Welcome to this special, VE Bank Holiday (and lockdown), edition of Property Investor Today. We hope all our readers are having an enjoyable, if unusual, day!
The coronavirus pandemic has, and continues to have, a dramatic impact on all parts of the property industry.
Here, with the expert input of Stephanie Taylor – co-founder, alongside her sister Nicky, of Newport-based specialist agency HMO Heaven – we explore what the current crisis has meant for the HMO (house in multiple occupation) sector.
Significant challenges faced
Along with the rest of the UK, and indeed most of the world, the Covid-19 lockdown has meant many HMO landlords have seen their personal and household income impacted, and their jobs or businesses in peril.
In addition to those concerns, which many people are facing, Taylor says the HMO sector also faces the following challenges: non-payment of rent, the inability to fill empty rooms and problems paying mortgages.
Non-payment of rent
Taylor explains that when the lockdown was first announced there was concern that many tenants would lose their jobs and would be unable to pay their rent.
As it turned out, though, Chancellor Rishi Sunak announced a whole raft of financial assistance from the government, including the Job Retention Scheme and changes to Statutory Sick Pay and Universal Credit. In the latter case, this increased the amount of payments, the number of people eligible and the speed of payments.
“Additionally, the government has offered assistance to businesses and the self-employed,” Taylor says. “These changes have meant that the overwhelming majority of tenants will be able to claim government support if needed and most tenants will be able to pay their rent.”
She adds: “Our experience has been that over 90% of tenants paid in full, with the remaining tenants making partial payments with a plan to pay the rest upon receipt of financial support.”
Inability to fill empty rooms
At the moment, Taylor says, non-payment of rent is not a pressing issue as government support is available for the majority of people.
However, voids (empty rooms) have been, and will continue to be, an issue for as long as lockdown continues.
“Government guidance is that landlords and agents should not facilitate moves unless they are for key workers or the move is ‘essential’,” Taylor states.
“For HMO landlords with partially tenanted properties, housing key workers may not be an option if it will put existing tenants at higher risk. Or if one of your existing tenants is already in self-isolation.”
For landlords with empty properties, though, providing much-needed accommodation for key workers can be a way through this, Taylor explains.
There are a number of organisations HMO landlords could speak with which are seeking accommodation during lockdown, including the NHS, recruitment agencies for key workers, local authorities for emergency housing, and charities that support vulnerable or at risk groups who may need housing. Additionally, workers at supermarkets and fulfilment centres like Amazon are currently classed as key workers and may need accommodation, too.
What should you do, though, if you’re suffering from larger numbers of empty rooms which you cannot refill because key workers are not an option for you?
“There are three things you can do,” Taylor advises. “Look after your tenants. Claim the support you can. Apply for a mortgage ‘holiday’.”
What does this support include?
The government has made funding available for people whose jobs or businesses have been hit by the pandemic. Ensure that you claim only what you’re eligible for, Taylor says.
The help on offer includes the Coronavirus Job Retention Scheme, support paying Statutory Sick Pay (SSP), business rates reliefs, support for the self-employed, government-backed loans to businesses, direct business grants, VAT deferrals, improved Time To Pay arrangements, Universal Credit and other grants, funding and loans provided by local authorities.
As for mortgage holidays, these may also be an option if landlords are struggling financially because of Covid-19. With HMO landlords facing a rising number of empty and unfillable rooms across their portfolios, and no clear end date in sight, there is a fear some landlords will struggle to pay their mortgages.
“When the government announced mortgage ‘holidays’ would be extended to cover buy-to-let landlords, it was very welcome news. It meant that landlords had a fallback, if needed. It meant we could breathe easy,” Taylor says.
“Or so we thought. If only the implementation was as good as the presentation!”
There are three things that are not being said in the glossy presentations, according to Taylor.
It’s a ‘pay more for your mortgage later’ holiday
“If it is a holiday, it’s the sort where you go away for three months and come back to three months’ work waiting for you, plus more piling in by the day. It is not the sort of holiday you’d want if you really had a choice.
Essentially the mortgage interest you owe during your three month ‘holiday’ continues to be added to your mortgage, which means that your post-‘holiday’ mortgage payments go up or your mortgage loan term will be extended. In short, you end up paying more.”
Your credit file could be compromised
“Although the government has given assurances that making use of the mortgage ‘holiday’ won’t negatively impact your credit score, as frequently happens, the banks have not been as clear on this point.
Some lenders are saying that while your overall credit score won’t be affected by a mortgage ‘holiday’, the holiday will be recorded on your credit file and therefore could impact future lending decisions.
If you do decide to apply for a mortgage holiday, check the position with your lender in advance and get any commitment in writing.
Also bear in mind that although the mortgage holiday may not impact your relationship with your lender, in respect to your current loan, it could have an impact on future applications you make with the same lender and other lenders.
Some lenders have added a question to funding applications to ask: ‘have you applied/taken a mortgage holiday?’ and have refused additional borrowing due to concerns over affordability, and the borrower’s ability to repay/make payments.”
The mortgage holiday is not available to everyone
“There is an application process. You can apply to your lender for a mortgage ‘holiday’, but they do not have to give it to you.
Some lenders are not offering ‘holidays’ on buy-to-let mortgages, or where there is additional borrowing or where a ‘holiday’ has previously been taken or where people are not fully up-to-date with rent payments. Ironically, the people in most financial difficulty are not eligible.
Another point to note is that if you do take a mortgage ‘holiday’ from your lender, you must pass this on to your tenants. As always, it’s a case of read the small print!”
She advises that, even if people are having financial difficulties and are not eligible for a mortgage holiday, they should still contact their lender to see if they can help in a different way.
“Ask them if you are eligible for a rate switch and what products are available,” Taylor says. “This may see your payment drop further following the recent reduction to the Bank of England base rate.”
Due to the fast-moving nature of coronavirus and the daily updates from government, the financial assistance being offered is likely to continue to change and be refined. She says landlords and investors should fully check their position before taking any decisive action.
Overall, she says, the HMO market is proving resilient and remains pretty stable. “It very much depends on how long lockdown remains in place. If lockdown ends within 3-4 months of starting, most HMO investors will be able to ride that wave. If it goes on well beyond that it will put more stress on the system.”
How can the market recover after the crisis?
There is debate about whether the recession will be V-shaped (a quick recovery) or U-shaped (a slower recovery), Taylor says.
“As far as the HMO market is concerned, whichever type of slowdown follows coronavirus, demand for HMOs will increase.”
In an economic downturn more people separate and divorce, and more people are looking for lower cost housing - both of which increase demand for shared housing, she adds.
“Another key shift will be towards social housing. Many private landlords exited social housing when Universal Credit housing levels fell below average rentals in all but the most depressed areas. This combined with local councils encouraging tenants to not pay rent meant that many private landlords stopped offering property for social housing,” Taylor says.
“Now with an increase in Universal Credit rates, ability for rent to be paid direct to landlords and the recession-proofness of social tenants I predict more private landlords will serve this market.”
Finally, she adds: “I think there will be much more opportunity for HMO investors to buy HMOs for lower prices as some landlords exit the market post-coronavirus.”
And what of her advice to those currently in the lettings sector?
“Now is the time to overdeliver, be exceptional and lead the way. When the market is challenging, there is the most opportunity. Landlords will be looking for new partners as many agents are not rising to the challenge.”