The Coronavirus pandemic has had a severe impact on the global economy, and the UK renting market is no exception. These unprecedented circumstances have left tenants struggling to pay rent and landlords struggling to make mortgage payments.
When Britain entered lockdown, many employers had no choice but to make redundancies, cut pay, and furlough staff. Although the government have offered businesses a generous fiscal package, these changes may affect people’s finances.
Most private renters are between the ages of 25 and 44, which can be a difficult time financially. These households may be at increased economic risk due to a lack of savings or the costs incurred raising a young family. According to the ONS, the number of privately-rented households in the UK increased from 2.8 million to 4.5 million between 2007 and 2017, an increase of 1.7 million (63%) households in just ten years.
The government have put regulations in place to relieve some financial pressure from the COVID-19 crisis.
Tenants have protection from eviction for 3 months
UK tenants who miss rent payments as a consequence of COVID-19 have protection from eviction for three months, starting from 27th March 2020. Any prosecution cases outstanding from the 27th March will be put on hold for 3 months.
However, rent is not waived for during these three months. After the three months are up (unless this period is extended by the government), tenants will be liable for any unpaid rent, and landlords may then seek to recover the rent.
Landlords with tenants who cannot pay rent will obviously see a drop in income. Landlords may not have the extra money to pay their Buy-to-Let mortgages. If you find yourself in this scenario, opting for a mortgage holiday during this period may be a smart decision. You can take a mortgage holiday for up to three months.
Mortgage interest will continue to accrue during this time, so it is important to minimise the length of your holiday and only take time out if it is absolutely necessary. Once the mortgage holiday ends, you can choose to pay back the interest built up in full or add it to your loan balance. Adding it to your loan balance may mean that your monthly repayments will increase. As an alternative, you could ask to extend your loan to avoid the increase in monthly repayments.
On a £300,000 mortgage at 3% over 25 years, your regular payments would equal £1,422 per month, including £750 in interest (according to mortgage broker L&C).
A three-month mortgage holiday would mean you defer payment of £4,266 of your mortgage. Once the three months end, you would owe £2,250 in interest. If you chose to add this to your mortgage, your new monthly mortgage repayments would equal £1,444.
Taking a three-month payment holiday would mean you would not have to pay £2,133 in mortgage costs. You would, however, owe £1,125 in interest when the break period comes to an end. Over a 25-year term, it would cost you £6,534 in interest.
How to apply for a mortgage holiday?
First of all, it is worth noting that almost anyone with a mortgage can apply for a mortgage holiday. Most high street banks will have an online form you can use to apply. You will be asked to provide:
– the details of your loan
– a brief description of your circumstances
– confirmation that you are in financial hardship.
Once the bank receives your request, you should hear back within seven working days.
There should be more information on your bank’s website.
Helping tenants who are struggling
Tenants who are struggling to pay their rent due to COVID-19 are being encouraged to ask for help from their landlords and the RLA is requesting that landlords be as flexible as possible during this difficult time.
If your tenants are not able to pay the rent in full, you may want to look at working out a payment plan with them.
To work out a realistic payment plan with your tenant, you need to ask how much they can afford to pay each month. If they are furloughed, chances are strong that they have received a pay cut but will be able to pay a certain percentage of rent. If they have been made redundant, however, they may not be able to pay any of their rent.
Once you know how much they can afford in these tough months, you can keep a record of the remaining total. Once your tenant is financially stable again, you can work with them to figure out how a repayment scheme for their outstanding costs. They may wish to pay the remaining balance in full, or, for example, they may be willing to pay an extra £100 a month until their outstanding rent is repaid. If they are paying a percentage of the remaining balance, you will need to calculate how long it will be before they have settled their balance.
It is advisable to draw up your repayment plan in writing and have both parties sign the agreement.
Where to get help and advice
The government have published a useful guide that you can find here.
If you or someone you know is suffering financial difficulties, these organisations may be able to help:
Money Advice Service
Government guidance for employers and employees
If you have been affected by any of the issues discussed in this blog, Capital is happy to help, please contact us today to speak to one of our Chartered Financial Advisors.