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Over Half of UK Landlords Lost Income During COVID

A report carried out by Simply Business has shed light on the true impact the outbreak of the COVID-19 pandemic has had on UK landlords. Speaking to over 500 landlords, the findings state that around one in ten rental property owners experienced a loss of at least £10,000 since March 2020, with more than a third of these landlords resorting to using their personal savings to recuperate some of their lost rental income.

Rather distressingly, the research has also found that of the 2.6million landlord that provide rental accommodation through the UK and accounting for almost 4.5 million homes, around a fifth of these rental property owners are planning to sell up and offer their entire portfolios to the market, thanks to the uncertainty and hardship experiences across the private rental sector thanks to COVID-19.

No doubt this will have been influenced by over 51% of the landlords used in the report lost rental income during the pandemic, leaving them more exposed to the costs of repairs, improvements, any mortgage and insurance policies alongside general property management costs.

With 27% of the landlords explained that this fall in realised rental income was due to the occupants of their rental properties struggling financial thanks to reduced working hours and an uncertain income, this was not the exclusive cause as 8% revealed they were unable to find suitable tenants during the outbreak, resulting in a loss of rental income.

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The findings from Simply Business further revealed that of the landlords that experienced a reduction in their rental income over the pandemic, 47% lost between “£2,001 and £10,000, with a further 14% of landlords seeing a loss greater than £10,000. Worryingly 47% of landlords believe that it will take them more than six months to recover their lost income, with some saying it could take as long as five years to recuperate the missing rental payments.

Although many landlords have expressed frustration with the government’s eviction ban, rolled out to ensure that the nation has not plunged into a homelessness crisis in the middle of the outbreak, however rental property owners stated that enough distinction wasn’t made between renters that had fallen on hard times and were unable to pay their rent, and problem tenants who’s arrears in some cases pre dated the pandemic. 21% of the landlords surveyed by Simply Business revealed that the eviction ban shouldn’t have been implemented, with 19% saying that although they feel an eviction ban was needed, the relief offered should have been for a far shorter period. However, 18% stated that they faced problems trying to remove a problem tenant and reclaim possession of their rental property because of the eviction ban.

Similarly, 43% of landlords revealed that they needed more support from government initiatives to tackle difficult tenants, with 34% commenting that the government measures didn’t property support renters during the pandemic, and should have been better financially aided to allow them to pay their rent. Further to this 43% feel that landlords that have had a dramatic loss in rental income should be compensated by the government for their missing rent.

Of course, with the outbreak of the virus having an impact on working hours and the certainty that surrounds so many peoples income, the inability of renters to meet their rental obligations has unfortunately not only left record numbers of those that had never previously been indebted to their landlord struggling to make ends meet, but left the landlord’s themselves facing eye watering losses. Throughout this period the government has maintained that despite mounting arrears, the best course of action remains having an open dialog between tenants and their landlords to arrange a payment holiday or reduced rent initiative. With this in mind Simply Business found that a quarter of landlords felt that their relationship with their tenants had deteriorated over the last 18 months, with a mere 3% saying that their relationship with their tenants had improved.

As mentioned tenants that were facing difficulty during the pandemic were encouraged to communicate with their landlord to try and reach a resolve and prevent rent arrears from mounting.  Unfortunately it was not always the case where such an arrangement could be made, but of the landlords included in the study, 14% providing their struggling tenants with a rent reductions, 8% offered rent breaks to the occupant of their rental property, with 7% redecorating the property for their tenants. It is understandable that landlords may feel some apprehension surround the matter of the tenant’s adhering to the agreed upon payment plan, however 56% of landlords found that their tenants stuck to the outlined arrangement, with 44% saying that their renters were unable to adhere to the repayment schedule.

