Rent. To pay or not to pay?
This topic has been raging in the housing community since the COVID-19 pandemic began.
The pandemic's impact can be felt across the board. Over 2 million people have become unemployed in the UK since the pandemic started. Around 1.4 million people applied for universal credit in March 2020 (Guardian). This is an extraordinary proportion of the working population who now find themselves with no or diminished income.
COVID-19 affects housing demand and supply
The media has covered a lot of the effects of Covid-19 on tenant income. It is worth remembering that we are all interlinked. The Guardian newspaper published a tenant survey on the 14th of April that showed 6 of 10 renters have suffered financially and some now have to make the tough choice between paying rent/bills and feeding themselves. In fact, about 15% of renters have abandoned their rental properties altogether and have moved in with friends/family because they recognize that they can no longer afford to house themselves.
The challenges extend to commercial real estate. With big name commercial tenants such as McDonald's & Primark also unable to pay their rent. It is no surprise that landlords are concerned.
However, it is important to note that landlords themselves are not immune. 87% of landlords are not just landlords i.e. they have regular jobs and so are also subject to same job losses, pay cuts, furloughs as everyone else.
The truth about rental holidays
There have been several calls from tenants groups to give tenants renl holidays the same way mortgage holders have received mortgage holidays.
There are several fundamental issue with that.
Landlords are not companies. They are independent people who have purchased properties for the income they provide. This means that their personal finances are linked to their properties. Unlike banks and mortgage companies, landlords do not have multiple revenue sources from which they can absorb losses. If tenants stopped paying rent we will be putting landlords into serious financial difficulties in the most extreme cases bankruptcy.
Landlords rely on rental income to various degrees. 32% of landlords are retired, rent is their only income. The impact on them is clear. Only 13% of landlords are full-time landlords meaning the vast majority have regular jobs where rental income supplements their income (on average 42% of landlord income comes from rent). This means that landlords are just as likely as tenants to lose their jobs as a result of COVID-19.
Taking a mortgage holiday today will mean more expensive mortgage payments after the holiday is completed. This will inevitably mean higher rents. Although, it must be highlighted not by much. For e.g. a £200K mortgage will cost £500 a month (3% interest rate and interest only) before a payment holiday and £503 after.
It is unknown if there will be any future repercussions for anyone who takes a mortgage holiday. Some lenders have already issued warnings against requesting holidays unnecessarily i.e. when there is sufficient income to make the payments. It is also unclear how this will affect credit ratings in the future.
Some landlords have given rental holidays or rent reductions to their tenants (link) Naturally it is important to note that they have been able to do this because they can afford it.
It's in your interest to pay rent
If you can afford it, pay it. If you won't do it for your landlord's benefit, do it if not for your own. Non-payment almost certainly guarantees that you will be evicted and future landlords will not look kindly on your conduct. You may not be able to find a landlord willing to take you on in the future as tenant references will shed light on your behaviour.
There is also an element of collective destruction. As explained earlier, it is very easy for a small landlord who relies on rental income for their daily expenses to go bankrupt as a result of your actions. If this happens on a wide scale, individuals will be less likely to enter the property market leaving only larger landlords and corporations. It doesn't take sense to work out that markets are more beneficial to the consumers i.e. tenants when there is a great variety of choice and suppliers.
But what if you really can't pay?
No one will argue that these are unprecedented times. Hopefully you have an understanding landlord. We've written about steps you can take on our tenant and landlord action plan. There is also a lot of help from Crisis .
If you have any questions, get in touch with Husmus today.