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COVID-19, arrears and your lettings business

Thursday 02 July 2020

Propertymark Industry Supplier, PayProp looks at the impact of COVID-19 and how agents can best cope with unforeseen challenges when it comes to lost income, managing arrears, and avoiding evictions.

How the world has changed! 12 months ago, agents were mostly worried about the fees ban, awaiting the recommendations of the Regulation of Property Agents (RoPA) report and preparing for new laws. Who would have thought that one year later we’d have a much more pressing issue – a global pandemic, reports of increasing arrears and falling commission?

Three months into this new reality, it’s time to assess the true impact of COVID-19 and how agents can best cope with these unforeseen challenges.

THE FACTS

PayProp has a unique view of rental payments across the country through our integration with the UK banking system. We don’t have to guess how much rent is in arrears, as we have a live, complete and 100 per cent accurate view of the rental payment status of tens of thousands of tenants across the UK through our payment platform, built specifically for the lettings industry.

Our report, ‘The impact of COVID-19 on the UK lettings market’, queries PayProp’s platform data to bring you the full picture.

On average, by the end of May 2020, 15.6 per cent of tenants were in arrears, owing 124.8 per cent of their total monthly rent. When comparing this to 2019, we can see the true impact of the pandemic on arrears – at the end of May 2019, only six per cent% of tenants were in arrears, owing just 83.7 per cent of one month’s rent.

What does the shift in arrears mean for agency commission? Assuming an average 10 per cent commission on rental payments, agencies with fewer than 250 properties lost on average £1,432 in May 2020, up from an average loss in commission due to arrears of £763 in January.

LOST INCOME?

With lost commission up 87 per cent since January, this shortfall in rental payments has caused a major disruption in business cash flow.

However, agencies can take steps to avoid writing off these missing payments as bad debt. Granted, managing the drop in income will be a challenge for some agencies, but careful management, implementing rent payment plans, maintaining good relations with landlords and tenants, plus diligent record-keeping can see agents recoup missing income over time.

MANAGING ARREARS AND AVOIDING EVICTIONS

Meanwhile, some PropTech, including PayProp, can automate the arrears process for you – from identifying arrears as soon as rent is overdue, to automatically reminding tenants to pay through e-mails and text messages.

While no agent wants to go through the costly, time-consuming, and sometimes distressing process of an eviction, recent changes to the law have prevented any tenants from being evicted until at least 23 August. However, agents who need to evict a tenant can start putting the pieces in place by ensuring there is an accurate record of all arrears, and that both landlords and tenants are aware of the situation and the potential repercussions.

To read the full report and see a regional breakdown and international arrears comparisons, visit the PayProp website and download our report.