As can be expected after months of financial uncertainty, as renters have raised concerns over their ability to find guarantors, pass affordability checks and ultimately find their next home, 35% of surveyed landlords expressed concerns over further regulations to the rental sector, with 17% commenting that they believe it will be harder to find good tenants as we emerge from the pandemic.  To the dismay of renters, as reforms look to make the private rental sector a more accessible space with the upcoming renter’s reform bill and the somewhat recent tenant fees act, 56% of landlords believe that rental property prices will see a significant increase in the near future.

Alan Thomas, UK CEO of Simply Business commented, “ As the UK looks to recover from the effects of the pandemic, it’s vital that we recognise the significant contribution of landlords to the economy, and the important role they play in providing safe and affordable housing in our towns and cities.”

“The impact of the pandemic has been felt across all corners of the country – and that’s no different for the 2.6m landlords who let out residential properties in the UK. The extent of that impact is made clear in our latest research, with many landlords losing out on thousands of pounds in rental income.”

Landlords Turning to Collecting Rent in Advance

With landlord’s faith in renter’s ability to meet their rental obligations, through no fault of their own, starting to waver, an increasing amount are resorting to asking their tenants to pay large sums of rent in advance to prevent ret arrears. As can be expected, when emerging from a period of economic turmoil many are seeking additional financial security surrounding their income, and with landlords facing significant losses on the back of rent reductions and payment holidays provided throughout the last 18 months having their rent paid in advance is an appealing prospect to say the least. However this of course presents them with a unique issue, whilst rent in advance will provide landlords with this predictability of rental income, it will undoubtedly deter the majority of renters away from the opportunity they are presenting, as the advanced rent will present too much of a financial barrier.

Seeing the surge in landlords requiring their tenants to pay exorbitant amounts of rent in advance before moving into the rental property, The national Residential landlords Association stated, “We would encourage landlords to look for alternatives to asking for high levels of rent upfront. Where necessary, it is usually simpler to obtain a guarantor or suitable insurance product to provide assurance to tenants and landlords that rents will be covered.”

Open Rent revealed that of the 175,000 rental properties that were let out using the platform in 2020, 95% of tenancies saw the landlord request that the tenant paid them at least one month’s worth of rent before moving in. Further to this, the online lettings platform revealed that of the 9,000 tenancies where the landlord requested that the aspiring tenants paid more than a single month’s rent in advance, a quarter asked for six month’s rent upfront.

It is worth noting that whilst there is no legal limit to the amount of rent in advance a landlord can request from their tenants before they move into the property, landlords are prohibited from taking additional fees for cleaning, referencing or establishing the tenancy agreement, and disguising these costs from the tenant as rent in advance. If a landlord wishes an aspiring tenant to pay rent in advance they will need to detail the exact period the initial payment cover, a periodic breakdown of the fee and when the tenant can expect to make their next rental payment to the landlord.

Although rent in advance may offer some landlords the financial security they are demanding in the aftermath of the pandemic, it is far from a practical solution. With aspiring renters already being required to provide their landlord or letting agent with a holding deposit and a tenancy deposit, this will simply be unobtainable for the majority of renters, leaving landlords that follow this practice with potentially longer void periods and vacant properties.

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Do You Need Rent Guarantee Insurance?

Another way in which landlords choose to protect their rental income is through tenant default insurance. Naturally the need for such a policy has been highlighted over the last 18 months, with an increasing amount of tenants being unable to pay their rent. However, simply put tenant default insurance will cover the cost of the missing rent, if the tenant fails to produce the necessary amounts.

Whilst this will provide landlords with the predictability of their income, the majority of providers will demand that each tenant passes their affordability checks in the referencing process, seeing the renter’s income, employment and credit history be scrutinised in order to assess their financial compatibility with the rental. It is also worth noting that as expected this financial lifeline for landlords is not indefinite, typically covering the cost of missing rental payments for a set period of time, usually six months to a year, or up to an agreed upon value.  Further to this if the landlord is currently facing a void period where the property has stayed vacant, the residents have a poor credit history, or are full time students, the insurance policy is unlikely to pay out.

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