On Wednesday 18 March, the government announced measures in an attempt to provide some reassurance for both residential landlords and tenants. We are not sure how reassured either landlords or tenants will be.
For many landlords, their rental income is vital to meet mortgage commitments. The government has recognised this and landlords who have buy-to-let mortgages, where the ability of their tenant to pay rent has been affected by any aspect of the coronavirus pandemic, will be able to take advantage of the three-month mortgage payment holiday, already available to home owners in difficulty.
It is not yet clear what evidence will be needed. It is likely that it will be left to lenders to set the criteria. If landlords are already seeing missed rental payments, it would be prudent to ask their tenant to confirm in writing what their circumstances are, i.e. laid off, made redundant or simply receiving statutory sick pay. Landlords should give lenders a few days grace before making contact to discuss this relief. Lenders are already struggling to manage enquiries from those who are owner occupiers.
A mortgage holiday is simply a break from paying the mortgage and landlords will have to make up the missing payments at some point. Lenders are likely to be happy enter into a payment plan to repay the arrears over a reasonable period and it is worth landlords knowing that the remaining term of the mortgage is considered by the court to be a reasonable period for repayment of mortgage arrears.
Tenants have not been afforded any sort of break from paying rent. What the government has said is that no tenant who cannot pay their rent due to the coronavirus will be forced out of their home. Whilst the tenant is unable to pay, rent arrears are going to accrue. The government has said that, at the end of the three-month period, landlords and tenants will be expected to work together to establish an affordable repayment plan, taking into account a tenant’s individual circumstances.
New legislation is being rushed through to provide further protection for tenants. The immediate implications are:
- No new possession claims will be issued at courts for the next three months (at least). It is not clear if this will apply to possession claims based on rent arrears only, or whether it will extend to claims brought pursuant to S21 of the Housing Act 1988, which is the ‘no fault’ repossession route where a landlord might simply want their property back, rent arrears or no rent arrears.
- The Pre-Action Protocol currently in place for social landlords (requiring them to take certain steps before proceedings can be issued) is going to be revised to include protection for tenants who have accrued rent arrears due to the coronavirus pandemic. Again, until we see the new legislation and the revised protocol, we will not know whether the protocol requirements will extend to the use of S21 Notices, but it seems likely that it will.
- There was no mention of proceedings that may already have been issued but it seems likely that the Court will be seeking to protect tenants as much as possible and so expect Judges to exercise more discretion than usual.
- Given that the government was already looking at ways to shake up housing legislation and potentially remove S21 entirely, it is possible that this emergency legislation will remain in perpetuity.
More generally, there has been no mention of the impact of non-payment of mortgages on individual’s credit ratings. Currently, missing a mortgage payment will be reflected in someone’s credit score. However, the Building Societies Association (BSA) has reported that ‘firms will make efforts to ensure that forbearance offered under these circumstances (i.e. payment holidays) will not result in an adverse impact on the customer’s credit score.’ Clearly this forbearance will depend on mortgagees speaking to their lenders and keeping lines of communication open. However, the situation will remain unclear for some time and we will continue to monitor it.
As soon as the new legislation has been released, we will be able to advise you on any particular circumstances. Meanwhile, if you are unsure about anything, or if you are a managing agent that has a query, please get in touch