What Covid-19 Means To Your Property Investments

    Covid-19

    COVID-19 a word that has created lockdown all over the world.

    While we’re writing this post, the total number of COVID-19 infected cases have crossed over a million 1,138,357.

    In the UK alone the numbers as of 5 pm on 3rd April 2020 more than 40,000 cases were confirmed positive, and 4,313 have died.

    Such is the severity of the current situation.

    Most businesses are closed. Where possible governments throughout the world are asking people to stop non-essential travel and work from home as much as possible.

    Governments have been declaring economic schemes to support people and businesses.

    Now:

    Understanding the severity of the situation, in this post, we will address a few of the temporary or possibly ongoing changes that are happening within the UK property market.

    So:

    Overall it is predicted there will be a decline in property sales in the next few months.

    Let’s see how the real estate scene has changed temporarily.

    1) Mortgage Market

    FCA has issued guidance on how mortgage lenders and administrators should treat customers fairly.

    Those lenders who are regulated by FCA would consider the guidance.

    Other lenders who are not FCA regulated (e.g. few small bridging companies) may not follow the guidance.

    Payment Holidays:

    A Mortgage Payment holiday is a measure announced by the government for struggling landlords in this COVID-19 situation.

    A payment holiday is just a postponement.

    If a landlord chooses to use mortgage payment holiday, both interest and capital would be added to the loan unless the lender mentioned otherwise.

    Please check with your lender, if payment holiday is agreed.

    When the payment holiday ends, make sure you can make the full mortgage payments.

    Our view:

    If you can, please make the full payments and don’t opt for a payment holiday.

    Two big reasons:

    • Your loan is increasing if you don’t pay. Hence higher payments later on.
    • Though they say that credit file will not have a negative impact, it may be marked and adversely affect future loans and mortgages.

    New Applications

    Given the uncertainty in the market, few lenders have removed products higher than 80% Loan to value.

    Some lenders have stopped new mortgages temporarily due to:

    • Shortage of staff.
    • Staff reallocated to handle mortgage holiday applications.
    • Holding off till market is in uptrend again, e.g. small bridging companies

    Few bridging companies are still providing loans but at a higher interest rate considering higher risk.

    Repossessions:

    Due to current unprecedented situations, there has been a temporary hold on any repossessions by lenders.

    If you think it is in your benefit to proceed, e.g. if you have already found alternate accommodation, you can call your lender.

    If you stop the repossession though, you will receive less payment as the interest will continue to be charged and the amount you owe to the lender will be more.

    Existing Applications:

    Existing applications are being processed but taking longer due to the current COVID-19 situation.

    Some of the issues that the investor community are facing and we experienced as well are

    • Work from home scenario restricts solicitors to receive documentation via post to residential address due to contagious thread of virus.
    • A queue up of applications due to reduced staff and lack of access to office facilities to process applications seamlessly.
    • Multiple chain of communication between bank, solicitors, admin staff, landlords to take place if the hard copies are mandated.
    • Temporary hold on refinance selective scenarios which hinders raising cash required in current scenario.

    No exceptions:

    We have a remortgage application that is taking longer than expected as a result of above issues.

    Word of caution:

    Due to the delay in processing make sure that the offer that you got has not lapsed. If needed be in touch with your mortgage advisor to make sure the deal is still valid.

    Reduced Mortgage Interest Rate

    Bank of England has revised the base rate to 0.1% which is a great help to struggling businesses and individual investors.

    It may take some time for this base rate to be adopted into mortgage products but some banks have already reduced the monthly interest charged.

    Note that whilst you may see reductions within mortgages and loans, you will also see reduction within your savings interest too as a result.

    2) Property Tax, Reliefs and Grants

    There are quite a few financial schemes available for employees and employers in this challenging situation.

    Employees or employers could be tenants who are finding it difficult to pay rent or landlords who are finding it difficult to pay mortgages.

