It’s been an interesting couple of weeks so far dealing with the coronavirus and  it’s affecting all of us in many different ways. We are now on a lockdown, with all but essential shops closed, and we have been taking the time here to review the DJF loan portfolio, getting in touch with borrows and investors to address their fears around the situation. For most of us, the uncertainty of how things will progress health wise and financially over the next few months will be of great concern to you. We’re here today to talk about the law of property act, and the changes that have been introduced in order to cope with COVID-19 to protect everyone during this time. All the information we’re providing here is correct as of today, Tuesday 24th March.

As you’ve probably heard in the news in the last week, changes were made in regards to rights borrowers have in paying their mortgages. Laws have been passed by parliament on the repossession process and banks have also changed their stance on repayments as well, so these are all things we will be covering. One of the biggest pieces of information to be announced last week was the introduction of 3-month mortgage holidays that many lenders are offering, which can be taken at any point if you have been affected by coronavirus in any way. At this time, you don’t need to provide proof that you have been infected with COVID-19 to claim this mortgage holiday, but different banks do deal with the requests in different ways. Some lenders are making it possible to apply for the holiday online, and may also be waiving fees for missed payments or offering reduced payments. They may also have a policy where more urgent cases have priority in the meantime, but this is very much dependent on the lender.

If you’re taking advantage of this offer, it’s very important to understand what effect this will have in the long-term of your mortgage. Let’s say for example if you have 10 years remaining on your mortgage and decide to take the 3-month holiday. After three months, the outstanding amount you would be paying over 10 years, would instead be paid over 9 years and 9 months. This will mean you see an increase in your mortgage payments for the remainder of your mortgage, so it’s definitely something you should be considering if you can afford to do financially. You will also continue to accrue interest on your mortgage during the time that you’re not making any mortgage payments, but these will be added onto the remaining cost of your mortgage – so will be paid in your future repayments. Also, although a lot of lenders have agreed this deal with the chancellor, this is a voluntary service that banks are offering – meaning that some lenders may choose not to offer this service. These services may also not just apply to mortgages as some banks are also applying payment holidays for loans. Furthermore, according to Money Saving Expert who have approached many banks for comment on what their individual offering is, HSBC and First Direct have offered customers the ability to extend their mortgage, while just HSBC has also offered the ability to switch to an interest-only mortgage.

At this time, changes in the mortgage market have become much cheaper due to changes in the base rate. Previously at 0.75%, the base rate has been cut to 0.1%. For tracker mortgages, the full interest rate cut is applied, which is worth around £40 per month for every £100,000 outstanding. For variable rate mortgages, you should see a reduction in your repayments, with most lenders offering anywhere between a 0.5-0.65% reduction – but again, do check with your specific lender to see if this applies to you. However, if you’re on a fixed rate mortgage, this will remain fixed. Base rate cuts will also affect savings accounts and how much interest you can accrue, unless you have an account that has a fixed rate. If you have savings locked into a fixed-rate savings account, many banks are offering you the ability to waive any early access penalty to those savings if you need the money.

So what happens if after three months you are unable to pay your mortgage? At this time we can only presume what will happen, but as the situation is continually evolving there may be additional support if this situation extends by a few months. We can only presume that if you default on any mortgage payments beyond 3 months time that your lender’s policy on payment defaults will apply. Usually following a succession of months of payment default, your lender will begin court action and may result in repossession of your home if you are unable to negotiate a repayment arrangement.

For buy-to-let mortgages, three-month payment holidays have been extended to apply to landlords as well, with the understanding that these benefits are also due to be passed on to the tenant. The government also announced that it will not be legal for a landlord to be able to start proceedings to evict tenants for three months. These extraordinary circumstances have called for sudden change in legislation to ensure that renters cannot lose their homes, nor landlords be left with debt that they cannot manage.

For DJF Asset Management, we’ve had to look closely at any upcoming projects to ensure that borrowers have sufficient income from PAYE or from monthly rental payments coming in to support the borrowing. We’ve had many projects fall along the wayside, but in these times we will still be focusing on buy-to-lets, HMOs and small developments as these are the bread and butter of our company. In terms of my portfolio, I’ve been in touch with agents and asked them to tell tenants not to worry. If they’re on statutory sick pay or they’re not being paid at all right now, we’ll work with them and there’s no reason for them to be alarmed or distressed. In these situations it’s often best to just have a human discussion between two people and work out what the best resolution is going forward, rather than going through any kind of repossession in the future or evicting tenants as that in itself is a costly process. So far we are lucky to have not too many issues with our portfolio, but as a lender our biggest challenge will be that once a peacefully cash-loan portfolio of investment properties may now experience borrowers coming into difficulty because their tenants are asking for rent reductions or simply they’re having affordability issues, and this will make it difficult for our borrower along the whole chain – as some portfolios can be highly leveraged. We will be more focused on any potential borrower’s income, in order to protect our investors, to make sure their income streams have all the T’s crossed and I’s dotted.

You will have likely seen in the news that share prices are highly volatile right now but, from a property perspective, this is such an illiquid market that it’s not going to be affected too much. In the short-term, over the next few weeks to a couple of months, things could change drastically, but in 3-6 months time things can be very, very different. China is already beginning to return to work, they now seem to be in the tail end of their cycle, so if the UK is able to follow suit then this situation hopefully will not last too long. I don’t foresee huge property price fluctuations at this time, and it goes back to the old adage that property is a get rich slow game. 

We hope this article has been helpful for you to understand all the changes that have occurred over the last couple of weeks in the property market due to COVID-19. As we mentioned in the introduction, these facts are correct as of the time of writing (24th March 2020), and may be subjected to change as the coronavirus pandemic goes on. We have put together a receiverships guide detailing the Law Of Property Act, which you can receive by getting in touch with your email and we will add you to our subscribers list. We’ve got lots of great content coming out soon, including a Q&A with Mark Dalton and Lindsay Hopkins, they will be very helpful for you and contain great nuggets of wisdom. These guides would not be available for anything less than a few thousand pounds from a commercial solicitor in your local area, so it’s something you’ll likely find incredibly valuable. As always, if you have any questions please do not hesitate to get in touch with us, either by emailing us at info@djfam.co.uk or through our contact forms on the website!