Covid 19 has affected landlords in several ways this year. My most striking memory is of the anxiety that many of us experienced at the start of the first lockdown. I vividly remember tenants in my local cafe declaring that “if landlords aren’t paying their mortgages, then tenants don’t need to pay their rent, do they?” We were all faced with the dilemma of whether to pro-actively contact tenants to see if they needed help or to sit tight and hope that rent would flow in as usual. Most of the government support was going to tenants in the form of the Job Retention and Self Employment schemes plus slightly enhanced Universal Credit. The onus was on landlords getting abreast of all the schemes so they stood ready to signpost their tenants to the best source of help. Agents devised forms to process tenants’ requests consistently and fairly. As tenants realised that they would need to propose a repayment plan for any arrears that were accrued, very few forms were returned. Meanwhile, even fewer landlords actually used mortgage payment holidays because of fears of its impact on their ability to raise finance in future.
A second cause of anxiety has been the changes to notice periods for eviction proceedings, the courts closure and associated moratorium. Everybody understood that it simply wasn’t acceptable to make anybody homeless at a such a difficult time. After lockdown, politicians vacillated and at the last moment postponed the court reopening date from 24 August to 21 September. Shelter predicted that 230,000 tenants were at risk of eviction, but independent research for the NRLA revealed that 95% of tenants in London were either paying rent as usual or had come to an arrangement with their landlords.
Eviction notice periods continue to be 6 months (except in certain circumstances) until at least March 2021 and bailiffs have been unable to enforce the vast majority of possession orders from 5 November until 11 January 2021. Evictions are always a last resort, but spare a thought for landlords whose tenants stopped paying rent way back in March 2020. A landlord who served a s21 notice in September can begin court action in February 2021 but should expect a 6-9 month wait to be face to face with a judge. Proceedings have been slowed down by the backlog and social distancing limitations. Landlords in this situation are now resorting to the small claims court to encourage tenants to pay outstanding rent or face a county court judgment, enforcement by bailiffs or deductions from their salary, not to mention the implications for their credit file.
The Central London rental market has suffered exceptionally. With the demise of international tourism, AirBnB properties have been difficult to let, so these landlords have turned to the long term rental market. Such properties might appeal to international students, but many are absent this year and we have seen sparse numbers of young professionals and corporate renters. Central London is normally popular and bustling with office workers, tourists and people visiting hospitality venues. But with offices and venues closed, there is little incentive to be in central London, leaving the West End and City of London, until a recent Christmas surge, largely deserted. Agents report falls of up to 25% in demand and rents and advise landlords to expect void periods. We have yet to see these factors ripple outwards into Zones 2-4 with popular neighbourhoods like Hackney, Ealing, Clapham and Crouch End holding up well. With their cafes and bustling boutiques, these have been good neighbourhoods to be furloughed in or to work from home. Agents report that Docklands and less fashionable parts of zones 2-4 are seeing a drop in tenant demand.
We have also seen some interesting Covid related tenant trends. The most obvious is the desire for outdoor space. Being couped up in a flat without a garden was tough for lots of households. A recent Nationwide survey shows 30% of buyers want a garden or more outdoor space. Families have also been moving out of zones 2-4 to London fringes or the home counties. Why live in London if you can work from home and only need to commute to the office 1 or 2 days per week? They are also lured by cheaper rents, rural tranquillity and good county schools.
Many of us have seen shifts in shared houses and other HMOs. I have had tenants move back to live with their parents, again because they can work from home, or in another case because of mental health issues. Covid seems to have strengthened and ended relationships in equal numbers. In one Walthamstow house, a tenant moved out to live with their partner back in Staffordshire, only to be replaced by somebody who had just split up from theirs. I also had sharers who could no longer live together because one had no work and the other was working long hours from home. Additional tension was also created by the fact that the unemployed tenant was so anxious about Covid that they didn’t want the other to go out and exercise. That house share ended.
The reopening of the housing market on 13 May 2020 after the first lockdown surprised all of us by the sudden gush of activity. I re-let two properties very rapidly in June and July, one of them through something that has flourished this year – the virtual viewing. The announcement of the stamp duty holiday from 8 July 2020 by Chancellor, Rishi Sunak, added to pent up demand tempting landlords and owner occupiers with up to £15,000 discount on properties up to £500,000. This was particularly beneficial in London where the average house price is £480,857 according to Nationwide. The consequence has been house prices up by 6.5% in the 12 months to November. The Bank of England also reports that property transactions rose to 105,600 in October, the highest level since 2016 and mortgage approvals of 97,500 in October are at their highest since 2007. The result has been a much longer wait than usual for mortgages and the emergence of cautious Covid related criteria.
NRLA research shows that 30% of landlords are considering selling properties in the next 12 months. Many see this as the last opportunity to sell before the potential end of the house price cycle could see falls next year. Full implementation of section 24 tax changes that cap tax relief on finance expenses to 20%, increased regulation, increasing hurdles to obtain finance and negative attitudes from government and local authorities are driving some people out of the sector. 16% of landlords say they are looking to add to their portfolio – potentially through a limited company – so there is still appetite out there to invest, though whether stamp duty savings can offset price hikes in a fevered market is questionable.
As we look forward, we do face yet more uncertainty. We are in a Covid induced recession and the hope is that the rapid deployment of vaccines will enable a V shaped recovery in 2021. But we also face three cliff edges. The Brexit cliff edge of 31 December 2020 looms and the impact of a trade deal with the EU on the UK economy is yet to be tested, especially with a reduction in EU migrants looking for rented accommodation. Two more cliff edges converge on 31 March 2021 when the latest government furlough scheme and the stamp duty holiday will end. The former is likely to lead to more redundancies with unemployment expected to rise to around 7%. Everybody and anybody who can afford to buy a property will want the purchase to complete by 31 March 2021, leaving thin pickings thereafter. “With a vaccine likely to be rolled out in the first half of 2021 we think that the economy will recover quickly, preventing a prolonged fall in prices,” says Andrew Wishart from Capital Economics. They predict house prices will fall by 5% in 2021. Nationwide describes the outlook as “highly uncertain” and chief economist Robert Gardiner says that housing market activity was likely to slow “perhaps sharply if the labour market weakens as most analysts expect, especially once the stamp duty holiday expires.” Whether this pessimism will result in increased tightening of lending criteria and harsher valuations – especially on remortgages – remains to be seen. At least in this recession, lenders have money to lend.
There are reasons for optimism. The approval of safe and effective vaccines is paving the way back to some kind of normality. A fall in house prices could present investment opportunities and an economic recovery should ensure that demand for rental accommodation in London and possibly other regions remains buoyant. Looming regulation including the abolition of no fault eviction in the form of the Renters Reform Bill may lead to a thinning out of landlords, but those who remain are likely to be more professional and committed to the business of renting. And London is notoriously good at bouncing back quickly as it did from 2009-12 after the last recession and credit crisis.