08 July 2020
Whilst we emerge from lockdown, we are looking forward to better times but for many landlords and property developers who have had some issues and have been affected by COVID-19, what does that future hold?
In many cases, landlords who have been unable to collect their rents and who have been prevented from removing their tenants, have been left in a position where they are unable to pay their own mortgages. They are also finding difficulties in meeting their own financial obligations (even though their tenants may have been able to obtain support through business loans and other government funding.)
To date, however, no government assistance has been provided to support landlords.
We have been involved with clients who, for example, own a hotel or multiple hotels and with no rent being paid to them, we have worked with the client to discuss matters with their lenders. Most lenders have been willing to listen and to provide a repayment holiday. This is welcome, but still does comes at a cost of additional interest and fees. But, who knows how long lenders will continue to provide such support? The key thing of course is to keep talking to your tenants and your lenders throughout this difficult period and keep open the lines of communication to be able to negotiate amicably.
For many property developers, even though they have obtained support via furloughing staff, there is still the overarching need to complete the developments and/or increase borrowings to extend the length of the loan. Most UK mainstream banks have withdrawn or restricted support for property developers and consequently, there has been an increase in clients using the next tier of lenders. The next tier of lenders are starting to run out of lending funds (repayments of loans are drying up) and are seeking additional funding to enable them to support their customers. But we are finding it more difficult to change lenders as most lenders are looking to support their existing customer base in preference to new business.
The risk for all property owners and developers is the uncertainty in the market and how fast recovery is or is not going to happen as we try to get back to normal. Valuation surveyors are indicating that they will automatically reduce their pre-COVID-19 valuation levels by 10% to 15%, just because of this uncertainty. There can however, still be some winners as we have seen more demand for properties with gardens since the restrictions of the lockdown were relaxed.
The above is depressing for the sector but it can conversely create opportunity for those brave (and adequately geared) enough to take risks.
At UHY Hacker Young, we are in discussions with our clients, other property professionals and lenders to assess the market and can help with dealing with lenders, assisting on VAT issues to trying to manage cash flow.
P.S. Do not forget that from 6 April 2020 there is a new reporting requirement in respect of any UK residential property sold. This states that you need to submit details of the capital gain and pay an estimate of any tax due within 30 days of the sale. If there is no tax due, (for example, the sale is of a fully exempt main residence), there is no need to report. Due to COVID-19, the reporting requirements have been relaxed so you have until 31 July 2020 to report sales that occurred between 6 April 2020 and 30 June 2020.
For more information or any queries, please get in touch with Clive Gawthorpe or your usual UHY adviser.