COVID-19: Protecting your finances as a landlord
Friday 08 May 2020
Property investors can take out landlord insurance to mitigate the practical risks involved in renting out a space, such as damage caused by tenants, or even natural disasters. It can also ensure they’re covered in case they lose rental income. But this is getting more complicated in the COVID-19 climate.
To ensure housing security for renters across the country, the Federal Government has placed a six-month moratorium on rental evictions. The states and territories are also offering different concessions to landlords who are negotiating payment pauses or reduced rent with tenants who are financially impacted by the pandemic.
But as Mozo’s property expert Steve Jovcevski explains, this puts landlords between a rock and a hard place when it comes to insurance claims for tenants defaulting on their rent.
“Rental default isn’t an agreed-upon rent reduction or pause where tenants stay in a property. It’s for when tenants unlawfully leave and abandon payments within a lease period,” Jovcevski says.
“So the insurers' argument is, ‘technically the rent isn’t in default because you negotiated reduced or paused payments with the tenants.’ Basically, they don’t have to cover you for lost rent if you haven’t tried to evict your tenant who can’t pay rent because of the pandemic. And right now eviction isn’t an option, so landlords are pretty stuck.”
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What other financial support can landlords access?
If you have the capacity to continue with your current home loan terms, Jovcevski’s advice is to do just that. For landlords that are unable to meet mortgage repayments, there are other options which might reduce some of the financial burden.
The government relief specifically targeted to address this situation differs from state to state. In NSW, Victoria and Queensland, landlords who agree to negotiate with their tenants are being offered reductions and deferrals on land tax. However, this has been criticised as it doesn’t necessarily offset rental income loss. It also only assists the portion of landlords with properties that actually require them to pay land tax.
Other states such as Western Australia and Queensland are offering eligible renters grants to cover four weeks rent (capped at $2,000) so they can maintain payments for that period. This is in addition to new government support payments. Both are designed to keep renters in housing, which should ideally allow landlords to continue making payments on their home loans.
Bank and lender relief
Many banks and lenders are now offering six-month deferrals on home loans. Bear in mind, interest will accrue during that time, and borrowers will face larger repayments post-deferral, or longer loan terms. Opting to switch to temporary interest-only repayments and deferring the principal amount could be a way to minimise additional costs across the life of the loan.
There are also other hardship concessions which could help you save cash while your property isn’t generating income. These include fee waivers, additional redraws on loans and negotiated repayment plans.
If you’re an eligible borrower, refinancing with a lender who offers more attractive rates and flexibility could potentially offset some loss in rent. However, if you’ve lost other sources of income and face financial hardship, it may be more difficult to get approved for refinancing.
While each of these options presents some relief for landlords and renters, Jovcevski says insurance providers need to come to the table.
“They could do a lot more to take the current circumstances into account. Insurers should consider paying out landlords and not just reject the claims outright because it’s not within the policy booklet – we’re facing something that has never happened before,” he says.
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