Landlords and renters are facing a looming meltdown, experts warn, after the Government extended its ban on tenant evictions until 20 September.
In a last minute U-turn over plans for repossession cases to be heard in the courts from 23 August, the Government last week also introduced a minimum six-month notice period for landlords seeking to evict tenants.
Now a group representing landlords across the UK claims these measures could mean some landlords see losses of up to £20,800 over the next two years.
The National Residential Landlords Association has written to the Prime Minister begging him to consider the damage this policy is wreaking on the private rented sector and landlords’ ability to keep offering accommodation to renters.
Around one in every 12 renters is behind on their rental payments, according to MakeUrMove
The letter says: ‘The vast majority – 94 per cent – of private landlords are individuals, renting out just one or two properties.
‘They are not property tycoons with deep pockets able to subsidise rents indefinitely, but are ordinary people who rely on this income to pay their living expenses.
‘Government’s failure to provide any direct financial support for the sector during the pandemic means that many landlords will be forced to seek money claims against renters building arrears. This would leave tenants’ credit scores in tatters.’
The NRLA argues that the only route out of ‘the mess of the Government’s own making’ is for interest-free, government-guaranteed hardship loans to be made available to tenants to pay off Covid-related arrears.
These have been introduced in Wales and, argues the NRLA, would ‘sustain tenancies and remove any risk of eviction as furlough is removed’.
NRLA pleads: Landlords need help too
In a letter to the Prime Minister, the NRLA has said:
– The Government is asking landlords to subsidise struggling renters and rewarding those who are wilfully refusing to pay their rent.
– It is also causing continuing hardship to communities and families suffering anti-social behaviour and domestic violence perpetrated by tenants.
– The government has now said that repossession cases on the grounds of rent arrears will not be treated as a priority until tenants have built over a year’s worth of rent debts.
– Added to this is the six months’ notice that landlords now have to give.
– Where the case is disputed, even before the pandemic, courts were taking an average of nearly six months to deal with cases, with the backlog this is now likely to be longer.
– Taking the English Housing Survey average weekly rent in the private sector of £200, this means a potential lost income for a landlord of up to two years amounting to £20,800.
Ben Beadle, NRLA chief executive, says: ‘The overwhelming majority of landlords have been working constructively with their tenants to sustain tenancies where rent arrears have built as a direct result of the pandemic.
‘The Government’s actions are a kick in the teeth for all these landlords who have done the right thing.
‘Ministers must use the next four weeks to come up with a credible plan that pays off rent arrears built due to the pandemic and gets the courts hearing cases again.
‘Stopping landlords from legally ending failed and disruptive tenancies is not a solution. The government must act to cover the costs of providing homes, they cannot expect landlords to foot the bill for their failure to support households.’
Kicking the can down the road
Separate analysis of the state of the private rented sector suggests that around one in every 12 renters is behind on their rental payments – either with permission from their landlord or without.
Data supplied to This is Money by rental platform MakeUrMove points to a sharp rise in the number of households in arrears on their rent.
According to the platform’s analysis of their own data, the combination of arrears and permitted arrears now make up around 8 per cent of tenancies.
Before the coronavirus pandemic struck, unauthorised arrears of more than 21 days were less than 1 one per cent of all tenancies in the UK, according to MakeUrMove.
In the six months since lockdown started, this has doubled to 2 per cent.
Of these, more than half were already in significant arrears, says Alexandra Morris, managing director of the firm, which lists properties for rent and puts landlords and tenants in touch.
Housing Secretary Robert Jenrick extended the ban on tenant evictions until 20 September
‘For example, one tenant hasn’t paid rent since December 2019 and is showing no desire to resolve the situation, particularly now given the increased difficulty for the landlord to regain possession,’ says Morris.
‘The can is most definitely being kicked [down the road by government]. Sensible tenants are helping themselves already by finding alternative property which is more aligned with their current and likely future circumstances.
Rental arrears in numbers
Statistics from YouGov polling carried out for Shelter in June 2020, show:
• By end of June 2020, an estimated 227,000 adult private renters, 3 per cent, had fallen into arrears since the start of the pandemic
• 174,000 private tenants have already been threatened with eviction by their landlord or letting agent
• This accounts for 6 per cent who’ve had some contact or 2 per cent of private tenants overall.
• Without the ban, anyone who accrues rent arrears of eight weeks or more can be automatically evicted under the current court system
• This is in addition to the risk of being subjected to a Section 21 ‘no fault’ eviction
‘The issue is for those hoping it goes away as the government’s measures do not address this.’
Not all those in the sector are against the government’s action to delay rental repossessions for another month, however.
Polly Neate, chief executive of Shelter, says government has ‘recognised the very real danger that tens of thousands of renters are in’.
‘It is right for the government not to lift the ban when it risks exposing people to eviction and the threat of homelessness with no means of defence,’ she adds.
But even Shelter is calling on government to use this short window of time ‘wisely’ to put proper safeguards in place for renters.
Neate says: ‘People are still falling behind on their rent – 230,000 private tenants since March – leaving them vulnerable when the ban does end. And we all know even more economic storm clouds are gathering.
‘A bullet may have been dodged with this extension, but as soon as Parliament returns, it must give judges extra powers to stop renters being evicted because of ‘Covid-arrears’. Facing eviction this Christmas, is not a present anybody wants.’
The District Councils Network, which represents some local authorities, has estimated that 500,000 people could be at risk of eviction.
Chris Sykes: ‘Buy-to-let arrears are now believed to be a huge problem across the UK’
Landlords cannot carry the can forever
The government’s actions last week delayed the inevitable for thousands of tenants, but without addressing the shortfall in rental payments to landlords who rely on them to pay mortgage debts, this help will ultimately achieve little.
Chris Sykes, of mortgage broker Private Finance, says buy-to-let arrears is now ‘believed to be a huge problem across the UK and only set to be made worse following the end of the furlough scheme in October’.
He adds: ‘This could be catastrophic and could lead to landlords being unable to make their mortgage payments and potentially, in a worst case scenario and if unable to get any assistance, either having to sell or lose their property.’
The reality facing many, mostly independent and small-time landlords, is harsh.
They have bills to pay, mortgages, insurance, leaseholder changes, ground rents, safety obligations and maintenance, among many more financial commitments.
MakeUrMove data suggests that one in 10 landlords is a tenant themselves, meaning they also have rents to pay.
‘More than half of landlords also have jobs and are facing the same insecurity as tenants in terms of knowing whether that income will continue, says Morris.
‘The combination of all of this, with owning a property and not receiving rent or having any power to change the situation, is an infringement of a landlord’s rights. It’ll likely have a significant impact on their mental wellbeing as well as the financial impact.
‘While it’s important that tenants are supported by the government, the government also needs to support landlords and be clear that this does not give tenants the green light for ignoring their contractual obligations.’
Bob Young, chief executive of specialist buy-to-let mortgage lender Fleet Mortgages, warns that longer term, the damage could be much worse.
‘The government is shifting housing non-payment of rent to landlords with no recourse,’ he says.
‘If left unabated it will reduce the size of the private rental sector just as happened when the 1974 Rent Acts was introduced. If landlords are unable to regain access of their properties where non-payment occurs it will cause huge public discontent as people will have nowhere to live.’
Best mortgage rates and how to find them with This is Money’s help
This is Money has partnered with L&C Mortgages, a firm of independent mortgage brokers who specialise in finding the best mortgage rates and the right deal for you.
To check for the best mortgage deal and speak to an adviser, click here.
Or you can fill in your details online to find out the best mortgage rates for you.