ASTL: Budget changes could hit home
The problem that the Chancellor has in setting a Budget is that a small concession such as the freeze on fuel duty (static at 57.9p a litre for the past five years) is estimated to cost £2.2bn over the same period. The Chancellor said this would save the typical driver £75 in 2016/2017.
Political and economic requirements are often at odds. It may be politically expedient to make promises not to change things, but economic necessity may require more flexibility and room to manoeuvre. Therefore, increases in fuel duty are out but insurance premium tax, where nothing was promised, needs to rise.
In a business with a large workforce, it may be tempting to close plants or make staff redundant when times are hard. This is often relatively easy to do compared to looking long and hard at business practices and inefficiencies for savings.
However, the problem is that the ‘easy’ methods might make the business even less profitable and unable to take advantage of upswings as the economy recovers. It is also harder to detect wasted expenses and change the way things are done, but this is what businesses must do in order to survive in the long run.
The same applies to lenders and, more specifically, to bridging lenders. Possible fluctuations in base rates may not affect rates or profitability, but will certainly affect the ability of borrowers to refinance. In turn, this may impact sentiment and thus property demand and prices. Purchasers may well be reluctant to buy a property if they think the short-term outlook for property prices is either static or negative. So, even a rise of 0.25% could have a major impact on prices.
In my opinion, the real danger lies in the risk that increasing competition will lead to lenders taking on riskier business. This is more likely to take the form of higher LTVs than unsustainably low interest rates. This not only applies to the bridging sector but also to the whole so-called alternative financing market.
Certainly, in the property finance market, skilled underwriting and risk assessment is paramount, as is the need to protect firms from fraud as far as possible. The ASTL therefore encourages its members to belong to fraud protection services and has provided funding to make this more affordable.
Politically, it would be facile to imagine that governing political parties will always have an eye on future elections and would be unlikely to propose budgetary measures that would prejudice their natural support base. This may lead to moral dilemmas like the current government is facing, but again one must suspect that there is waste in allocation of funds.
Anecdotal evidence seems to support this. Luckily for us, it is easier to be an armchair critic rather than having to meet the needs of different constituencies using finite resources. Everyone gives lip service to the need for a country to at least try to balance its books, but the pain generated seems to be too much. One can only hope that an acceptable balance will be struck so the ship of state can forge ahead, even if the destination may not be reached for many years or if at all.