Welsh rent arrears loan scheme
- Published: Tuesday 18 August, 2020
- By: Nicola Eaton
The Welsh Government has taken the unprecedented step of announcing a new “Tenant Saver Loan Scheme”, to enable tenants to take out a temporary loan, to pay off rent arrears.
Landlords with property in Wales were overdue some good news, given the extension to the eviction notice period and this is pretty exceptional.
The Welsh Assembly has set aside a fund amounting to £8 million for the scheme.
Landlords facing financial losses through rent arrears, driven by Covid-19, will likely want to make their tenants aware of the upcoming scheme, as it has the potential to be a huge help to them.
Please be advised that Commercial Trust staff cannot provide further details relating to the Tenant Saver Loans Scheme. Updates will be forthcoming from the Welsh Assembly and Rent Smart Wales.
The remit of the Tenant Saver Loans Scheme
The Tenant Saver Loans Scheme is available not just to those already in arrears, but also to those who face the possibility of financial difficulty through unpaid rent.
Who applies for a Tenant Saver Loan and where is the money sent?
- The tenant applies for the loan.
- The loan payment is made direct to the landlord or the agent.
When will Tenant Saver Loans become available?
September 2020 is the target date for launch
What is the maximum borrowing amount via a Tenant Saver Loan?
There is no limit. However:
- The borrowing can only be taken out to cover arrears that have occurred since March 1st 2020.
- The loan repayments must be affordable to the applicant
Why are loans not available to landlords?
The objective of the scheme is to diminish the risk of a tenant being evicted. If the loan were extended to the landlord, the eviction risk would still be present.
How can tenants apply for a Tenant Saver Loan?
There are three ways to apply, albeit partners are yet to be appointed to administer the loans:
- Via the Welsh Assembly “Early Alert” scheme (it is not yet clear what this is)
- Via the tenant’s Local Authority (find yours here)
- Via the Scheme Provider directly (yet to be announced)
Other information tenants may require include:
What is the interest rate applicable on the borrowing?
Interest on the Tenant Saver Loan will be charged at 1%.
Who will manage the scheme?
The Wales Council for Voluntary Action will manage the scheme and it will be delivered via credit unions.
What will happen if repayments become unmanageable?
Affordability checks will part of the application process. However, if repayments do become unmanageable, the Welsh Assembly has said that:
“We would expect the loan provider to be sympathetic to the situation that a tenant may be in, and to only apply formal recovery of the outstanding loan once all other options and offers of support have been exhausted. The landlord will not be affected by any debt the tenant may owe to the provider.”
Landlords and tenants, across the rest of the UK, are likely to be asking themselves if similar schemes will arise, via the UK or Scottish governments. Commercial Trust will be monitoring the situation.
What does the UK recession mean for landlords?
The media is full of the news that the UK is officially in recession, the first since 2009. But, what does that means for UK landlords?
Warren Buffett, the much-lauded “Oracle of Omaha”, an American investor, business tycoon and philanthropist is often quoted with his advice on investing:
“simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
His advice can be applied to the current post-Covid economy.
When others are fearful of investing, competition reduces and opportunity arises for others.
The sentiment in the words may seem somewhat crass when applied to property investment – it is not the intention of this article to perpetuate that notion, at a time when housing is a real struggle for many.
But, property investment can be an opportunity for those looking for a better return on their savings, than can be secured by other means.
Could your savings be put to good use for your future?
Savings of significance are not something that usually appear overnight, so whilst we face a recession, there will be those making investment decisions – or at least in a position to make investment decisions.
Sound financial advice from a qualified professional, may offer a better financial future, or provision for retirement.
Investing in property at a time when others may be disinclined or unable to do so, can have its advantages through reduced competition.
Competition for property investment
The government has, through the cut to stamp duty, tried to help those buying at the lower end of the market, to secure property.
However, recent reports within the industry suggest that first time buyers are still struggling, where a deposit of more than 10% is required.
Furthermore, lenders are applying stricter criteria where deposits are low – which is the way lenders mitigate against the risk of offering larger loans.
All in all, this means that those without property investment experience, a sizable deposit, or a robust profile for repaying debt, are still struggling to buy, despite the stamp duty reduction.
The advantage of investing with experience in property
If you are a homeowner with a mortgage and a lender can see evidence of reliable mortgage payments, or you are otherwise able to demonstrate reliability in repaying other monies borrowed, this is favourable.
It demonstrates you can be reliable in repaying debt.
If a property will attract a rental amount that exceeds any monthly mortgage payment, this demonstrates there is a viable route to repaying the debt.
The ‘yield’ achievable from rental income clearly also offers the investor a financial benefit.
