Buy-to-rent investors have been battered by regulation in recent years, which has left many private landlords ill-prepared for the financial impact of the corona outbreak. A new survey shows that less than half the rent due on rent quarter day was paid on time, leaving many private landlords significantly out of pocket.
Margins have become progressively tighter over the past 2 years for investors in the BTL arena. It’s unlikely that banks would have stress-tested private landlords with a mortgage to the same degree people are when they are buying a principal home.
This means many BTL investors have been navigating narrowing margins long before this pandemic came along.
Rent Collection Seriously Impacted by Outbreak
The survey, compiled by Remit Consulting using data from leading property managers, offers the most detailed picture yet of the impact of the coronavirus outbreak on rent collection in the Private Rented Sector (PRS).
The survey reveals that just 44% of rent payments, typically collected monthly, were made on the due date rising very slightly to 47% a week later.
Feedback from managing agents is that following the government’s ban on evictions, a number of renters simply stopped paying and haven’t been in touch to explain. They face a significant challenge differentiating between those who have seen their household incomes fall significantly as a result of the outbreak and those who may be taking advantage of the situation.
Concern over Low Service Charge Collection
Service charge collection rates are even weaker than rent collection rates. Just 38% was collected on rent quarter day, rising to 48% seven days later. By comparison, 73% of the service charge due was paid on the day last year, rising to 80% a week later.
Property managers are particularly concerned by the low levels of service charge collection, which will make it harder to keep up with the costs of running buildings.
“While property managers are working hard to mitigate the impact of the pandemic, and further research is needed in the coming days to get a clear picture on how agreed rent and service charge ‘holidays’ are impacting collection rates, these figures are likely to make uncomfortable reading for landlords, asset managers and investors,” said Steph Yates, a senior consultant at Remit Consulting, which is planning to expand the survey over the coming weeks.
It is hoped that rent collection levels will rise over the coming weeks as tenants find assistance to temporarily navigate their income loss. However, property managers fear that rent collection at the next quarterly rent day in June will be lower than in March as the financial impact of the lockdown on tenants becomes more acute.
International Monetary Fund Head Predicts ‘Worst Economic Fallout since the Great Depression’
Perhaps the most worrying prospect for BTL investors is the fear that the pandemic will trigger a financial crisis to make 2008 look like a walk in the park. As with all kinds of economic shocks, the banking system is the first to feel full impact as demand for borrowing increases as rapidly as the default rate.
For BTL investors with a mortgage, this has the potential to create a financial headache of migraine proportion. Because despite the fact interest rates are the lowest ever seen in history, if your tenants are unable to pay rent and you are prohibited from evicting them, you’re quickly going to run into financial trouble.
For an increasing number of investors, the rewards of buy-to-let are simply not worth the risk
Buy-to-let has contracted to the degree that there is little to attract investors, particularly at the current time. Diversified Property offers a range of products that have very low correlation to the effects of the Covid-19 pandemic. Find out how to keep your savings secure with fixed income investment in sectors expected to thrive despite the corona crisis by contacting an adviser today.