Andy Walton, protection proposition director for the Mortgage Advice Bureau, said: “Twice as many people in rented accommodation have fallen into arrears since Covid-19. Some of this will be due to unemployment or being furloughed.
“Some will be down to being not well enough to work. Income protection needs advice and with 4.5m households living in the private rented sector we should be providing this advice right now.”
The issue of advice – and perhaps the lack of signposting to advice in the rented sector – is a key problem. Yet millions of renters are exceptionally vulnerable to financial shocks, and one of the most damaging is being unable to work through ill health.
According to the Department of Health and Social Care’s 2019 workplace report, more than 100,000 Britons leave work following a spell of long-term sickness absence each year.
In any economic environment, that is a high figure, but in a pandemic, with the recognised additional stresses of job loss, anxiety, mental ill health and risk to health, this should serve as an alarm bell to advisers to make sure their clients have appropriate protection in place.
However, a 2019 study by insurance giant Swiss Re suggested the UK has a protection gap of £2.4tn: the bells clearly need to ring more loudly.
Terry Mason, group operations director at rent guarantor service, Housing Hand, said: “With the likelihood of redundancies in many employment sectors, it is imperative to have some financial protection. Budgeting is hard enough in a stable environment, but the current environment is far from stable.”
‘Stability’ is the key word here. In this Covid-19 world, all of us are vulnerable to exogenous financial shocks, but particularly so those in rented accommodation, he said.
The statistics are worrying. According to Shelter, 227,000 private renters have fallen into rental arrears due to the current pandemic, meaning the total number of tenants in arrears has doubled each year to 5 per cent of private renters.
Lettings management platform Howsy extrapolated this across the market, warning this meant an estimated 226,757 households have fallen into rental arrears since the start of the pandemic. With the current average rent at £843 a month, that is an estimated £191m owed to landlords in a single month.
Accident, sickness and unemployment policies may cover a small element of redundancy or sickness payments, and may suit some people as a stepping stone to more robust policies.
Renters are often more financially vulnerable than homeowners, and yet the Shelter figures show that this is being exacerbated by a lack of protection for their finances. -- Craig Brown
But renters who may have perhaps relied on such policies to help in the case of job loss or sickness will soon find the finances do not stretch. Some providers curtailed the ‘unemployment’ part of policies as Covid-19 hit the UK, and when it comes to accident or sickness, these policies are inferior to even the more basic IP plans.
Other renters may have relied on savings to see them through, but with the average monthly rent in the UK being £843, and the average UK household having just £1,500 in the bank (according to 2018 figures from Legal & General), it is clear there is a financial mismatch.
And, in the case of a more serious accident, or an inability to work through either being ill or having to give up work to care for a spouse or child with an illness – this is where the vulnerability of renters who have no savings and no protection policies is most exposed.
Craig Brown, director of intermediary insurance for Legal & General, explained: “Renters are often more financially vulnerable than homeowners, and yet the Shelter figures show that this is being exacerbated by a lack of protection for their finances.”
Jonathan Davidson, director of supervision – retail and authorisations at the Financial Conduct Authority, recently said the regulator was embarking on supervisory work to look at how companies have adapted to the challenges during the coronavirus crisis.
He reminded lenders to tailor their service to individual mortgage borrowers and avoid a one-size-fits-all solution.
But while lenders and the City watchdog are finding ways to support borrowers, individual landlords are under no such obligation to help tenants in difficulty.
Indeed, many buy-to-let landlords have little option but to evict non-paying tenants to meet their own mortgage bills.
Earlier this year, the government enacted law in England to protect renters amid Covid-19, with six months’ notice now the default for possession cases, with exceptions for cases of antisocial behaviour, domestic abuse, and arrears of six months’ or more, plus right-to-rent breaches and false statements.
In Wales, the new Tenancy Saver Loan is an £8m scheme from the Welsh Government to help tenants struggling with rent arrears due to coronavirus.
Paid directly to landlords or agents, the scheme will offer 1 per cent APR loans to be repaid over a period of up to 5 years and will help cover rent arrears, or future months’ rent, reducing the risk of eviction and homelessness.
Once a tenant has applied for the loan they can get support and advice services to help them manage their finances.
There is no such support in England, however, meaning both tenants and landlords could find themselves in a precarious position.
In September, the National Residential Landlords Association launched a campaign calling for “direct financial support” for landlords and tenants who faced arrears during the pandemic.
The NRLA website states: “While measures through the welfare system have been welcome, more needs to be done to alleviate Covid-related arrears, and help landlords and tenants sustain tenancies.”
Consumer crunch time
But problems over rent and redundancy are not the only issue facing Britons: savings levels remain low, and consumer indebtedness is getting higher and higher.
At the beginning of October, the FCA confirmed measures to ensure that companies provide tailored support for users of certain consumer credit and overdraft products who continue to face payment difficulties due to coronavirus.
Housing Hand’s Mr Mason said: “It is difficult to prioritise which bills get paid when you are on limited income and even harder when you only get benefits. You put insurance policies in place for a reason but they are normally the first to not get paid when money is tight.
“Clients should contact the insurer to see if you can have a payment holiday. The worst thing you can do is just not pay them.”
But advisers have warned clients not to cash in their policies to save on the monthly premium.
Accidents, sickness and serious health concerns such as cancer, stroke and heart attack can strike at any time, and clients who might leave themselves unprotected, especially at an economically vulnerable period, could find themselves in dire straits.
Ben Burgess, senior adviser and protection specialist for Lifesearch, offered ways to balance the budget: “Out of all our monthly outgoings, shelter comes only after food in terms of what’s most important. An IP policy is an extremely effective way to make sure a roof stays over your head in the event of injury or illness.
“A long-term solution would be to insure your entire outgoings, or if you split them with a partner, the percentage you are liable for.
“As wallets tighten and economic instability seems to be on everyone’s mind, a more cost-efficient solution would be to insure solely your half of the rent.”
Clients should contact the insurer to see if you can have a payment holiday. The worst thing you can do is just not pay them. -- Terry Mason
The MAB strongly advocates communicating with clients. Mr Walton said: “It is more critical than ever for advisers to talk to tenants about the risks they face if they are unable to work due to sickness/ill health.
“IP provides an amazing cash lifeline that most people desperately need.”
However, it’s not just signposting to advice that is required but also a willingness from insurance providers to market their propositions actively to renters.
In 2019, Legal & General launched the renter proposition to ensure that renters are accessing protection to safeguard their homes and families, but this is not the standard across providers.
L&G’s Mr Brown said: “As an industry, we must support renters’ needs through tailoring both our products and our distribution approach. By definition, this growing demographic will not have the conversations with mortgage advisers that support consumer understanding and take up of protection.”
He called for “an industry-wide focus on this from providers to elevate the number of renter-specific products and augment the work of advisers offering the best counsel to all clients – from the most affluent to most vulnerable”.