Boris Johnson will be presenting the UK exit strategy this weekend. We are told right away about her sunbathing and picnics, maybe schools and cafes will open in late June, and pubs and restaurants by the end of August – as long as social distance is maintained. Try choreographing this in a Friday night bar.
The reality is that hotels, pubs, cinemas, restaurants, conference centers, music halls, gymnasiums and all the businesses that supply them are unlikely to return to near normal levels before the year. next. Add to that the collapse of the aviation industry – jobs in entire cities like Crawley near Gatwick is disappearing – and it is fairly inevitable that millions of people will remain unemployed at the very least. throughout this year.
The Bank of England predicts a 14% drop in GDP and much, but not all, unemployment will double in the next year.
The current sticky plaster for mortgage payments and vacations is not enough. When the three-month period set by borrowers and their banks expires from June (and the Chancellor also begins to unwind the leave scheme), many households will still need help. And the government does not yet know what to do, if any.
Here are some ideas about the mortgage industry that the Chancellor might consider:
A compulsory extension of the payment leave from three months to six months
Banks should automatically grant an extension with no impact on the borrower’s credit history. But banks are likely to get out; While 1.6 million vacation home loans may seem relatively manageable in a country of 27 million households, their value represents around 20% of their total mortgage portfolio. Half a year without any income from a fifth of their loans will not cause any bank or mortgage company to go into insolvency, but may present serious financing problems for some.
A qualified extension of the payment holiday, with many more hoops to cross
This is the most likely option. Banks, to their credit, have implemented the new payment leave systems in an extraordinarily fast way (funny things that Britain is good at – payment systems rather than virus testing or production of ‘EAR). Privately, they believe that a significant number have requested payment leave as a “must have” rather than a necessity. To extend the current vacation, banks want to be much more selective about the recipients.
Significantly improved social safety net for unemployed mortgage holders
The crisis has revealed to the middle class how dilapidated the British welfare system is. If you are unemployed and apply for universal credit, you cannot access mortgage support until you have claimed benefits and have not won for nine months. The calculation of the service is inevitably complicated absurdly. And it’s not even really a benefit – it’s an interest-bearing loan that needs to be paid back. System designers obviously never envisioned the huge, albeit temporary, dislocation caused by a pandemic.
UK Finance, the group that represents the banks, told me that they “are carefully considering options for those who may need additional support at the end of the three-month paid leave period.” Rishi Sunak, the chancellor, may wish to nudge them. We are going to need something more solid in place in weeks, not months.
Meanwhile, the millions forgotten in this story are renters in the private rental sector. Economically, this crisis is devastating for young people, many of whom were in low-paid jobs in the hotel and services sector. When the leave plan ends and the temporary ban on evictions expires, the outlook for many in their 20s and 30s is bleak. There are payment holidays for mortgagees and homeowners, business loans, bailouts for large businesses, but for tenants, almost nothing. Youth unemployment is often the most difficult problem to solve after a recession, and we risk throwing an entire generation into the economic doldrums.