The Government’s furlough scheme ends this week, and with it comes the possibility of financial hardship for many individuals. The tenant is liable to pay the rent on time if their name is signed on the tenancy agreement. If your buy to let tenants are struggling, here’s what you can do to help them and protect yourself.
At its peak, 8.8 million people were on the Government’s job retention scheme in May 2020. The most recent figures show that 1.6 million were still on furlough at the end of July 2021; still, the recovery has been far quicker than many expected. Forecasters, including the Bank of England, expect only a slight increase in unemployment once the scheme ends on 30th September (the current rate is 4.7%, having decreased steadily throughout 2021). As of August 2021, there were just over one million job vacancies in the UK, around 500,000 more compared to August 2020. All things considered, the jobs market is incredibly stable.
Of course, unemployment and financial difficulty can impact anyone at almost anytime, but it’s likely to be on many people’s minds over the coming months as businesses move out of the Coronavirus safety schemes launched in 2020. Should your tenants fall under hard times, here are few things you can do to help them and protect your own financial stability.
Talk to your tenants
If you suspect your tenants are struggling to meet rent payments, talk to them and find out the situation. With so many jobs available on the market, it’s likely to be a temporary challenge. Therefore, can you come to a short-term arrangement or repayment plan to ease the pressure? You could consider a temporary rent reduction, with the difference made up again once your tenant is in a better financial position. That way, you still have some income coming in from your rental properties, and your tenant doesn’t build up substantial arrears.
Refer tenants for housing benefits
It might be that your tenant is eligible for Universal Credit housing benefit, which can be paid straight to you. Again, this is a conversation you’ll need to have with your tenant if it’s not already in place.
Talk to the guarantor
If a guarantor has signed the tenancy agreement you can request that they cover the loss rent. If after 14 days the rent has still not been paid, ideally send an email contacting the tenant and guarantor again so that you have a record of correspondence.
Rent protection insurance
Although an additional expense, rent protection insurance ensures that you can claim back any lost rental income from an insurer. Your standard landlord insurance is unlikely to include this, so you’ll need an additional policy. Having this kind of cover in place for unpaid rent will protect you should your tenant unexpectedly fall on hard times. However, you may find it more difficult to secure this insurance if your tenant already has a poor credit score or unsteady employment. As with most elective insurance policies, you’ll need to decide whether the additional cost of the policy is worth it in the long run.
In order to minimise monthly mortgage repayments, remortgaging is your best option. Decreasing your monthly repayments will increase cash flow, making it easier to build up additional funds to cover any financially challenging periods. Also, should you end up covering the mortgage payments completely, this will minimise the financial impact for you.
Even if your fixed term isn’t up yet, it may still be financially beneficial to break your Early Repayment Charge (ERC) clause to remortgage onto a more competitive rate. We can quickly work out whether this is a suitable option for you, so give me a call, and we’ll be happy to help.
If you’re looking to increase available cash funds, you may be able to release equity from a buy to let property through a capital raise remortgage. While many lenders will only allow you to do this with proof of an onward purchase, we have access to some who don’t. However, how you draw this money down could have tax implications, so do speak to a professional tax adviser first.
How much notice must I give a tenant who isn’t paying rent?
As a final resort, legal action and eviction is an option. After many changes over the pandemic, the minimum eviction notice you must give tenants for breaching the tenancy agreement terms is now four months. You may be able to use a Section 8 notice for rent arrears, which could reduce the required notice period. A court judge can also make a money judgement and order the tenant to pay legal costs and court fees.
When can I start the eviction process?
Start eviction proceedings after the tenant has fallen into two months in arrears, and if they have not made an attempt to address the situation with you, then you can initiate the eviction process.
If you need help remortgaging onto a more competitive buy to let mortgage product, or would like to release equity as cash funds from an existing investment property, do get in touch with me, Rob Gurr, on 01732 471673 or email me email@example.com.