A survey conducted by digital rental platform, HouseME, among its tenants and landlords in June and July found that 88% of tenants believe they will only be able to afford monthly rentals that are reduced by 10% for the next 12 months. In addition, more than 30% of tenants said they would move for a better deal.
These findings clearly show the impact of the Covid-19 lockdown and economic slowdown on the rental property market and it makes sense that many tenants are now looking for cheaper accommodation to help them recover financially. However, landlords and letting agents are sure to be on their guard against possible delinquent tenants, so how will bank payment relief agreements, pay cuts and other factors affect your rental application?
Many rental agents use credit checks as part of the process of vetting tenants who apply to rent property, so you should be aware that any payment relief granted by banks in respect of motor vehicle finance, retail and credit cards and the like will appear on your credit report.
“However, if any bank payment relief agreement is correctly noted as such on your credit history, it won’t affect your credit score at all,” says Johette Smuts, head of data and analytics at PayProp.
“If you missed debt repayments because of a lower income, however, this would show up in a credit check and will negatively affect your credit score.
“Keep in mind, though, that a credit check is just one part of a rental application, and that the agent or landlord makes the final decision on applicants’ success based on various other indicators, such as income, references, and rent payment history.
“Checking your credit reports at the various credit bureaus will enable you to spot any events that negatively affect your score. You will be able to explain the situation to rental agents and landlords, for example, a repayment agreement that may not be correctly indicated.”
Rental agents generally request proof of income during the vetting process, and will take this into account during their decision-making process. So, if your income was reduced over the last three months and you are now back to your full salary, how will this affect your application?
“When applying for a property you have to declare your income without any form of relief, as this is only temporary. If you are back to your full salary, you need to indicate what you are earning at present and can apply with your current salary,” says Jacqui Savage, National Rentals Manager for the Rawson Property Group.
“In addition, all debt must be clearly stated on the application, so that the landlord or rental agent can determine what rent you can afford to pay.”
Rent payment history
Standard credit checks don’t include rent payment history, which is why most landlords and rental agencies ask for references from previous landlords, and many subscribe to specialist rental bureaus like PayProp and TPN.
If you have a payment holiday agreement with your existing landlord due to a loss of income. be sure to include a copy of the agreement in your rental application.
Help for tenants
The economic recession is already biting hard among tenants, with some saying that moving costs are prohibitive given their current liquidity position, and some even citing petrol and travel costs for viewings as a barrier.
Fortunately, there are some measures in place to assist tenants, such HouseME’s DepositFREE product. This has become a major drawcard for tenants as it frees up cash that would otherwise be tied up in a deposit. It is also becoming increasingly popular among landlords as leverage to attract applicants to their properties.
Almost 70% of respondents in the HouseME survey said that access to video walk-throughs would reduce the need for in-person viewings, and may also pave the way for tenants to save while looking for a new home.
Savage says that many landlords are embracing progressive payment programmes. Popular plans include rental deferment with repayments starting in September, and agreements enabling landlords to use the tenant’s deposit to wholly or partially cover rent for a limited period. In both cases, she says, certain criteria will need to be met beforehand, and an iron-clad contract put in place to protect the interests of all parties.
Dexter Leite, Pam Golding Properties Western Cape Rentals Manager, says that each tenant application is assessed on its merits, so prospective tenants who have been adversely affected by the Covid-19 pandemic should be completely frank with landlords and letting agents when applying to rent a property.
“It’s important to explain your specific circumstances affecting affordability, including your current income and expenses. This will enable the landlord or agent to make an accurate risk assessment based on the information provided.”
If you suffered a loss of income during this time, be sure to obtain proof of this. The same goes for arrangements made with credit providers. Explain your situation to the rental agent or landlord and provide additional proof, such as bank statements for a longer period than required or perhaps a letter from your employer.
Ultimately, the final decision on any tenant application is made by the landlord or agency using the tools at their disposal, such as income, bank statements and references. These are tough times for everyone and we all need to communicate effectively and transparently to get through it together.