Landlords are not eligible for many of the schemes available for businesses to help mitigate the effects of the lockdown. Weathering the storm requires careful financial management.
Limited options for landlords
Landlords do not have a go-to safety net, such as the furlough scheme, to ease pressure on their income. This includes those whose primary income comes from property.
Landlords have the option of taking a mortgage ‘holiday’ from their mortgage providers. In reality, this may be no more than a deferral with compounded interest.
“In some circumstances, landlords are in extremely difficult situations,” explains landlord Lucy Fisher. “Many are ‘accidental’ landlords – they may have tried to sell their properties but have been unable to.”
Fisher was able to offer deferred payments to her tenants. But she is still taking on a lot of risk.
If she does not bring in some income, she could end up defaulting on her mortgage and end up having to sell her home as well as her rental property.
“I have been lucky so far in that my tenants have not taken advantage of the situation. We have all played fair and been honest.
“I hope that normality resumes soon as the lockdown does have enormous repercussions that many are not yet aware of. We will be paying for this economic shutdown for many years to come.”
What can landlords claim?
In addition to the aforementioned mortgage ‘holiday’, not very much.
Some landlords have successfully applied for the Business Bounce Back Loans. This is one of the survival options recommended by the guild of Landlords.
· Landlords can borrow up to 25% of their annual turnover with a minimum of £2,000 and a maximum of £50,000.
· The loans are interest and repayment fee for 12 months, and then interest is 2.5%.
· The loan term is up to six years, but early repayment comes with no penalty.
· Bounce back loans are unsecured for the borrower, with the government underwriting the risk for lenders
· Property businesses must have started before March 1, 2020, must still be trading and in financial difficulty due to coronavirus
However, as the guild notes, most banks are not keen to lend to new customers.
Shaz Nawaz is a specialist property tax accountant and managing director of aa Chartered Accountants. He is also a property investor himself and comments:
“Landlords haven’t been very well supported through this pandemic.”
“Landlords who are refinancing or were trying to refinance before COVID, are now being asked if they’re taking a mortgage holiday. If the answer is yes, they won’t approve any refinancing. That’s making it harder.”
What’s the advice?
Nawaz breaks down his advice for landlords into 4 points:
· Cut out all of the costs that are unnecessary
· Look into any repayment holidays or deferrals that they might be able to use
· Monitor cash flow and look for ways to protect it
· Work with their tenants to work out a plan that works for both parties
The position with evictions
Under the emergency Coronavirus Act 2020, landlords must give tenants a notice period of at least three months. However, if the tenant refuses to leave, all possession hearings are ‘stayed’ until at least 25 June.
However, evicting tenants who are struggling to pay rent through no fault of their own is not going to do landlords any favours. “It’s a long term relationship, so we’re advising them to hold on,” says Ghanshyam Vaswani, co-director of accounting firm 24Budha.
Even if a landlord asks the tenant to vacate their premises and they leave, it will be extremely difficult to get a replacement tenant who can pay in full. “Landlords would be incurring agents’ fees and other expenditure that they don’t really need right now,” says Vaswani. “We’re advising them to stick with the tenants they have.”
The call to support tenants
AAT President John Thornton has argued for landlords to take proactive, helpful approach. And he urged accountants to give clear parameters to their clients operating in the buy to let market.
“Lots of people in the current situation don’t know whether they have got jobs, whether they offer a load. [Your landlord clients] need to talk to them. It is better to have tenants paying something rather than tenants who can’t pay and disappear.
Accountants should provide an analysis that says “you could afford to drop the rent by X and still survive. This is the margin that they can talk to their tenants about.”
Shawaz says landlords are keen to help but adds a caveat.
“They have to be mindful of their tenants’ situations…Most landlords are very supportive of their tenants, just like most businesses are supporting their clients.
“The problem is that most businesses are getting external support, enabling them to support and assist their clients. That’s not available to landlords.”
· Landlords are expected to be helpful, but receive little direct help themselves.
· Business Bounce Back Loans and mortgages offer some relief. But they also pile up liabilities for the landlord.
· Tightening up cost-control and cashflow management is essential to survive.