Covid - 19 - Trigger for Financial Hardship for Landlords and Tenant
31 Mar 2020
In today’s troubled times, we all find ourselves in uncharted waters. Equally, everything is moving so fast that it is very difficult to be clear about exactly what is the best thing to do.
Generally speaking, the PRS (Private Rented Sector) was already in a pretty precarious position, especially in London and the South East where tenants were often paying between 40% and 50% of Net income before the recent viral attack; the section 24 article 24 tax changes designed to “damp down” the growth of the PRS, simply served to drive many Landlords to sell their property making the supply/demand balance put further upward pressure on rents.
To counter this there have The left have been debates around promoting the idea of rent controls in a vain attempt to prevent financial hardship for tenants. At the time of writing however nothing has developed on this front and in all likelihood it will not for the foreseeable future.
The New Normal
As far as Letting and Property Management is concerned, a number of recent publications from MHCLG (Ministry of Housing Communities and Local Government) have sought to offer some clarity. As always though, these documents have raised a number of additional questions which may lead to diverse interpretations as a result. This Blog will attempt to offer our current thinking as a business, and therefore our interpretation of some of the guidance offered by MHCLG to Landlords and Tenants facing financial hardship.
There is little clarity about what should be done for Landlords or Tenants experiencing financial hardship. The general theme (reading guides from MHCLG, and Shelter) is that rent and mortgages remain priority payments. It appears that government action to mitigate hardship is targeted at the income end of financial activity, not expenditure. Obviously there will be some who fall through the net, and some for whom income will be deferred for several months at least. It appears that Landlords and Tenants are expected to negotiate a reasonable agreement for repayment of any debt built up during this time.
Where appropriate, inIn other words if rental income is reduced, Landlords are expected to try and secure mortgage holidays, and tenants should pay as much as they can of the rent due.
Further Questions for Landlords
Many Landlords, for example those with commercial loans, portfolios or residential property in a business vehicle, may not be able to secure a “holiday”, and for those who can, the cost could be considerable (£1m borrowing at 3% would cost an additional £7500 if deferred for three months……as long as it was repaid immediately!) And who would be liable? Most tenancy agreements state that the tenant will be liable for any costs the landlord endures in the recovery of arrears. But if the tenant cannot pay the cost, will “losses” be recoverable from tax paid or due? Will the government reverse Section Article 24?
Further Questions for Tenants
What is the best thing to do if I cannot pay the rent? The current rhetoric from the government would appear to promote the idea that every-one can secure at least 80% of their pre-lockdown income, presumably then the expectation is that tenants may still be able to pay their rent without growing debt. It is already clear to us that some people are not going to be able to access monies in time to avoid some debt, and one of the patterns of debt growth, is that once it appears unmanageable there can be a tendency to throw in the towel.
As an “Ethical Letting Agency” we will do everything we can to help tenants stay in control. Our team will be able to share resources to assist with accessing housing benefit (as part of Universal Credit) where appropriate, and help with negotiating realistic repayment plans with clients where they can be accepted by your landlord. What if The Landlord cannot accept any (temporary) reduction in rental payments? Will Private Tenants be able to access the £500m extra money given to local authorities to help? Today these questions do not have any clear answers but we will work with both Tenants and Landlords to ensure that as clarity is forthcoming we are able to share this in a timely manner for all.
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