with the consequence being the vast majority of basic mortgage products falling out of the market. It is important to establish these financial and structural challenges to understand how alternative finance, in particular bridging loans, became so well-placed to access a larger market, once the sector began to rejuvenate at pace in the summer.

How the sector turned around

By the summer of 2020, the dark clouds that loomed over the UK housing market began to part. In fact, the market bounced back from the initial gloom with unprecedented vigour – a marked and sustained period of growth which, more than a year later, has yet to show signs of plateauing. Naturally, the twin factors underpinning this reversal of fortunes were the tentative lifting of some social contact restrictions, and the seismic introduction of the Stamp Duty Land Tax (SDLT) holiday in July – instantly unlocking pent-up demand and instigating a flurry of opportunistic buying. The UK’s love affair with property is renowned, and in particular, during a crisis of long-term economic uncertainty, the SDLT holiday’s offering of a £15,000 saving for buyers on a safe haven asset naturally caused a boom in both house prices and volume of transactional activity.

Nationwide reported that the rate of growth in house prices in the year to June 2021 reached 13.4%; the highest rate seen in nearly two decades. Further data released by HMRC shows that transactional activity reached rare heights; with 350,000 residential exchanges completed in Q4 of 2020 – the highest levels in six years.

Alternative financing facilitating the market

This near-unprecedented surge in demand, volume of transactional activity, and sharp rise in prices, caught some elements of the property industry somewhat by surprise. A study conducted by Trussle found that, over the course of 2020, the time taken to approve a mortgage increased by more than double – from eight to 22 days. Significantly, this covers only the process from application to approval; it excludes the time for approved funds to actually be released. Given the urgency within the market, as buyers looked to take advantage of a rare and substantial immediate cost-saving, it is reasonable to suggest that the protracted application process was a source of anxiety for buyers. Meanwhile, many bridging loan facilities can be deployed in as few as three days – a huge boost for buyers.

It should also be noted that property purchases cannot be considered in isolation – most residential purchases depend on the sale of an existing asset, and so on, forming much-maligned property chains. Delays or obstacles faced by one purchase can have myriad consequences for any number of tangentially related purchases. Accordingly, the speed of delivery and flexibility of alternative finance afforded buyers greater confidence in their ability to proceed with a purchase. Should delays occur on a dependent sale, then the purchase can still proceed and be remunerated later on when the related deal completes.

Data from the Association of Short-Term Lenders (ASTL) reveals a clear shift by buyers towards engaging with alternative finance. In Q3 2020, there was a 25.7% increase in the volume of applications for bridging loans products. In Q4, there was an even greater surge in applications, with a year-on-year rise of 39.1%. It is evident that the conditions of the pandemic exposed buyers to the numerous benefits of alternative finance.

The question remains, as it does with the property sector as a whole, whether this growth will prove sustainable once normality properly resumes. After all, it is widely anticipated that the resumption of full rate SDLT will precipitate a cooling of activity in the property market – which would naturally lead to a reduction in the amount of financing required. 

This is a credible projection, certainly, though it is my view that the alternative financing sector has emerged from the pandemic in a healthier position than before. The circumstances surrounding its boom in activity have afforded short-term lenders an opportunity to extol the virtues of these types of financial products. 

Even in ‘normality’, there will continue to be a need to provide flexible loans to those with complex financial structures who may miss out on tick-box mortgage products; and concerns around property chains are here to stay. Accordingly, there is optimism within the sector that, even post-pandemic, bridging loans and alternative finance more generally will continue to engage a variety of buyers.

About the author: Paresh Raja is the founder and CEO of Market Financial Solutions (MFS) – a London-based bridging loan provider. Prior to establishing MFS in 2006, Paresh worked as a senior professional consultant in one of the top five management consultancy firms, and also set up an independent investment group.

Pent-up demand during the initial phases of the pandemic, changing preferences among homebuyers, and the Stamp Duty Land Tax (SDLT) holiday combined to fuel this market growth. The result was a well-documented rise in property prices and transactional activity.

Now, as we look cautiously towards a return to ‘normality’ over the coming months, the question of the national debt is rising to the fore. Of course, with such extreme financial support measures required for businesses and consumers alike, this issue was inevitable. And it is the bullish property sector that could come under the microscope or, more specifically, the way property transactions are taxed. It is an apt time, then, to delve deeper into the subject of stamp duty––something that has seldom strayed from the media spotlight over the past year given the Government’s aforementioned temporary tax break. 

A short background

For me, any discussion of SDLT requires us to first appreciate its history, which is often overlooked. Most notably, we must acknowledge the fact that the tax as we recognise it today is younger than those who pay it. Though it is considered an inevitability and has roots in broader goods taxes going back centuries, the SDLT functioning as a simple tax on land transactions and paid by the buying party came into effect via the Finance Act 2003.In the following 18 years, the tax has been numerously tweaked and complexified to suit the needs of the market and the national economy.

The most significant of these was the introduction of bands, and rates within them. Formerly the tax had been a percentage calculated by the total cost of the transaction. In December 2014, this was reformed to a banded system with a nil-rate on transactions up to £125,000 and a top rate threshold of 15% for properties changing hands for over £500,000.

The SDLT has also been slimmed down and reinforced to stimulate or cool activity amongst certain types of transactions. For instance, domestic purchasers of second homes, and residential purchases by non-UK residents are subject to surcharges of 3% and 2%, respectively. Meanwhile, first-time buyers can access reduced rates, including an extension of the nil-rate to £300,000. Accordingly, the SDLT can be considered a somewhat flexible tax––constantly evolving in its function, eligibility, and revenue generation utility. As a result, many will conclude that a more permanent reform of this tax may shortly follow.

