Coronavirus outbreak could cost the buy to let sector £14.9bn in three short months

The latest research by Deposit Replacement Scheme, Ome, has found that the impact of the Coronavirus could cost buy to let landlords nearly £14.9bn should tenants be unable to pay rent during the three month support period announced by the government yesterday.

Last night the government announced that they would suspend new evictions and halt new possessions proceedings to the court while the Coronavirus crisis persists. They have also protected landlords as well as tenants with a three-month mortgage payment holiday on buy to let mortgages.

However, if tenants simply can’t pay, this holiday will do little to help landlords who will still have to pay once the three months is up, with or without the rental income from their tenants.

Ome’s research shows that there are 5.2m households currently within the private rental sector alone and without the ability to work and pay their rent, the buy to let sector could see a loss of £4.97bn every month based on the average monthly rent of £955 alone. Over three months this climbs to a huge £14.9bn.

Nationally, this lost income is highest in England with potentially £11.6bn lost in rental income, while London is home to the biggest sum regionally with a potential £4.9bn lost in three months alone.

What does this mean for the average landlord?

There are some 2.6m landlords operating within the UK buy to let sector meaning the average landlord has a portfolio of two rental properties. With an average rent of £955 and a loss of three months’ rental revenue across both properties, they could be facing an individual £5,730 shortfall in rental income.

With a ratio of 2.1 properties per landlord in Scotland, the loss is at its greatest at £6,146 over three months with Northern Ireland also high at £6,083.

Not only does this huge sum have implications on a sector that has already seen its financial return stretched by the government, but it could see tenants out of pocket even further should landlords look to keep their tenancy deposit to account for lost rental income.

Co-founder of Ome, Matthew Hooker, commented: 

“It’s great news that the government are providing some financial respite for the nation’s landlords, however, it’s more of a weekend away than a holiday and once expired, UK landlords are still facing the cost of a buy to let mortgage without the rental income to pay it.

It’s by no means the fault of the tenant if they are unable to pay but there is a very real chance that landlords will turn to the rental deposits at the end of a tenancy in order to recoup this lost rent. While this would be unfair on a tenant who has otherwise kept the property in good order, it may well be the case that landlords are simply left with no choice.

The silver lining at least is that hopefully, not all tenants will be unable to pay their rent and so this sum of lost rental income should reduce, but whichever way you look at it, the UK rental sector is in for a tough few months.”

Elsewhere business leaders have reacted to the Bank of England’s Interest Rate cuts.

John Ellmore, Director of suggested “This is an unprecedented decision from the Bank of England and will impact every consumer in the UK. Whilst this will come as welcome news for borrowers, low rates will not have a big impact on savers who are already facing difficult conditions.

“Covid-19 is a long-term issue, so it is likely that many consumers will see their finances stretched like never before. Particularly with rumours of a London lockdown, it is likely that many employees are fearing the long-term impact this will have on their finances. That’s why it is vital to know where to look for help. I’d start by approaching charities such as Citizen’s Advice. They will be able to offer guidance to help consumers feel more in control – something many of us yearn for in such uncertain times.”

Jamie Johnson, CEO of FJP Investment said “Another day and another bold step taken to fight off the economic damage caused by coronavirus. Consumers, investors and businesses will welcome support wherever they can find it; but of course, cutting interest rates can have markedly different effects on different people depending on their financial profile.

The important thing right now, however, is that both the Bank of England and the Government are clearly not scared to make the fast and decision actions we need. I take confidence from that. Such is the pace of change with the Covid-19 pandemic, I would expect many more decisions like this in the days ahead – people must monitor the situation closely therefore and keep up-to-speed with how things unfold, which might mean seeking advice to help explain how certain changes could impact them.”

Whilst Paresh Raja, CEO of Market Financial Solutions told us “Not since the Second World War have we seen so many emergency actions taken by the country’s leaders to ward off an economic crisis and keep the lights of houses and businesses switched on. This latest decision by the Bank of England, while not entirely surprising, will have a further impact on both consumers and businesses, particularly financial lenders.

The challenge for all of us is to remain responsive – we must listen to the guidance offered by experts and accept that people are making decisions like in the interest of the UK population and its economy.”

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Daniel Peacock.

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