There’s no doubt that COVID-19 has harmed many tenants financially due to a loss of income. And while most employees have already returned to work after the initial lockdown period, the after-effects will be felt for much longer.
Johette Smuts, head of data and analytics at PayProp says that they’ve witnessed many tenants approaching their agencies for financial assistance since the commencement of lockdown. Smuts says that working together with their agents and landlords, many tenants have managed to reduce or postpone their rent obligations, or use a damage deposit to cover rent.
“The important thing to remember is that the tenants’ obligations have merely been postponed in such cases, and these rental obligations will still have to be met in future,” cautions Smuts.
This means that tenants will have to pay more money later, possibly on a monthly basis, to cover their current and deferred rent or to top-up a damage deposit. They will then have less disposable income for other priorities and might even need to resort to loans or other financial assistance to cover their cost of living.
“It’s not an ideal situation to land yourself in,” says Smuts, and while rent arrears won’t directly affect your credit score, a bad rental payment record is often visible to estate agents thereby affecting your changes of securing your next rental property.
Make sure you keep a written record of all arrangements made with your agency or landlord, and that these are correctly invoiced by checking your statement each month.
Being in good standing with rental payments may also increase your chances of negotiating a lower rental increase when extending your current lease agreement, because in a tough market, it is harder than usual to find reliable tenants. Finding the money now could ultimately save you money in the long run.
PayProp’s credit bureau partner, Experian, already observed a worsening in payment performance at the end of March, at the very beginning of lockdown. Dieter Winkler, scoring analyst at Experian, explains: “Many of the account holders who were previously willing and able to pay may now only be willing to pay because of the effect of COVID-19. The best they can do in terms of credit score health is to make the necessary arrangements with their credit providers; these arrangements most likely involve payment holidays and the deferral of payments.”
Tenants should also think twice before taking out short-term loans at high interest rates, as this type of credit might hurt their credit scores. Applying for credit repeatedly in a short time period could likewise adversely affect a tenant’s credit record – correlations that are also evident in PayProp’s historic data.
“Perhaps the best advice of all, now more than ever, is to draw up a realistic budget and stick with it,” says Smuts. “Cut all unnecessary expenses as far as possible and live within your means until your financial situation improves.”