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Property is considered to be a safe investment. The buy-to-let market is booming, fuelled by a generation unable to get on the property ladder and dwindling social housing stock. And while renting out a property might be a safe bet, the Covid-19 outbreak has shown that no sector of the economy is immune when there is a virus on the loose.
When the first lockdown was enforced in March 2020, many lenders were quick to support their customers through repayment holidays, and mortgage providers were no different. Many homeowners were able to apply for a repayment holiday to help ease the financial stress of the time.
This support was short-lived and limited to the harshest period of lockdown. With some industries still unable to get back to work, this has left many out of work and unable to claim support. While the government has taken some steps to secure jobs, the economy and housing, more still needs to be done to protect the most vulnerable.
To support tenants in a difficult situation, the Government imposed a temporary ban on evictions. As part of the Coronavirus Act 2020, the minimum time required to begin eviction proceedings was extended from two months to three months.
This was extended time and time again until this scheme came to an end. The most recent ban stated that no landlord would evict their tenants for another 6 months, meaning that those in financial difficulty due to Covid-19 would be secure through the Christmas period.
There are some exceptions to this ban, including situations where rent has not been paid for more than a year and it is leaving landlords with debts. When this period comes to an end in March, the world could be a very different place. And the buy to let market could also be in a different situation.
If landlords go ahead with evictions in March 2021, this will lead to an increase in the rental stock on the market. And when supply increases, it follows that prices will decrease. This could have an impact on those hoping to enter the buy to let market, and those already making a living from property rentals.
It isn’t only tenants who are feeling the squeeze. A ban on repossessions by lenders comes to an end at the end of October. With all previous pending cases wiped clean, lenders will have to start fresh claims. This could take around 6 months to come to fruition, leading to a perfect storm around March or April 2021.
It’s not only tenants and homeowners that could be losing their homes. Landlords that have failed to keep up with their mortgage payments due to the economic downturn could see their properties repossessed. If they have tenants in place, they will be forced to find another place to live following the repossession.
Securing a buy-to-let mortgage is not as simple as a residential property. In general, you need a much larger deposit. According to Niche Mortgage Info, this is often around 40% of the value of the property. You also need to take into consideration the possible rental value.
To do this, you need to show the lender local market rental values and how your rental property will compare. If rental prices fall as the result of an increase in rental properties, this could impact the chances of securing a mortgage.
The government ideally needs to act now to prevent a housing crisis, with tenants and homeowners facing homelessness due to no fault of their own. Since many letting agents require tenants to be in work to be able to secure a new home, this could leave many people in those industries hit the hardest with nowhere to turn.