Between March and the start of August, employees placed on furlough received 80% of their salary up to a cap of £2,500 per month. From August, furloughed staff were able to return to work part-time, while employers were expected to pay National Insurance and pension contributions.
From September 1, the government dropped its contribution down to 70% of wages up to a cap of £2,187.50. This means employers now have to pay 10% of furloughed staff wages.
In October, employers will pay 20% of furloughed staff wages as the government contribution drops to 60% of wages up to £1,875. The scheme is then set to end on October 31.
As the furlough scheme winds down over the coming weeks, how will the rental market be affected?
Knock-on effects for private tenants
It has been suggested that when government support finishes, thousands of jobs could be at risk.
Official figures show the number of people in work fell by 220,000 between April and June, the largest quarterly decrease recorded since 2009 as a result of the global financial crisis.
The current unemployment rate is estimated at around 3.9%, with the Office for Budget Responsibility (OBR) estimating that it could peak at 11.9% later this year in its ‘central’ scenario.
The OBR's 'downside' scenario estimates a peak of 13.2% in 2021, equivalent to four million people being out of work.
A rise in unemployment over the coming weeks could have a knock-on effect on the rental market if tenants struggle to pay rent without a regular income.
PayProp’s latest report on the effects of COVID-19 on the UK rental market, published this week, shows that 13.4% of tenants were in arrears in July – down from over 15% in May. In June and July, most agencies using PayProp saw their overall arrears burden reduce.
But while the situation may have stabilised recently, the end of the furlough scheme and worsening unemployment (if predictions come true) could jeopardise that progress.
Far-reaching consequences of arrears
When tenants cannot pay their rent, the consequences are felt throughout the property industry.
Arrears cause cashflow issues for landlords, many of whom have buy-to-let mortgages to pay and can no longer request payment holidays from their lenders. Agents in turn risk losing out on their management fees if landlords can no longer afford to pay them.
With serious consequences for all parties, it's crucial that agents have the measures in place to limit arrears occurring and managing them effectively when they do.
When the evictions ban is lifted on September 21, landlords will be required to give tenants an extended notice period of six months – although this will be reduced to four weeks if they have accumulated over six months of arrears. However, good arrears management practices can help agents and landlords to limit arrears – and potentially sustain the tenancy.
End of furlough - how can agents minimise its impact?
Rising rent arrears can quickly damage relationships between tenants, landlords and agents, but communication is all-important and should not be allowed to break down.
Agents should contact renters in arrears - or those that could be at risk of financial insecurity - before the job retention scheme finishes at the end of October.
It can be beneficial to understand tenants' financial circumstances, employment situations and prospects so they can report key information back to landlords. As courts will now require landlords to present evidence of COVID-19’s effects on a tenant’s finances, this information could also be critical in any eviction proceedings that may result.
After that, agents can help by organising affordable repayment plans so landlords can recoup lost rent and tenants have an action plan to follow. It's also important that agents advise tenants on the support measures available to them, including Universal Credit.
Alongside effective communication, agents need to have digital record-keeping processes in place so they can keep track of all payments and any agreements made. This allows them to show tenants and landlords where they stand, as well as providing a paper trail of evidence if the situation worsens and further action needs to be taken.
The furlough scheme has been crucial in underpinning the jobs market for the last six months, but its end could have a significant impact on the UK economy.
Agents therefore need to put plans in place now to make sure they can manage increased rent arrears and limit their clients’ exposure.
*Neil Cobbold is Chief Sales Officer at PayProp