Help for homeowners and tenants
Updated: Apr 2
Positive news for homeowners with new Chancellor Rishi Sunak announcing the implementation of mortgage 'payment holidays' of up to three months. UK Finance, the mortgage lenders' trade body, followed this by providing some meat on the bones: payment holidays will be fast-tracked but at the lender's discretion; and, while lenders will not report adverse information to borrowers' credit files as a result, the interest will be recoverable at a later date (and therefore subject to lenders' usual collections processes).
In short, arrears due to the impact of Covid-19 will be treated as forbearance, with an approach not dissimilar to the current stance adopted by lenders towards borrowers in financial difficulty.
However, significantly, these measures apply only to residential mortgage borrowers, with no similar assistance offered to the owners of investment or Buy to Let properties. Now, many may raise an eyebrow at help for landlords - but what about tenants?
While homeowners come in all shapes and sizes, from every section of society and in every type of employment or none at all, it would be reasonable to conclude that tenants are, on average, more likely to be engaged in precarious employment. Zero-hour contracts, employers unable to provide assistance beyond Statutory Sick Pay, low-earning self-employment, and freelance work. There will, too, be many businesses, many employers, who don't make it through this. As such, there will be many people living in rented accommodation fearing for the future, unsure how they will pay the rent next month or the month after.
What measures have been announced to address this? Well, as far as I can see, none. Yet, anyway. Things are changing rapidly and the situation tomorrow, or later today, could be very different. But as it stands - it's business as usual.
It could be argued that there are already sufficient safeguards in place for tenants. After all, Housing Benefit has a shorter deferral period than Support for Mortgage Interest (SMI), and unlike SMI is not repayable. But there still is a deferral period, of up to 26 weeks, and many who need help may find it difficult to claim, for instance those in self-employment or directors of incorporated businesses. And, of course, Housing Benefit may not cover the full rental payment. But with landlords excluded from the new measures for homeowners, their mortgages will still require payment - and without rental income, how will they manage? Many landlords will be sympathetic, of course, and many would prefer a sitting tenant to fall into arrears than face a 'void period' with limited prospects for finding new tenants. But for how long?
There is an alternative. The Government could announce a payment freeze of three months on mortgage interest, across all mortgages as a whole or for those borrowers who apply, but including those borrowers with Buy to Let products - backed up by legislation that commits landlords to also freezing rent payments for the same duration. This could be an interest freeze - not forbearance, not arrears to be collected at a later date; rather, as interest 'written off' by the lenders, and in all likelihood funded by Government intervention through Quantitative Easing.
This would allow all of the hundreds of thousands, perhaps millions, of households - whether paying rent or mortgages - breathing space while the effects of this crisis escalate and become a more known quantity, without the repercussions of unmanageable debt, ruined credit worthiness, and the ever present threat of losing the roof above our heads and the four walls around us. While mortgage borrowers on a capital and interest (capital repayment) basis would have a capital shortfall to address further down the line, in most instances this could be remedied by a short extension of the mortgage term, while for those unable to extend the term the difference in monthly payment on an interest-free capital shortfall of three months will often by marginal.
This would be a bold move from Government, although if there is a time for bold moves then this is it. Would it be workable? I believe so - but it would require a strong financial commitment from Government. Would it help millions of people in a time of incredible anxiety? Undoubtedly.
It's a thought anyway.
Important note: all blog posts are written by Dylan Roberts in a personal capacity and do not necessarily reflect the views of Lighthouse Financial Advice Ltd, Lighthouse Group, Quilter Financial Planning, or Quilter plc.