A recent study found that one in five private renters expect to lose their jobs in the next three … [+]
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Britain faces an economic emergency. The country is in lockdown as the coronavirus continues to spread throughout the U.K., but beyond the immediate health implications, the greatest threat is to the wider economy and the impact that it’s already having on businesses, jobs, people’s finances.
Most industries have been forced to reduce or close their lines of business almost entirely, and many people are now left with the difficult question of how they’re going to make their next month’s rent. For renters this poses a particularly severe predicament, as many operate in low-paid positions, often in the zero-hours economy, living with little to no savings to fall back on.
A recent study from the housing charity Shelter, which followed polling from YouGov, found that one in five private renters expect to lose their jobs in the next three months.
But this doesn’t just affect renters – the whole lettings industry is at stake, including landlords and lettings agents. The financial health of all three are vital for the sustainability of the lettings market, and the current risks and challenges are seismic for all stakeholders.
Issues with finance and support
Whilst the government has offered various support packages, financial vehicles and policy adjustments to protect workers through the job retention scheme, support businesses with loans and financing, provide mortgage relief for landlords and delays on eviction for tenants, the protections have not been sufficient to protect people entirely.
So far, the government has taken a top-down approach, trickle-down economics as it were, hoping that financial support and stimulus will preserve as many jobs as possible and allow tenants to make their payments. But it’s an approach that cannot benefit those who have already lost their jobs and are now facing a period of zero financial liquidity.
Furthermore, for the nation’s estimated 5 million self-employed workers – a large body of whom are renters – the government’s income support package for the self-employed might be too little too late. The grant will be paid as a three-month lump sum, but no monies will reach bank accounts until June at the earliest, leaving renters in limbo to make their payments. It will also not be available to the recently self-employed with less than a full year of accounts.
The result will be that likely millions will have to apply for Universal Credit, with more than 1.4 million people having already applied with the Department of Work and Pensions (DWP) since 16 March 2020. Ultimately though it won’t help the majority of renters. Universal Credit provides only £94.25 a week, which will fall far short of requirements for most. For many it also won’t arrive in time after the DWP announced that the four-week assessment period remained ‘integral’ to the process.
There is little doubt that the many renters who either face pay reductions or lose their jobs will struggle to meet their monthly rental payments, even with the government’s 80% income retention scheme, self-employment supplement and Universal Credit options.
Sharing risk and revenue
Renters in particular are one of the groups most ‘at-risk’ from the economic downturn, with private renters spending approximately one-third of their income on housing. Many have already lost their jobs because of the coronavirus or face a very uncertain future in employment. The latest report from the Office for Budgetary Responsibility (OBR), published 14 April, projected that the U.K. economy could contract by up to 35% this spring, with job losses estimated to increase by 2 million, leading to up to 10% unemployment during the second quarter of 2020.
The knock-on effect of this is landlord income will subsequently be hit, many of whom rely on rent for their income. Whilst some Buy-To-Let landlords (as of 18 March) can cushion this blow with a mortgage holiday (assuming they have a mortgage), they’re only offered on the basis that the landlord faces genuine financial hardship, such as through a loss of income due to reduced or stemmed rental payments. So far up to one-in-nine households have requested a mortgage deferment. And one key element that both landlords and renters should be aware of is that this is not ‘free money’. The government would be borrowing debt against the British taxpayer, and it will almost certainly have to be repaid through higher taxes down the line.
Indeed, for landlords and tenants, mortgage and eviction relief are only short-term solutions. At some point in the future tenant protection will cease and evictions could resume, not forgetting that landlords will likely increase rent to make up for lost income.
Some tenants falsely believe that the mortgage holiday means that they don’t have to pay their rent over this period. This is particularly dangerous as it puts them at increased risk of eviction and damage to their credit rating in the future.
However, renters should be particularly concerned about something that’s not necessarily on their radar: what will happen to the landlord not receiving fees in due time, and what that might mean for their own security as banks consider the options on houses with unpaid mortgages.
There have been urgings from several groups and renters’ unions for the government to suspend rents entirely during the pandemic. This is doubly problematic as not only would it cut off income streams for a majority of landlords, but lettings agencies which rely on landlord revenue streams would also be stymied.
