Post Covid Lock-down for the Oxford(shire) Rental market
22 Jul 2020
Of course there are many more possibilities than just three, but based on what has happened so far, and the information that we already have about the end of Furlough support, it appears that the flow of rent is not going to be quite so strong.
Given the statistical realities about who has been hit hardest by the restrictions on business activity, the young, gig economy, hospitality workers etc and the predictions of widespread redundancies following the wind-down of the Furlough Scheme, we would be foolish to ignore that this profile group is a significant proportion of those renting privately.
Let us look at what has happened to date, and try and extrapolate over the next few months. According to Payprop, a company that collects rents for hundreds of agencies across the United Kingdom, there was an increase in the number of tenants in arrears from 9.1% in January to 15.6% in May, and during the same period, arrears increase from an average of 105% of a month’s rent to 126%. Across our offices in Oxford Thame and Buckingham, a small number (less than 4%) of tenants were able to negotiate rent reductions for a defined period on the understanding that they would make good any debt accrued before the determination of the agreement. Discounting these individually negotiated agreements, arrears have certainly not increased in line with the National picture.
So what does the next six months look like?
Scenario 1. With the Universities still proposing that most courses will include some “small group” tutorials and learning opportunities, and the research for post-graduates relatively undisrupted, most student HMOs will be occupied next academic year. The government will recognise that the mechanism for assessing housing benefit is broken and will allow claims for full market rent for those made redundant post furlough. This will prevent the already backlogged court system from reaching an impossible level of eviction proceedings, and the inevitable rise in homelessness. Rents will continue to flow, and Lenders and Landlords will not be faced with impossible decisions about repossession and disposal of property assets.
Scenario 2. Large numbers of undergraduates will defer for a year, and many courses will only be able to offer remote learning. This would likely result in many students deciding to “stay at home” and seek release from their contractual obligations for their university accommodation. Landlords will then be faced with the prospect of 12 months without income, and the complex negotiations to maintain the ability to service their loans and still offer some comfort to their absent tenants. Significant numbers of unemployed people are not able to cover their rent with benefits and build unmanageable debt, giving landlords little choice but to issues Section 8 notices or accept the current VOA assessments of weekly rents for Oxfordshire (below)
Scenario 3. The Student Union will lobby the government to allow students to make application to limit or terminate their contractual obligations to their executed AST’s on their HMO occupation, and their license for halls if they are not returning to University to study. The MHCLG will further extend to notice period and the ban on possession hearings in an attempt to defer mass homelessness whilst local authorities build thousands of “affordable” properties.
What will Really Happen?
Shelter, are predicting that 23% of renters may not be able to pay rent when they lose their jobs, I think that in Oxford we will be largely protected from this as so many professional people are working in the education or public sector or in bio-tech and other start-ups that have spun out of university research. Both Universities have had a significant dent to their income streams as they make millions from summer conferences and events as well as the large numbers of overseas students who come for summer short courses. Anecdotally I heard that Brookes had estimated a £13m loss due to Covid. Neither institution can afford such losses to continue, so will do everything they can to bring students back to campus and quads and offer sufficient “face-to-face” learning to ensure their full time status. There is another potential “long term” impact on the student market; if many of September ’20 first year intake defer their place, and numbers are down in both universities, that will be likely to create a hole in the number of students looking for HMO accommodation next year. We can only hope that the universities will increase their intake next year to make up the “loss” and some of those first years will need HMO accommodation?
On the positive side, there is already clear indication that the exodus from the Major Cities in our case London, is already increasing demand in the villages that are close to transport links to the city. This may see a reversal of the trend in recent years for yields in rural areas to decline while city yields increased.
Whatever happens, and whichever way the market goes, we will be tracking it, and keep you posted both via our news on the website and via our periodic newsletters to subscribers. Would like any further information or would like to share your view of the current situation, please feel free to call either David Gilson, or Mark crampton Smith on 01865 722722