David Lawrenson: How I readied myself for Coronavirus (and other downturns)

Leading landlord and founder of private rental market consultancy www.LettingFocus.com is so far, relatively unaffected by the coronavirus. Here he explains why.

So, here we are in the middle of this pandemic. But I count myself quite fortunate so far. Here’s why.

Firstly, all but two of my properties have mortgages which are on lifetime base rate tracker rates.

Mortgage companies don’t tend to do
these any more – preferring to limit trackers to limited periods like two years
or five years, if they even do them at all.

I guess they learnt their lesson from
when Mark Alexander and his motely band of landlord borrowers fought the
building society, The West Brom, all the way to the Court of Appeal over that
society’s attempt to wriggle out of their own lifetime base rate tracker rate
deals by citing some nonsense in the small print of their mortgages.

Though Mr. Alexander lost the case at
the High Court, the group bravely fought on, even as costs mounted to over
£300,000. They were finally vindicated when at the Court of Appeal, Lord
Leveson, (the phone hacking scandal judge), saw through The West Brom’s
obfuscation and found in the borrowers favour.

The cost to the West Brom was £27.5m,
plus costs – a very chunky amount, but one that somehow did not stop its chief
executive later becoming chairman of the Building Societies Association.

I held onto my old trackers because
the experience of the credit crunch of 2008/9 (and other credit crunches), was
that new mortgage rates, during such periods of tight money, tend to be at very
high margins over Bank of England base rates.

So, I prefer to stick to my old
lifetime trackers. These range from 0.69% over base to 2.00% over base. It has
stood me in good stead.

And with the Bank of England smashing
the base rate down to a record-ever low of 0.1%, I’m glad I’m not on a standard
variable rate, where the rate, is of course, up to the lender to adjust. Many
are not keen on adjusting rates downwards.

Notice periods

Another approach that has stood me
well is to have always made sure that at the end of each fixed term assured
shorthold tenancy, the default is that the tenancy moves onto becoming a contractual periodic tenancy
with a notice period from the tenant that is longer than one month.

In the current coronavirus
environment where people are not supposed to be doing viewings, I suppose
landlords would like it if, when their current tenants gave notice, the notice
period was as long as possible, (as they won’t be re-letting any time soon and
be facing a void).

This brings me to the issue of what
period of notice a tenant should give, once a fixed term in an assured
shorthold tenancy has ended (and also when there was no fixed term in the first
place).

Many people think it the notice
period has to be one month – where rent is paid monthly – and there is no
choice about this.

But this is not true.

I think we can credit Shelter with
having the most succinct summary on
their site, where it says that if the original tenancy states that at end
of a fixed term the tenancy would roll on to become a “contractual periodic
tenancy”, then the notice period the tenants must give would be whatever
was stated in the original tenancy agreement.

Only if the tenancy agreement was
silent on the matter, it would be effectively become a “periodic tenancy”
and the notice required from the tenant would be whatever the “period” was,
usually monthly, of course – so a month of notice would be all that a tenant
needs to give, in such cases.

What do I do with
my tenancies

Well, for years, I’ve always stated
in our assured shorthold tenancies, that after the fixed term ends, unless
ended by us or the tenant, the tenancy simply continues as a contractual
periodic tenancy, with 42 days’ notice required to end it from the
tenant. (Of course, if it is the landlord wishing to end a tenancy, after
the fixed term has ended, they would normally need to give 2 months’ notice).

I have been letting property in
England for over 30 years and let to many tenants in that time and have never
had a problem with this notice period from a tenant.

In practice, we find that we can
usually find another tenant who can start a new tenancy much earlier than in 42
days, and so, if it suits the current tenant who is leaving, we can end the
current tenancy earlier than in 42 days, and make a pro rata rent payment back
to the leaving tenant.

Why do I like 42
days?

I like the 42 days to be stated in
the tenancy agreement, because sometimes stuff could happen where one would
like it to be longer than a month. We might be away on holiday and unable to
perform viewings, for example.

Just having an extra 12 days above a
normal month give a little extra comfort.

Right now, when viewings are supposedly
banned, anything more than a month is a bonus.

I suppose one could ask for two
months (maybe longer still than that), though this would might be deemed unfair
to me – and could potentially be viewed as an unfair contract term. But as far
as I know, the question of really long notice periods in contractual periodic
tenancies after a fixed term has ended, has never been tested in court.

All tenancies paid Up

So far, all my tenants have paid up
to date. Only one has enquired about the possibility of a “rent holiday” due to
Covid19.

This may be a function of our
stringent affordability and reference checks, or maybe I have just been lucky
so far. I am not sure which.

For the one tenant who enquired, this
was an odd situation. They are a couple in their early twenties, the wife said
that her employer (a lawyer) was actually thinking of moving her onto statutory
sick pay (not furlough).

However, she normally earns £26K, was
not actually sick, did not have the virus and was home as there was no work at
present. All in all, a very odd situation.

Making it odder was the fact that her
husband, on his own, had a secure job as a police officer, and his earnings
alone were 2.7 times the rent, comfortably high enough to afford the rent on
his own, irrespective of his wife’s situation.

We pointed this out to this tenant
and also pointed her to the government’s advice pages on furlough, suggesting that
perhaps what her company was doing was illegal.

We heard no more from them – and the
rent has been paid, along with all the others.

What will the
economic impact be?

I expect achieved house price sales and rents to be around 15% lower by the end of May than they were at the end of January. House prices may possibly be slower to fall.

However, much bigger falls than this
are likely in both house prices and rents in places that are heavily dependent
on tourism and hospitality.

This presents opportunity to buyers,
especially those with cash, who can move fast.

In around 18 months to two years’
time, we could see these falls reversed and a rise in house prices, because, I
think, by then inflation could re-emerge. The extent to which this will happen
will depend on how many much of the supply side of the economy has been driven
out of business as a result of the lock down/house arrest.

David Lawrenson is author of two books for landlords; Successful
Property Letting – How to Make Money in Buy to Let” and “Buy to Let Landlords’
Guide to Finding Great Tenants” as well as a book for tenants called “Tenants’
Guide to Successful Renting”.

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