Areas for further change

Depending on state priorities, the most likely change will be an adjustment in bands and rates. It would be productive in the short term to consider a modest increase in the nil-rate band to account for purchases in higher-priced urban areas, where first-time buyers will typically still need to pay the tax. Equally, a reduced top rate could do much to entice back to UK shores the flow of international investment that was stifled by the pandemic’s travel restrictions. This seems less likely, however, particularly in light of the recently introduced surcharge on overseas buyers, as noted above. 

What we can say with more certainty is that further reform is in the offing. House prices have been on the rise consistently for more than a decade, and the pandemic spike has accelerated this trend––the average house price was estimated to have reached £261,743 in June, a rise of 9.5% in just 12 months. As prices rise and rise, the stamp duty bands are likely to undergo changes of their own. There is a range of more creative ideas for reform that are frequently thrown around. Some have called for the tax to be levied onto the selling party, rather than the buyer. Others consider alternative systems used abroad to be more favourable and equitable. For example, introducing an annual tax based on land value, which could stimulate developers and speed the pace of regeneration in the UK’s under-invested provinces.

Naturally, any reform to the SDLT will evoke strong reactions from those with a vested interest in the sector. While the robust health of the property market has been heartening for investors during this difficult period, new priorities are beginning to emerge as growth and confidence return to other markets. Accordingly, with consideration to rising public debt and the need for a sure-footed post-pandemic recovery, it will be intriguing to see how SDLT reform is handled over the coming months.

About the author: Alpa Bhakta is the CEO of Butterfield Mortgages Limited. Part of the Butterfield Group and a subsidiary of The Bank of N.T. Butterfield & Son Limited. Butterfield Mortgages Limited is a London-based prime property mortgage provider with a particular focus on the needs of UK and international HNWIs.

The Pandemic Consumer Spending Trend

Online shopping has been prevalent since 1994, ramping up when eBay hit our screens a year later. When the pandemic rolled over us all like a shockwave in 2020, consumer behaviours changed. Driven indoors by national lockdowns, we took to the Internet in force. The retail industry stats show that:

• Coronavirus added $105 billion to the US e-commerce sector last year.
• Online sales grew almost 40% year on year to early 2021.
• Increases in digital sales outpaced 2020 by nearly three times.

And thus, demand for "buy now pay later" followed suit, seeing the potential to encourage more spending, bigger purchases, faster, quicker, NOW. This trend is causing concern for financial industry experts because when we're spending cash we don't have (yet), there will always be potential for trouble.

Regulating Buy Now Pay Later Borrowing

The big-name contenders don't charge interest, and that isn't elusive marketing - they don't. But let's not fool ourselves that this is a charitable endeavour. Not that these big firms wouldn't have you believe otherwise; Klarna mentions in a recent blog that 'nobody is interested in paying interest' and laments the £660,000 an hour the UK credit card companies make. The key is that buy now pay later providers don't charge interest. And boom, that means immunity from FCA regulation.

There are fretful murmurs that these firms could ‘become the next Wonga’. If your memory is hazy, when Wonga, the original payday loan company, first revealed their website and innovative method of digital lending over fifteen years ago they essentially created a brand new financial product that nobody had seen before. As such the brand new industry was unregulated by the FCA. 

Customers ended up with debts they couldn’t repay, and spiralling interest charges created an impossible situation for many. This resulted in the FCA imposing significant reforms to the industry to better control who was eligible for such credit, and the conditions under which loans are agreed. The resulting fallout killed off a majority of the payday lenders entirely, while other brands restructured the entire nature of their core financial products to be more discerning and much safer for the public to use.

The payday loan phenomenon is a cautionary tale of what happens when consumers get open access to borrowing without stringent enough credit and eligibility checks, showing just how serious the issue becomes when left with zero regulation.

What Costs Are Associated With Buy Now Pay Later Providers?

Provided you use a reputable buy now pay later provider and continue to make your payments on time, you're pretty secure. However, the issue arises when you make multiple purchases, start accumulating late fees, or take up an interest-free offer from simultaneous retailers since it's probable more will begin launching a replica model.

If you fail to make your payments, you are looking at between £6 and £12 in an initial late charge. Maximum penalties stretch up to about 25% of the order cost. Bear in mind that's per order, and you can appreciate the calls for tighter regulation to prevent vulnerable consumers from falling into another debt spiral. 

Should you opt for a buy now pay later scheme and are confident you can budget accordingly, then spend away. However, while you're not paying interest, you will fall foul of charges and penalties if you start dropping behind.

The Office for National Statistics (ONS) reported that, between June and July, the number of UK workers on payrolls increased by 182,000. However, at 28.9 million, this figure still comes in 201,000 lower than pre-pandemic levels, with around 750,000 jobs lost during the first wave of the coronavirus pandemic. 

The ONS also confirmed that unemployment rates dropped to 4.7% for the three-month period to the end of June where analysts had expected rates to remain flat at 4.8% for the quarter. 

Additionally, the ONS reported a further increase in job vacancies across the UK as companies seek to fill roles following the reopening of the economy. Job vacancies across the country have now risen by more than 290,000 against the previous quarter.  

John Athow, deputy national statistician for economic statistics at ONS, said the statistics body saw no sign of redundancies starting to pick up in its survey data ahead of the furlough scheme starting to wind down. Athow also said that the Insolvency Service figures for July suggested the same.