    Having information about these schemes can help explore options.

    Coronavirus Job Retention Scheme (CJRS)

    CJRS is a UK grant, that chancellor has announced to cover the wages of employees who are placed on temporary leave.

    CJRS is applicable only for employers who are paying their employees through PAYE.

    It can be backdated till 1st March 2020 if needed.

    The employer would be able to apply for a grant from HMRC for 80% of furloughed workers wage or salary cost along with national insurance contributions limited to a maximum of £2.500 per month.

    Self Employment Income Support Scheme(SEISS)

    SIESS is the grant for self-employed individuals who had a loss of income due to COVID-19 situation.

    They can receive up to 80% of average monthly profits from the last three years. It is capped at £2,500, and it is taxable.

    You are eligible only if 50% or more of your income is from self-employment.

    You will have to apply via HMRC, and a lumpsum amount will be paid in June 2020.

    Now:

    Both CJRS and SEISS are grants. Employers don’t need to pay it back.

    There are quite a few other initiatives that UK government has started to help individuals and business to take care of COVID 19 situation. Please go through all the options you have here and see if you are eligible for any financial schemes based on your financial situation.

    3) Property Viewings And Refurbishments

    Most of the estate agents that we are working with have started working from home as per government recommendation.

    Now:

    What does this mean to the real estate market?

    All the deals that were in progress at this point are on hold or moving slowly. All the property viewings are on hold or happening thorough video call.

    Government guidance is that there is no need to pull out of transactions but be flexible with the dates where possible.

    Our experience:

    We have an offer accepted on commercial property and a buy to let refurbishment to commence just before the lockdown started.

    Given the lockdown impact mandating solicitors, surveyors, builders and other teams to work offline, the inevitable decision was to halt the process for time being.

    But:

    Few estate agents say they are trying to help the transactions go through as much as they can with help of:

    1. 360-degree viewing
    2. Video call viewings
    3. They have been checking if people living in the property have symptoms of COVID 19 or have been to affected countries recently.

    As a business though, we have set our priority to ensure health and safety of everyone including us before being able to reconnect the dots within the our investments.

    4) Property Management

    Most letting agents are working from home as well.

    So:

    How is it going for all those portfolio landlords?

    With us so far:

    1. A tenancy has come to a natural contract end given tenants in one property are moving into a bigger family home.
    2. There is one issue in one of the property. No hot water, we are trying to resolve the issue as soon as we can.
    3. An email from our letting agent, mentioning that given the current scenario some tenants may let us know that they may need a rental holiday.

    So far, our property portfolio has remained stable with some useful backup if needed.

    Here is why:

    • Investing in sought after areas.
    • Taking care of tenants dealing with issue within 24 hrs most of the times.
    • Quality property refurbs mean quality tenants.

    Due to the above few reasons, our average tenancy is around 2.5 years.

    5) Tenants

    The UK government has announced radical measures to protect renters and landlords affected by the coronavirus situation.

    From tenants perspective:

    • Emergency legislation to suspend new evictions from social or private rented accommodation while this national emergency is taking place.
    • No further possession proceedings through applications to the court to start during the crisis.

    From Landlords perspective:

    • If the tenant is in financial difficulty, as a landlord, it only makes sense to work with tenant on possible options.
    • Get a written document from the tenant that they are in financial difficulties. You may need it if you need to contact your lender to discuss deferment of mortgage payments.
    • Ensure that tenant understands that it is not a grant, the amount is due and will have to be paid in full in future.
    • Educate tenant about all the financial options that the government is providing. Additional information will help tenants or landlords to take help from the government and pay rent or mortgage as appropriate.

    Conclusion

    It is an unprecedented situation for all of us. Importantly stay safe and stay healthy. The UK government have taken quite a few steps to help businesses, tenants and landlords. Take help as appropriate.

    COVID-19 situation is not permanent. UK Market is resilient and will spring back in due course.

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