It is all good and well the UK government supporting mortgage holidays for landlords, and rental holidays for tenants, but what happens when the coronavirus issue is over? Landlords will simply have to repay their missed payments over a prolonged period of time with additional interest. However, there are serious concerns regarding potential rental arrears and the ability of tenants to pay back what they owe.
Short-term gain, long-term pain
Despite the fact that many support schemes offer short-term pain and long-term gain, it could be very different for the UK rental market in the short term. Rumours that the UK could be in lockdown until mid-May at the earliest will send shivers down the spines of private landlords. We already know that many tenants, struggling to maintain their monthly incomes, have applied for rental holidays. As a consequence, many landlords have applied for mortgage holidays even though the balance of benefits is certainly tipped in favour of tenants.
Is the government scheme helping?
There is no doubt that the UK government’s support scheme for landlords and tenants is helping, especially with short-term cash flow. However, many tenants are unaware exactly how the scheme works. For example, if a landlord has mortgage payments of £500 per month and rental income of £700 per month, then they still need to ask the tenant to contribute £200 a month. Some tenants seem to believe that the £500 difference is covered by the UK government when this is not the case. Yes, there is short-term assistance but in the longer term landlords will pay back missed payments plus additional interest on top.
There are concerns that the scheme may not have been promoted in the correct manner. Some tenants appear to believe that any top-up payment, £200 in this scenario, reflects a reduced rental arrangement during these difficult times. Despite landlords making it clear that they will also need to pay back the additional £500 per month it does not seem to be sinking in with many tenants.
Worst-case scenarios suggest that the UK economy could tank by around 35% and unemployment increase by 2 million. While this is unlikely to be the case, there will certainly be a period of reduced economic activity, cost-cutting and unfortunately job losses. So, who will pay the rental arrears for those who may need to live on reduced income in the immediate aftermath of the coronavirus pandemic?
Experts are already predicting a raft of bankruptcies and debt management arrangements which could see landlords having to write off significant lost income. This comes at a time when landlords in the UK are already under pressure with tighter regulations and additional taxation. Just prior to the coronavirus pandemic it is estimated that 500,000 properties were lost to the private rental market at a time of great need. Could this be just the tip of the iceberg?
In many ways the issue of rental arrears is a subject that has been kicked into the long grass with the immediate focus on fighting the coronavirus pandemic and “getting back to normal”. Unfortunately, when the rest of the UK gets back to normal it will be landlords fighting for payment of rental arrears – much of which is unlikely to be forthcoming. Who will be there to help landlords further down the line?