In Focus: Vulnerability  

Assessing vulnerability in the housing market

This article is part of
In Focus: How Covid has left the mortgage market exposed

Assessing vulnerability in the housing market
 Photo: George Becker via Pexels

When it comes to the housing market, who might be more at risk? 

In relation to who is more vulnerable in terms of buy-to-let landlords, tenants or homeowners with residential mortgages, David Thomas, chairman of the Society of Mortgage Professionals and joint managing partner of Chadney Bulgin, says: "Ultimately they all are vulnerable, although tenants and residential mortgage holders are most at risk due to reduction in, or loss of, income.

"Landlords are still at risk, but in my experience, they are more likely to have a ‘slush fund’ in place to see them through such a period."

Not everyone agrees buy-to-let investors are in a less precarious position. 

Buy-to-let landlords may have a 'slush fund' but few will have enough to mean they and their tenants will be immune to this crisis. In fact, some commentators believe these clients may be even more exposed to risks.

As Conor Murphy, chief executive of mortgage platform Smartr365 and Capricorn Financial Consultancy, explains, any support from landlords to their tenants at this time will inevitably be limited, especially as government has extended protection for tenants – which is necessary to prevent homelessness at a time of pandemic.

He says: "In providing its support for tenants who have found themselves vulnerable through the pandemic, the government has inadvertently increased the risks to buy-to-let mortgage borrowers. This has controversially made buy-to-let landlords the most financially vulnerable to the issues created by the coronavirus pandemic.

"The overall messaging through the crisis has encouraged tenants to take payment holidays on their rent. But, if rent payments are not made, the landlord is eligible for a payment holiday.

"This impacts the landlord’s financial standing down the line, since interest on the overall mortgage amount continues to accrue, however the rent payments can remain unfulfilled with no long-term repercussions."

So this could mean any additions to a buy-to-let client's portfolio might be harder to achieve in the future.

Additionally, the government has revised the eviction rules in place through the pandemic. These now require tenants to receive six months’ notice before any repossession proceedings can take place.

While Mr Murphy says this is "excellent support for tenants facing financial hardship through the crisis", he warns: "These have a serious, negative impact on the landlord who may now face six months without rent payments, while continuing to accrue interest on their mortgage payments."

David Kennedy, chief lending officer at Masthaven, says: "For buy-to-let customers, it’s a juggling act; balancing the need to support tenants during the pandemic alongside their own financial concerns, with options of legal redress limited during this time for non-Covid related arrears."

Residential 

They are not the only group at risk, however. Residential mortgage holders may find themselves in a similar predicament. 

Kate Davies, executive director at the Intermediary Mortgage Lenders Association, comments on the issue of vulnerability in the sector: “The coronavirus crisis has impacted peoples’ finances in very different ways.