It’s painfully apparent that the risk of landlords and investors not receiving rent during the Covid-19 pandemic is far higher than it was previously. Given the widespread economic impact of the pandemic, many landlords and investors who let their properties to working professionals/working families may suddenly find themselves receiving less or even no income.
While Housing Benefit or Universal Credit may come to the rescue for some tenants, it takes time to apply and receive these benefits. And with the unemployment rate rising, there’s a significant risk that the number of landlords and investors being impacted will rise too.
Landlords and investors who rent to students are also at risk. While students will still receive their loans, which are sufficient to cover their rent, what happens if they decide to return home and not pay?
Whichever way you look at it, the risk of rent default – whether due to tenants’ loss of income or to changing circumstances – has increased. Not only that, but it will continue to do so as long as the pandemic lasts.
Realistically, that could mean a further two years of disruption. While a vaccine or cure will (hopefully) reduce the health impact of Covid much sooner than that, it will take longer for economic stability to return. This means that landlords and investors need to do all they can to protect their property investments during the ‘new normal'.
There are a few ways that they can do so. They could insist on much more stringent references for tenants. They could also make a personal guarantor a requirement. Buying rent insurance or the services of a guarantor company is also an option to help mitigate loss.
Some of these solutions come with a price tag, so landlords and investors need to be comfortable with spending more in order to receive more cover.
The use of a guarantor company is often the best solution, but it’s not one with which all landlords and investors are familiar. With these companies, the company stands as the guarantor for the tenant. This arrangement negates the need for the landlord or investor to worry about a personal guarantor (who could be in just the same position as the tenant in terms of reduced or entirely lost income) paying out should the tenant be unable to.
Guarantor companies are paid for by the tenant, so the landlord or investor's investment income is protected at no additional cost. Should the tenant be unable to pay their rent, the guarantor company will make the payment within 28 days upon receipt of the invoice.
In addition to unpaid rent, some guarantor companies cover damages above the value of the deposit, legal fees (if required) and all monies legally owed to the landlord or investor.
Whichever solution they opt for, landlords and investor should carry out due diligence to ensure that their chosen option will insure their financial risk and protect their investment sufficiently.
*Terry Mason is group operations director at rent guarantor service Housing Hand. Housing Hand and its subsidiary, Only My Share, are currently supporting both property investors and their tenants by providing a rent guarantor service