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Surviving The Virus

The UK is in lockdown and many businesses have ground to a halt.  How is this affecting landlords and how can you get support?  The Chancellor has announced a raft of measures, here is a summary of what’s available (updated 18 April 2020) and some of the issues involved:

1. Mortgage Payment Holiday

This was one of the earliest announcements made by the chancellor.  Lenders were initially required to give homeowners a three month payment holiday and this was later extended to residential landlords.  Some lenders ask for simple self-certification by the mortgage account holder through an online process, others require evidence that the tenant of the relevant property is unable to pay rent.  There is then a process of negotiation for up to 3 months payment holiday – it is not just a blanket policy.  UK Finance which is the association for lenders says “mortgage providers will make every effort to ensure that if you take a payment holiday it does not negatively impact on your credit score.”  This will probably mean that credit reference agencies will record an agreed zero payment rather than a missed payment. Some commentators see this as a no brainer as landlords can reduce tenants’ rent by the amount they save by not paying the mortgage and still retain the same cashflow.  I remain sceptical and am reluctant to damage my credit file as I expect to need to raise finance in the coming months.

Tenants caught on quite quickly to the idea that landlords were getting a three month holiday from their mortgages and there has been a lot of misunderstanding.  Some thought that they could stop paying rent for three months without realising that this would result in arrears that would have to be paid back at some point.  And mortgages are only part of our costs – what about the £2,000 we might need tomorrow if a boiler needs replacing?

I would recommend that you continue to pay your mortgages if you possibly can and advise tenants on other options which I cover later on.

2. Deferring Tax Payments From July 2020 to January 2021

If you submit a self assessment form and pay your tax in January and July, then you have the option to defer the 31 July 2020 amount due until 31 January 2021 without penalty.  I think this is great as it can really help with cashflow.  I have already saved up funds for my July payment so I will be using those to fill in any gaps in rent until the tenant can clear arrears.  If you pay VAT, payments due between 20 March and 30 June 2020 – so one VAT return – are deferred until 31 March 2021 and HMRC has confirmed that no interest will be charged.

3. Self Employed Support

If you or tenants are self employed, have submitted a tax return for the tax year 18-19 (or could do by 23 April 2020), have traded in the last 12 months and have a trading profit of less than £50,000 and this is more than half of your income,  then you will be eligible for help.   The government will pay you a grant in June 2020 and will use figures from your last 3 tax returns (or last 1 or 2 if you haven’t filed 3).  They will take an average of the 1, 2 or 3 years that you have filed, divide it by 4 and pay you 80%.  So in effect they are paying you for 80% of 3 average months of self employment – but there is a limit of £2,500 per month.   There is no need to apply, HMRC will contact you if you are eligible.

The government says that 95% of self employed people will qualify.  For someone who has only recently become self employed and cannot file a tax return for the tax year 18-19, then the only option is Universal Credit which has been made more accessible for self employed people. 

If you pay yourself through a limited company via dividends you are not eligible for help.  If you pay yourself a salary from your limited company through PAYE, you can furlough yourself (see below) and receive 80% of your salary as long as you stop working for your business.   Generating income and carrying out significant administrative work – such as collecting rent and dealing with urgent repairs – could make employed directors ineligible.

4. Help For Employees – Coronavirus Job Retention Scheme

Many landlords and more crucially our tenants have PAYE jobs. The government will cover up to 80% of an employee’s monthly salary backdated to 1 March 2020 for up to four months if they are furloughed – which effectively means they are temporarily laid off but are guaranteed a return to their job once normal circumstances resume.  Note that for employees to be eligible they should have been on a payroll where the employer sent payroll information to HMRC before 19 March 2020 and not be working for the employer during the furloughed period. Employees can still do temporary work for another employer.  The aim is for grants to be paid to employers for distribution to employees from 20 April 2020, though there is some anxiety amongst businesses whether this will arrive in time for the pending pay runs.

5. Coronavirus Business Interruption Loans

If you have a business current account, have been running your business for at least 12 months and had a turnover of less than £45m in the last year, you can apply to your bank for a loan of up to £250,000 and more in some cases.  It is funded via the British Business Bank and funds are funnelled through 40 ‘accredited finance partners’ – high streets banks and others.  The Lloyds scheme, for example, offers loans for 1-6 years, it is interest free for the first 12 months and capital repayments are required after 6 months – although further payment holidays can be requested.  All the criteria are on the banks’ websites.  They have been inundated with applications and information is a bit thin on the ground at the moment.  For example the capital repayment terms and interest rates beyond 12 months have not been specified and will depend on the individual bank and your circumstances.  Some lenders were quicker off the mark than others – Lloyds started taking applications on Monday 23 March, but Metrobank didn’t take applications until 30 March.  Processing is taking at least two weeks.

