Challenging times for Landlords

Many landlords have found themselves in difficult situations due to the Coronavirus pandemic. As unemployment rises and employed people are furloughed, many tenants may be unable to pay their rent or be asking for payment holidays or reduction in rent. 

The Coronavirus Act 2020 has introduced a number of temporary changes that impact on the relationship between private landlords and their tenants including:

  • Notice periods extended for the duration of the Coronavirus “emergency” (however long that is)
  • Suspending ongoing possession cases for 90 days from 27th March 2020
  • Ensuring that buy to let lenders will offer a mortgage holiday for private landlords whose tenants are affected by the crisis. This is on the understanding that landlords will be expected to offer a similar rent holiday to tenants

The changes to the law and the financial impacts of the ongoing crisis require a co-ordinated approach. 

Communicating with tenants 

Firstly, it is important to communicate with your tenants early and establish their current situation. There is no right for tenants to claim a reduction in rent so they will not want to build up arrears.

It is important to be considerate and empathetic at times like this. After all everyone is in the same boat and it is best to negotiate an agreement that will benefit everyone.

Tenants probably fall into the following categories:

  • Job and salary unaffected e.g. those employed by government organisations. Hopefully they will not use the current crisis as an excuse not to pay their rent
  • Rent paid by council. Such tenants should not have any problems continuing to pay rent
  • Employed but furloughed. These tenants may well have suffered a 20% (or more if earning above £37,500 per annum) drop in income but will have less outgoings currently so should be able to pay the majority or all their rent still
  • Self-employed. If they have been self-employed prior to 5th April 2019, they are able to be furloughed and make a claim for 80% of their average monthly income or £2,500 (whichever is the lower) so ought to be able to continue paying rent as long as they haven’t been under-declaring their taxable income of course! But they won’t be receiving this income until July.

But there over 2.5 million people who “fall through the cracks”. Those who have only become self-employed in the past 12 months or who run small limited companies have little or no help from the government grants schemes. 

Self-employed individuals in the building industry may be getting tax deducted from the amounts paid by the builder they work for and will be entitled to a refund at the end of the tax which is on the 5th April 2020. Encourage them to get their tax return completed early and use some of the refund to pay some rent in advance!

There may also be tenants who have lost their jobs or suffering greatly reduced levels of income and may be applying for Universal Credit (we will be sharing more about this soon – so keep your eyes peeled!). We have heard stories of 24 hour waits on the telephone to talk to someone, so solutions are not going to be quick. And if your tenant is able to claim, there will then be a five week wait for the first payment. 

With that in mind, talking to your tenant regularly. Even if your tenant can’t pay all their rent, some is better than none.

Once things are on a more even keel, you should discuss a payment plan with your tenant to arrange how you will recover unpaid rent. As the current situation is changing often, this may be open to change as things develop. It is important that the payment plan is affordable and realistic and will not put an impossible strain on your tenant or they may just give up trying to stick to it. 

Keeping in consistent contact with your tenant so that they can update you with their situation will help you gauge how best to approach the payment plan.

How do I apply for a mortgage holiday?

One of your biggest outgoings as a landlord will most likely be mortgage payments if the property you are renting has an active mortgage. 

If you believe your tenant will be unable to meet rent payments or they have already approached you about a payment holiday, it would be sensible to also request a payment holiday from your mortgage lender to reduce the risk of you also being unable to meet payments.

With regards to your mortgage the most important thing is to keep your lender informed and do not slip into arrears. You should only take a mortgage payment holiday if it is absolutely necessary as extra interest will be charged. 

Information on how to apply for a mortgage holiday remains sketchy but if possible, the best way to apply is online. Most of the lenders are working hard to make this possible as their phone lines are likely to have huge backlogs. Simply search the name of your mortgage lender and ‘apply for a mortgage payment holiday’ and follow the online instructions. Please note many lenders will require you to sign in so if you do not have an account, simply register with your mortgage details. 

If there is little to no information online, you will have to contact your lender directly by telephone for assistance. Good luck with that!

Empty properties

Of course, the biggest challenge of all is if you have an empty property.

Finding a tenant will be hard enough at the moment with most people trying to minimise costs but even if you do find a suitable tenant, there are still the practicalities of showing them the property not to mention the difficulty in getting mortgage references.

In this situation you should definitely be asking for a mortgage holiday but also requesting a rates-free period from your local council.

What to do next?

It is crucial to make some financial plans in relation to your property. Start by creating a simple spreadsheet of all your other outgoings associated with the property you are renting. 

If you are paying the council tax, utility bills, management fees etc. ensure you note the amount and the date they are expected to be paid. Make your way down the list and contact each of the suppliers to negotiate a deal so that should your tenant be unable to pay, your outgoings are reduced. Many utility suppliers will offer to push back bill dates to allow you more time and management companies may allow you to pause your account as services such as cleaning and routine checks may be put on hold.

This exercise should be undertaken with a personal financial plan and if you run your own business a break-even exercise. In a situation such as this your personal outgoings, rental profit (or loss) and your business’s ability to generate an income are all wrapped up together.

And finally, some glimmer of light for the future. Most landlords tend to be a pragmatic and generally reasonable bunch who are usually fairly sensible when it comes to money. Although this year is likely to be difficult, there is likely to be a pent-up demand for rental property when this all comes to an end. And there are likely to be reasonably priced investment opportunities if not in your local area, then perhaps further afield. 

Like everyone else, you just have to stay the course.

Want to find out more?

Call us on (01474) 853856 and we will put you in contact with one of our advisers, or send us an enquiry by clicking below.

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