Whilst investing in property remains unattainable for many, and the volume of housing stock remains well below demand, the private rental sector will continue to be essential to house the population.
Many landlords have been affected by those struggling to pay rent, due to the impact of Covid-19, but it appears that largely plans have been put in place between tenants and landlords to manage this.
Therefore, whilst a recession is a difficult time, with the right advice and appropriate planning those able to invest may be able to grasp opportunity.
Increase in demand for the rental market
A recent survey produced by RICS (Royal Institution of Chartered Surveyors), confirms that the letting market has seen an increase in tenant demand over the period of April to June.
What’s more, rental growth expectations from July to September, improved during July.
April to June enjoyed a significant rebound net balance of +35%. The previous quarter’s reading was -44%, clearly the impact of lockdown on 16th March 2020 can be seen in these figures.
RICS defines a positive and negative balance as:
“A positive net balance implies that more respondents are seeing increases than decreases (in the underlying variable), a negative net balance implies that more respondents are seeing decreases than increases and a zero net balance implies an equal number of respondents are seeing increases and decreases.”
New landlord instructions to surveyors had, what may appear to be a modest increase, with a net balance of +6% of respondents reporting a pick-up for the period April to June.
However, this was the first occasion since 2016 where the flow of landlord instructions seems to have improved.
The first UK housing market to re-open was England, on Wednesday 13th May.
Northern Ireland then followed suit around a month later on Monday 15th June.
Wales made a partial re-opening on the 22nd June and Scotland was the last, but made a full re-opening of its housing market on the 29th June.
These vital steps for the housing market post lockdown will have fuelled the improvement in these statistics.
Future rental growth expectations
Expectations for the rental market improved in July. The net balance for rental growth experienced a significant increase from -35% to +20%.
Rents have been predicted to rise by just over 1% nationally, over the next twelve months.
Although this has been predicted to be the case throughout all parts of the UK, London is said to be the only region that still sits at -1%.
Sentiment from surveyor’s comments from all regions are positive. Tenant demand appears high in all regions with a strong bounce back in interest and activity after the Covid-19 lockdown.
There are reports of a lack of available rental properties, which if it persists, could cause a rise in rents.
Eviction ban to be extended in Scotland
Announced by Nicola Sturgeon on 12th August, during the First Minister’s Questions (FMQ), the Scottish Government has confirmed their intention to extend the eviction ban until 2021.
This has been extended, to continue to protect tenants from experiencing financial hardship and losing their homes, during the coronavirus pandemic.
The ban applies to tenants living in both social and private rental accommodation.
In the FMQ, Sturgeon said:
“Legislation is currently in place until September 30 and yesterday we confirmed, subject to the agreement of parliament, that it will be extended to March 2021 which I think underlines the continuing commitment of the government to do everything we can to protect tenants and also prevent people becoming homeless as a result of this pandemic.”
Concerns regarding the eviction ban have been expressed by Patrick Harvie (Green MSP), who has revealed that there has been over 350 eviction applications made my landlords during the pandemic, with a prediction of receiving a “tidal wave” more.
Harvie suggests that an extension of the eviction ban is not enough and will not provide “long-term security” for those tenants that are at risk of losing their homes.
Similarly, John Blackwood Chief Executive of the Scottish Association of Landlords (SAL) stated that:
“Extending the emergency measures on evictions will only push a critical problem in to the future when it needs to be tackled head-on now,”
“What we need to focus on is how we can sustain tenancies during the crisis. Landlords should continue to be flexible and understanding and tenants should ensure that their landlord is kept informed about changes to allow for reasonable solutions to be found.
“In order to address the root of the problem, the government must provide support for tenants affected by the pandemic to pay their rent.
“Other administrations such as the Welsh Assembly Government are looking at imaginative ways to put money in to tenant’s pockets for rent and we believe the Scottish Government should follow suit as quickly as possible to prevent the collapse of a vital part of the housing sector.”
What’s happening elsewhere?
A similar ban in England and Wales is expected to end on the 23rd August 2020. However, further steps have been announced to help protect tenants in these regions.
In England, the government has proposed new repossession rules, which aim to provide protection for tenants when eviction court hearings recommence.
The new rules require landlords to reactivate any case that has been halted as a result of the ban, and in cases of non-payment of rent, for details of any impact of Covid-19 on defendants and their dependants to be provided.
Alternatively, Wales has offered a loan scheme, for tenants to pay rent arrears to landlords. However, there has been no similar announcement made by the Scottish government so far.
With the news of a further eviction ban extension, Scottish landlords would be forgiven for hoping a similar scheme will be forthcoming.
This information should not be interpreted as financial advice. Mortgage and loan rates are subject to change.