For lettings agents, the policies in place and the ongoing conditions of their financial stakeholders will offer only some small measure of support through this crisis. Their categorization as a non-essential service, rightly or wrongly, has forced many to reduce their frontline services at a time when many people still need to rely on them. Love or loathe them, the one thing we can all agree on is that buying, selling and renting a property would in fact be infinitely more complex, if not downright impossible, without professionals guiding as through the process – so it won’t help anyone if they close down due to short-sighted measures by government.
A means-tested solution
Ultimately it boils down to a cash-flow issue for everyone involved, but rather than trying to help each group individually – which as seen with the dispersal of the government’s financial stimulus is a difficult task – it would be simpler to start at the bottom of the chain at the widest rung and support tenants, who carry the most risk both now and after the lockdown is lifted. This way tenants could cover their rent, landlords would receive income, and lettings agents would receive their fees.
A technology-based solution could operate on a similar basis to the furlough scheme. If a tenant is unable to meet their rent due to the impact of coronavirus on their employment, income or health, they – or perhaps their landlord or lettings agents – could apply to a government support scheme with all required parties sending over statements detailing loss of employment/income/sick leave and apply for a short-term rental cover. It would protect both renters who need the support and landlords that rely on the income. This method run through the government would also have safeguards in places utilising bank statements, payslips and rental agreements to ensure a fair amount is paid and that there’s no gaming of the system
This method could be more cost-efficient for the taxpayer as well. Research from the deposit replacement scheme Ome estimates that there are currently around 5.2 million households in the private rented sector. And according to the private rental data from HomeLet, the average monthly rent per household in February stood at £955 (including London).
Based on these parameters, the cost of the government covering the rent of every UK private rental household for one month would average out at just under £4.97 billion – over three months, this would be just shy of £14.9 billion.
I’m aware that these figures may be somewhat variable but considering the increasing inflation of the initial £350 billion made available to support business and the economy, it would be a small price to pay to keep every renter secured in their homes, and with the Bank of England cutting interest rates to 0.1% – the lowest in the Bank’s history – borrowing for this level of support should be much cheaper for the government.
Now let’s say this support was limited only to U.K. tenants who need it most, those who have lost their income due to coronavirus, and enhanced to provide up to £2,500 per month, depending on past earnings and requirements, for up to three months to cover their residential costs. This is similar to a proposal already under consideration in the U.S. to provide each American citizen with stimulus checks of up to $1,200.
This is the time for utilitarian economics. By covering the rent of tenants unable to pay their rent due to job loss or a reduction in income, the government would be supporting renters’ financial stability through these rough waters until the situation improves and they hopefully re-establish independent financial means.
In turn this means that landlords receive their rents on time and are able to make their own mortgage payments, or otherwise make up their majority income. By extension, lettings agents also rely on rental payments, and with this proposal they will be able to maintain at the very least their essential services still available under lockdown conditions for the thousands of tenants and landlords who require them over the next few months.
There is an added urgency for this system to be implemented extremely quickly. The lockdown has already been in place for three weeks and all stakeholders in the lettings industry are suffering. With the lockdown extended for at least another three weeks, the government must act now and offer a beneficial solution with rapid results, or if that is impossible then to enable an immediate cash deposit into peoples’ bank accounts, even if that means biting the bullet and giving support to some who don’t really need it, accidentally or otherwise.
Perhaps the most valuable benefit of this support would be the sense of calm it would restore to the market. Many people at every level of the lettings economy are currently in a state of panic, and this could do much to put them at ease.
The best laid plans…
Even if the lockdown is, as we all hope, lifted as soon as possible, industries will only be allowed to return in stages, and social distancing policies are likely to remain in place until a vaccine is found, all of which would likely mean additional employment and financial difficulties for some in the months ahead.
With that said, I strongly believe that a more effective and immediate solution is required for everyone in the rental market. Especially in light of the ever-changing and unpredictable circumstances we all find ourselves in.
My mind sometimes wanders to the expression ‘safe as houses’, which the late parliamentarian Sir Anthony Grant called ‘a solid bedrock through the ups and downs of the economy and the proposed remedies.’ Words that feel particularly vital in these circumstances. And a stark reminder that we should do everything we can to keep renters in their homes, and to keep those homes open and available.