In these very uncertain times, Bargate Murray Director and Head of Property Nicholas Maestri has some guidance for the firm’s clients
Top tips for property investors
The economic shock resulting from the coronavirus pandemic is unprecedented. The stock markets have crashed and predictions of an imminent global recession abound. Yet nobody knows quite exactly how the coronavirus pandemic will pan out, or when a breakthrough might emerge that enables the economy to stabilise.
While the property market does not move with the rapidity of the stock markets, it has undoubtedly experienced a serious shock. The UK property market has slowed markedly. Property viewings have stalled, as to fears of contracting the coronavirus mount. International buyers have found themselves unable to travel.
The enormous economic uncertainty we now face has caused many buyers to put investment decisions on hold. Even those who do wish to purchase may find themselves unable to do so, as investor’s financial positions deteriorate. Agents have recently seen a significant decrease in high value investments, as overseas investors back out of sales.
Take the long view
Property is typically a long-term investment, which therefore requires a long-term perspective. Savills has suggested that “sellers will undoubtedly need to remain pragmatic on pricing over the course of 2020, as demand becomes more dependent on needs-based and opportunistic buyers.” This suggests that opportunities may arise for bold investors.
Research conducted by estate agency Benham & Reeves sounds a positive note, finding that 83% of buyers and sellers plan to return to the market once the crisis passes. We have undoubtedly entered a volatile period for buyers, sellers, landlords and renters, yet the market could surge back quite quickly once the crisis passes. Indeed, if activity ceases for a period, this may cause demand to become pent up and to increase after the crisis.
After all, property transactions in the UK increased 12.7% in the year to January 2020, with 102,810 sales going through. This suggests that demand is fundamentally high and that there is the potential for a rebound in the right circumstances.
Consider online property viewings
In the luxury UK property market, enquiries have dropped markedly in recent weeks. International buyers interested in the London market are unwilling to travel, or else they are unable to do so, thanks to travel bans and restrictions overseas.
As a solution, some agents have begun offering property viewings online via Skype or FaceTime. Some overseas purchasers are sending UK representatives to view on their behalf. We have even had some blind bids, which shows that motivated buyers are still willing to move. Another possible benefit for purchasers is that nervous sellers may now accept a significantly lower price than they might have just a few weeks ago.
Talk to your bank early, if financial issues arise
The UK government has announced £330 billion in business loans and a 3-month mortgage holiday for homeowners struggling to make repayments due to the effects of the coronavirus. Banks are willing to negotiate payment holidays on case by case basis.
Lenders may willing be able to temporarily defer interest payments, extend the term of a mortgage or temporarily move lenders to interest-only repayments. While such reliefs have not yet been extended to buy-to-let mortgages, landlord groups have called on banks to include them. Individual banks may be willing to negotiate an arrangement with their investor customers.
Those facing financial difficulties owing to the coronavirus can also ask their banks for:
- Refunds on credit card cash advance fees
- Temporary increases credit card borrowing limits
- An increased cash withdrawal limit of up to £500
It’s vital to speak to your bank as soon as possible to seek any such arrangements. It may take them some time to consider any proposal and an arrangement should be put in place well before the payment falls due, in order to protect your credit rating.
Negotiate constructively with affected tenants
Landlords can encourage and assist affected tenants to obtain any rent relief and other sources of support available to them. No new legislation has set out rent relief for tenants as yet. However, the government expects individual arrangements to be made with Landlords.
Landlords may be protected somewhat by the efforts the government has made to protect up to 80% of the wages of employees affected by the crisis. This means that many employees should be able to afford their rent – or most of it – for the time being. However, the government’s £350 billion crisis package excludes the protection of renters and zero-hour workers, who may be more severely affected.
Landlords would do better to protect their rental income stream by negotiating affordable rents for affected tenants, rather than refusing to negotiate, which may lead to default and a greater overall reduction in rental income in the long term. If you negotiate with tenants in a timely fashion, you can contact your bank with precise information as to the reduced income levels which may help to negotiate a suitable arrangement with your bank.
Avoid evicting tenants
The government has said it will ban the eviction of tenants for three months. Landlords may do well to negotiate workable long terms arrangements with tenants, as necessary. Even after the three-month period elapses, landlords should avoid evicting tenants since they may struggle to find new tenants in the current climate.
The Residential Landlords Association says members should also allow affected tenants to pay later. The association’s policy manger, John Stewart, said: “If there hasn’t been a history of arrears or delayed payment, then it’s better to accept the situation and work with the tenant to repay any arrears when things return to normal.”
Landlords may face higher rate of arrears if tenants cannot pay rent. Jeremy Corbyn has written to Boris Johnson to call for legislation on rent deferrals for those hit by coronavirus and granting relief for homeowners on mortgage repayments
Plan a long-term strategy for dealing with distressed tenants
Landlords should make detailed plans now as to how best to deal with distressed tenants. When doing so, it’s is worth bearing in mind predictions that the current disruption could possibly last into next year. Financial journalist Martin Lewis said that “for big landlords who can afford it, or who have multiple properties out there, it would be a good idea right now to work out what your policy is. How are you going to treat people? Think of the long term, not the short term. Allowing people to have short term payment holidays to defer their rent or even just saying ‘I’m going to drop your rent for the moment’ if it’s necessary.”  Some landlords may also have insurance covering non-payment of rent, but this is subject to the terms individual policies. 
Encourage commercial property tenants to apply for government loans
Investors in commercial property may be encouraged by Chancellor Rishi Sunak’s announcement of £330 billion in business loans. Mr Sunak said this initiative ‘“means any business who needs access to cash to pay their rent, their salaries, suppliers or purchase stock will be able to access a government-backed loan or credit on attractive terms.’
Therefore, commercial property investors may encourage tenants to consider availing of such loans to tide them over. While there are no specific proposals as regards commercial rent relief, the government business loans are clearly intended to be used to cover rent.
The government has also increased value of grants to small business eligible for Small Business Relief from £3,000 to £10,000. However, major retailers such as Debenhams and H&M have already requested rent relief from landlords and other commercial tenants are likely follow suit. Many businesses have completely ceased trading due to the crisis. Landlords would be well-advised to negotiate with severely affected businesses, since replacing commercial tenants is likely to be particularly difficult until the crisis passes.
Please feel free to contact me should you require any assistance. Bargate Murray are following government advice and are working remotely from home. I hope everyone stays safe and well during these unprecedented times.
Director & Head of Property at Bargate Murray Limited.
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