6. Business Rates Cancellation & Other Grants

There are also grants of £10,000 for small businesses that occupy property and are eligible for small business or rural rate relief as of 11 March 2020.  Retail, hospitality and leisure businesses are exempt from business rates for the tax year 2020-21 and can claim grants of up to £25,000 depending on their rateable value.  The full list has been published in the guidance and includes letting agents and holiday lets.

Managing Your Business

Commercial and residential tenants have rightly been afforded protection from eviction by government.  No commercial tenant can be evicted for failure to pay rent until 30 June 2020 and current possession proceedings for residential tenants have been suspended from 27 March 2020 for 90 days.  Notice periods for new eviction proceedings – notice to quit, section 8 or 21 – have been extended to 3 months before you can apply to the court for proceedings and this will stay in force until 30 September 2020.  In addition, private landlords must use the pre action protocol that social landlords have to use. 

This is absolutely not the time to be pursuing eviction proceedings except as a last resort.  There are however concerns around cases of anti social behaviour and illegal activity which could create unsafe or intolerable circumstances for landlords and neighbouring properties.  But the court service is barely functional at the moment and whether a judge would agree a possession order in the immediate aftermath must be very doubtful.  So I would imagine landlords would need to seek whatever help they can from the police and their over stretched and understaffed local authority.

Many student landlords have experienced an exodus of tenants as the higher education sector has closed down until the next academic year.  Tenants (and their guarantors) are liable for rent, until the end of the contract so landlords will need to take a view on whether to pursue outstanding rent perhaps through a payment plan or try to use some of the government support schemes.  I would expect lenders to take a sympathetic view of those with mortgages.  Ultimately landlords could use the small claims court procedure to recover arears if they chose.

Commercial landlords should check their insurance policies.  Some policies will include cover for loss of rent caused by notifiable diseases – of which Covid-19 is one.  All policies vary so you would need to check with your insurer, but this may be a good fall-back if your tenant can’t pay rent.  I would check what insurance they have first and also advise them of government schemes that can help them.  Residential rent guarantee policies may provide you with cover, so if in doubt speak to your insurer.

Where tenants have asked me about help with rent I have initially emailed them with a list of schemes that could help them.  If universal credit is an option, they need to apply straight away as their eligibility begins from the day they apply.  The standard allowance for universal credit has been increased by £1,000 per year and the housing element was restored to the 30th percentile of local market rents from 1 April 2020.  This is where it was in 2012 when the link between LHA and local rents was lost and LHA rates began to fall well below market rents.  I have sent tenants a link to the universal credit website and worked out how much LHA I think they might get using the online LHA calculator.  I also offer tenants help with their application and recommend they do all they can not to fall into arears as once they are behind with their rent, it can be difficult to catch up again.

Other issues that are arising concern access to properties because of government advice on social distancing of the general population and shielding of vulnerable people.  Landlords remain legally responsible for repairs, gas safety and electrical safety HMO checks.  The advice is to carry out emergency repairs only.  I recently had a new washing machine delivered to a tenant by AO.com without any issues.  If you or a contractor attend a property stay at a 2m distance and follow government advice on hygiene and hand washing.  This would also apply if you carried out a check in for a new tenant, if possible meeting with just one of the tenants so that you are not congregating in a group of more than 2 people. 

Many local authorities have suspended enforcement action and the NLA expects authorities to take a common sense approach.  If you cannot access a property to carry out a gas safety inspection because the tenant is self isolating, ask the tenant to write to you confirming their situation.  Many contractors have stopped working – my gas safety engineer’s wife is vulnerable so he is unable to work.

Moving a new person into a shared house or bedsit style HMO could also raise tricky issues and you should seek assurances from the new tenant that they don’t have symptoms and have not been sharing a house with somebody who has Coronavirus within the past 14 days.  If somebody vulnerable is living in the HMO it may be that the new tenant will not be able to move in as planned, unless the vulnerable person can isolate themselves in their bedsit.

There has been much discussion over whether house moves should take place.  The advice from government is they should be avoided, but if they must take place, social distancing should be observed.  Many potential house movers have said it has been near impossible to get a removal firm to book them in at the moment.  Where parties are about to exchange,  many are including a coronavirus clause that allows for renegotiation by either party of the completion date.

Finally, if you were applying for a mortgage, you may face some difficulties.  Surveyors have stopped visiting properties for valuations.  A few lenders are allowing desktop valuations for low loan to value mortgage applications.  Moneyfacts reports at the end of March that 1062 residential and buy to let mortgage products had been withdrawn in the previous 16 days – reducing the total number by 15% and some lenders have stopped offering mortgages for borrowers with small deposits.  A portent for what might be to come in Britain’s housing market.

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©Richard Blanco 2019

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