Possessions suspension could have serious knock-on effect

The announcement, made by housing secretary Robert Jenrick, means that:

• Emergency legislation has been brought forward to suspend new evictions from social or private rented accommodation while the Covid-19 national emergency is taking place
• No new possession proceedings through applications to the court will start during the crisis
• Landlords will also be protected as the three-month mortgage payment holiday is extended to buy-to-let mortgages

UK Finance, in conjunction with the Building Societies Association set out how the suspension to possessions proceedings would work in practice:

• Explaining that lenders would suspend all possession orders
• No new proceedings would be commenced
• This includes putting cases to court or instructing on matters

However, lenders will be able to issue formal demands, so that the customer is aware of the money they owe and are informed that the case will eventually go to possession proceedings. In this sense, the move is more a pause than a reprieve for those in significant arrears.

As for how far these measures extend, Credit Strategy is waiting to hear back from Energy UK and the government over whether energy and public sector debts will be subject to similar measures. However, Credit Strategy has spoken to sources who believe a moratorium on council tax debt is likely and imminent.

Credit Strategy is seeking clarification on the duration of all these measures.

Simon Foster, a real estate litigation partner at Shoosmiths, told Credit Strategy much of this will remain unclear and will not be clarified until the emergency legislation promised by the government has been published.

Energy UK, though, did confirm that vulnerable customers will have help with their bills during the outbreak.

For those in debt recovery enforcement, the picture is increasingly dire, with work on hold for the coming 90 days at least and their primary source of income removed for the time being.

Already, some enforcement agencies are being asked not to enter homes and cease enforcement activities where there are cases of Covid-19, Credit Strategy understands.

It means that recovery activity is instead being undertaken through calls, texts and emails.

Stephen Jones, chief executive of UK Finance, said lenders have agreed a three-month moratorium on residential and buy-to-let possession action.

“The industry wants to reassure customers that they will not have their homes repossessed at this difficult time,” he said.

Robin Fieth, chief executive of the Building Societies Association, said: “Now is a time for lenders to be flexible. The steps being taken by the industry today will offer some breathing space for those affected by the Covid-19 situation whether directly or indirectly.”

Though debt charities including StepChange welcomed the move, they called for further action, including cash provided directly to households.

Chief executive Phil Andrew said: “Suspending enforcement action and offering forbearance for those who need it needs to be just the start. While cash injections to households sounds like a huge policy ask, it’s perhaps the most direct and speedy way of reducing the wider financial impacts of this unprecedented situation.”

Money Advice Trust chief executive Joanna Elson agreed, noting that direct cash support to affected households, an immediate suspension of debt collection and bailiff visits, and widespread payment holidays “sound like drastic measures, but they are needed right now”.

On the rental protections, Marc von Grundherr, director at letting and estate agent Benham and Reeves, warned of a “significant unintended consequence” of the move.

“Tenants now have nothing to lose if they simply stop paying their rent. It will simply be used as a literal get out of jail free card for all of the UK’s 16 million or so private and social housing tenants and this could leave a path of destruction within the rental market if not correctly implemented and monitored.”

Shoosmiths’ Foster added the government’s measures raised more questions than answers, noting: “There are a number of issues – such as addressing those cases whereby a tenant is already in breach of covenant, prior to the outbreak.

“It would appear the government’s apparent answer to the issues the suspension will cause for landlords – loss of rent, risk of damage to their property if a tenant is particularly difficult, and the plain fact of being deprived of their property – is to extend the proposed mortgage payment holiday.”

Other issues to emerge from the rental protections include what happens to the rent arrears when the ban is lifted.

“Landlords could find themselves still having to repay the mortgage lender for the holiday payment period, but also not having received any rental income for the whole of that period,” Foster said.

However, Ben Beadle, chief executive of the National Residential Landlords Association was more sanguine and said the trade body recognises the “exceptional circumstances” it faces.

“We will work collaboratively with government to ensure these measures protect both landlords and tenants,” he said.