It’s been an unprecedented scheme which has supported huge swathes of the economy during the coronavirus crisis, but furlough is due to finally come to a close at the end of this month, having been extended a number of times over the last 18 months.
The scheme, officially known as the Coronavirus Job Retention Scheme, has proved a lifeline to many industries throughout the pandemic, keeping afloat businesses and whole sectors of the economy. It has been praised by people across the country and many will be very thankful for it, however it has been a very expensive scheme for the treasury.
Here, we look at the background of the scheme, when it’s ending and what impact it could have on the lettings industry and agents in particular.
Reacting to a crisis
To ensure huge numbers of people didn’t lose their jobs during lockdown, the Government introduced the furlough scheme in spring 2020 – the height of the first wave – to keep people in employment even if they couldn’t actually work.
Furlough was a little-known employment jargon word before April 2020, but suddenly became something everyone knew about.
It initially paid 80% of the wages of people who couldn’t work, or whose employers could no longer afford to pay them, up to a monthly limit of £2,500. Previous attempts to taper off or end the scheme were thwarted by further waves of the virus and the requirement for new lockdowns.
But now the Government seems determined to stick to the deadline of September 30th 2021 for the end of furlough. The scheme has already been winding down since July, with employers required to pay 10% of salaries from that month and the Government’s contribution dropping to 70%.
In August and September, the Government’s contribution has fallen further – it now pays 60% and employers pay 20%, with employers also obliged to pay staff pension and National Insurance contributions.
At the height of the pandemic in May 2020, the number of people on furlough hit a peak of almost nine million, but by June this year that had fallen to 1.9 million – a number which will have fallen again since lockdown restrictions eased in July and the likes of the hospitality, entertainment, events and tourism sectors started to reopen.
While the Government says it has supported some 11.6 million jobs since the scheme began, this has undeniably come at a price – by the end of the scheme, which will have lasted from March 2020 to the end of September 2021, it will have cost around £66 billion, according to estimates from the Office for Budget Responsibility. This sum equates to approximately one fifth of the money the Government has spent on responding to Covid in total.
That said, the alternative would have been much worse and it’s very clear that the scheme has saved or prolonged millions of jobs. Some feared that more than one in 10 workers would become unemployed as a result of the pandemic, but the unemployment rate currently stands at less than one in 20.
Will unemployment rise after the scheme ends?
The big question is whether unemployment will soar after the scheme ends, if companies decide that jobs being propped up by furlough are no longer viable.
There is expected to be a bump in unemployment once furlough ends, with many forecasters, including the Bank of England, expecting to see a small increase in the number of people losing their jobs.
However, for those that are made redundant or let go, vacancies are currently at record highs, which means there are lots of employers keen to hire new workers.
How will the end of furlough affect lettings?
There are a number of ways in which the end of furlough could affect lettings. For one, many tenants – particularly those operating in restaurants, hotels and bars, who are more likely to rent – may have been on furlough and may find they have no job to return to when the scheme is taken away.
Equally, some landlords may have been reliant on furlough payments in their main jobs and could be affected by this safety net being removed. Lastly, there will be some letting agents who are still furloughing staff at the moment who will have to decide if they can pay their full salaries again when furlough ends.
For those tenants who have been reliant on furlough to help them pay their rent, the stripping away of the scheme could cause problems when it comes to rental arrears as more tenants struggle to keep up with their payments from October.
Some of the signs are potentially ominous. According to one lettings expert, the market has ‘one heck of a dark cloud on the horizon’ as the furlough scheme winds down.
Doug Shephard, director of the well-known property website Home, issued the warning in his August snapshot of the rental sector’s performance.
He argued that the current level of supply of available properties to let is low at around 40,000 per month and, if only 10% of those currently in arrears (according to Shelter’s estimate) were evicted in a given month, that would mean another 44,500 new lettings units on the market, more than doubling current supply.
How bad are rent arrears at the moment?
Despite all that has happened in recent months, a recent Paragon Bank survey suggested that rent arrears are actually currently the lowest they’ve been for a decade.
Many landlords, agents and tenants worked together during the Covid crisis to arrange special deals on rent, taking into account the extreme situation caused by the pandemic. As restrictions ease and the economy gets back on a normal footing again, however, the financial pressures on landlords may see them pushing harder to receive their rents each month, with less leeway on offer as various sectors reopen.
Agents will have a difficult balancing act between supporting tenants and meeting the needs of landlords, but it won’t be clear for some months yet just what impact the end of furlough will have on rental arrears. A lot of the jobs that have been kept afloat by the scheme should still be viable as everything reopens, but if further restrictions are needed again in the winter months, this could all change again.
With uncertainty still prevailing, rent protection insurance can really come into its own in terms of offering maximum peace of mind to landlords if rental arrears do start to climb again.
Even the best tenants can fall on hard times – and perhaps more so now than ever – and rent protection can cover your landlords if the worst was to happen.
You can find out more about HomeLet’s rent protection here. There’s no knowing for sure the impact the end of furlough will have on the lettings sector – this is only likely to become clear some months after – but as agents you can offer products like rent protection to put your landlords’ minds at rest.
Our Head of Legal and Claims, Will Eastman gave the following comments on the end of the furlough scheme:
It’s accepted across the sector, and many others, that the end of the Furlough scheme will have some impact on the level of rent arrears. What isn’t so clear is to what extent the ending of the scheme will have.
Employees are often a business’ largest cost and it’s without any doubt that some businesses still trading today, are only here as a result of the support they have received via this scheme. I suspect the ending of the scheme will lead to a rise in unemployment and therefore, rent arrears. However, I think it is fair to say that it is unlikely we will see a sharp increase, as we did between April and June 2020, with the gradual tailing off of the scheme having already triggered changes for some businesses.
The suggestion that a wave of evictions is pending seems unlikely. We have seen landlords, agents and tenants work collaboratively and creatively throughout the pandemic to find alternative solutions to litigation, which is continuing even as we see the legislative restrictions placed on landlords ease. There will of course be some tenants, and landlords, that are not as successful in avoiding litigation, but given the aforementioned, and the current backlogs in the County Court caused by the stay of proceedings last year, any increase is more likely to be a ripple than the wave suggested.
One thing that is clear from all of the predictions is that some Landlords will be faced with supporting tenants in rent arrears, at a time where housing stock is down and rental prices continue to increase. The legislative landscape in the sector also continues to shift, with a number of changes for landlords over the coming months. It has therefore, never been more important for landlords to partner with a reputable agent, who uses market-leading products and services to protect both their income and assets, meaning agents need to be able to offer these services to secure landlords’ business.Will Eastman, Head of Legal & Claims