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Covid-19 completely disrupted the plans of many businesses this year and will continue to have an impact on the global economy until the vaccine is rolled out. At the same time, an uncertain Brexit remains just around the corner. Ellie Donaghy, Head of Lettings at Andrews, and Jonathan Werth, Managing Director at LiFE Residential, joined Goodlord to discuss a challenging year and how they're preparing for 2021.🎧Let's start with the impact of Covid-19 on tenure - what are you guys seeing, for example, around the average tenure in your books? Is it changing as a result of the pandemic and the lockdown?
Jonathan: For us, it's just a bit longer - a few more months. Instead of it being 24, it's gone to 26 months so far.
Ellie: That's the same as us. We're seeing a lot more tenants that are looking to renew in their properties. They'd like to stay where they are rather than go looking somewhere else. And landlords where they have got tenants that have been paying their rent, they're good tenants, they know that they've got stable jobs, they're quite keen to tie those in as well. We are seeing a lot of tenancies that are going periodic, where both tenants and landlord are a little bit uncertain in these times. But the actual tenure in the property has definitely increased.
Ellie: We have had a lot of tenants that have been furloughed, absolutely. But I think that's helped us and helped the business. Where we saw that large spike in arrears, I think that's where people were concerned that they wouldn't be able to pay. And furlough has massively helped that, which I think has brought the arrears back down and stabilised everything. We haven't seen anybody that's necessarily been struggling. Yes, we have had conversations where we've gone through financial questionnaires, can we help you, can we take payment breaks and work in between landlords and tenants? But yeah, on the whole, furlough I think has massively stabilised the industry.
Jonathan: It was a genius move by the government. And it just made people's lives so much easier, even though it's still very difficult for most people. I think for us, we had a big, knee-jerk reaction from some tenants at the beginning maybe trying to take advantage. But anyone that has an issue now, we really know it's genuine. It's not too difficult to prove otherwise. That's very helpful. But it's been a struggle to just get people to communicate. And they were, especially at the beginning, quite defensive and quite quiet. And now I think everyone knows a bit better where they stand, it's a lot easier for us.
Jonathan: It's entirely up to the landlord. But we certainly would advise on a compassionate level, depending on how long that tenant's been in there, to wipe it clean. Why would you want to put more financial burden on a tenant that can't afford to pay, genuinely, what he or she is paying now? To me, that seems a bit crazy. You've just got to be sympathetic, look at it over a small part of a long tenure. People shouldn't be renting for the short term. They should be renting for the long term. If you've got a good tenant over five, 10 years, and three months of it or four months of it, whatever it is, is on half a rent, so be it. I think it's a sensible approach. But ultimately, it's the landlord's decision.
Ellie: It's all landlord dependent, really. We haven't seen many landlords who have been very, very harsh on this. Most landlords would rather negotiate with their tenant, especially if it's a tenant that's known to them, negotiate with them and try and come to some kind of middle ground, or something that will work for both parties. Rather than trying to insist on the full rent and end up with nothing. Most landlords have been sympathetic. We have tried to negotiate and be that intermediary as much as we can to sympathise with both sides.
Jonathan: At the beginning, we couldn't get into anything. That actual first, proper lockdown that we had, which is the dip in lettings that everyone saw, was just because we couldn't physically get into any properties or do any viewings or do any move-ins. Even now, we have people that don't want to let anyone in, or there's a lot of restrictions. What we do have is a lot more vacant properties than we ever did, in which case we've been able to use the digital experience that we have and use our in-house photographers and videographers to make sure that we've got everything up to scratch. And we actually have to prove now that people have seen and watched the videos of the apartment they're going to go and view before they view it. And that's an absolute must for us.
Ellie: The one thing that hit us hard initially was not being able to access the properties - not from the letting side because we have the digital offering, but the routine maintenance. But we'd been working on a digital strategy, luckily, for the last 18 months prior to lockdown. So, we managed to mobilise our entire workforce within 24 hours. We still had a full property management complement, with full property management offerings. For us, it's changed when our busy periods have been in the year for property management, where we had that backlog, and now the catch-up period on that. But we were mobilised and able to adapt and deal with things as they happened.
Ellie: We haven't seen a huge impact. Many landlords who have got tenants that are in the property and they're paying, they don't want to regain possession of their properties. Landlords themselves are not moving around as much as they would be, so they may not want to be taking the properties back to move into. Big, planned refurbs and things, a lot of those have been put on hold. And with the arrears having stabilised and being pretty much at the level they were before, we haven't seen a great deal of impact.
Jonathan: For us, I think the ones where we had issues were some of the companies that we let to, that simply walked away and left the apartments. Obviously, you're left with arrears but the likelihood of you getting that money is minimal. In terms of the individuals, it was really humbling. A lot of the landlords were really sympathetic, and they did renegotiate. Ultimately, we act for the landlords. And we have to tell them all the information that we can and minimise that risk of getting to court.
Ellie: I completely agree with Jon on that. We are very stable, our arrears are stable, we're in a great position. And like Jon says, if you've got all these big problems now, you do have to question why, when there is so much government support. But yes, we are absolutely keeping our eye on that. We haven't forgotten that there could be an end to this.
Jonathan: Well for me, the most positive thing was it'll all be out the way. And then we won't have to mention it for a while. I don't think there's many more positives in the industry that we deal with. Obviously, there's a lot of positives for a lot of consumer-led businesses, but I don't believe that there's going to be loads of positives from our point, other than that. I think there will be no impact, at the moment, but don't forget, I'm just London based. When you're nationwide based, you've got properties nationwide, I think that may be affecting markets a little bit differently.
Ellie: I think a minor positive is that the housing market in terms of sales could become unsettled. The stamp duty relief could end. And people may be a little bit uncertain about what's going to happen, and therefore may stay renting longer. Or the landlords may not look to sell in the hope that the prices may be at a low and increase. I think there could be a minor positive in the lettings industry there. I think it depends where you rent. If you're renting in an area where you have rented to foreign nationals, maybe for employment, or for education such as universities, that could have an impact depending on what happens with Brexit. But I agree with Jon. I think one of the major positives is that it would be out of the way. We will know what we're working with and we can then adjust from there. The lettings industry is very adaptable and very resilient. We've shown that throughout Covid-19. Legislation change after change after change, and we adapt and we make it work. I think depending on your geographical location, there will be an impact. It could be positive, with the house prices being uncertain, the people stay in rented. But it does depend on the demographic of tenants that you're renting to in that area.
Jonathan: There's very different types of accommodation in the private rented sector. And so some will benefit, and some will lose out because of this. What I would call the PRS blocks, which are prominent, or more prominent now in the city centres, they're going to struggle because they've been doing very small units, mostly without balconies, high rents. And now that people are changing their attitude on how they want to live and work, I think that's going to struggle. We're finding people looking for apartments with balconies, looking for bigger rooms, bigger flats, bigger second bedrooms. All of these things that actually really are quite obvious when you think about it. And they're also looking for better quality. If you get better quality, the likelihood is you're not going to have to maintain it so much, so you won't need the maintenance companies to come in so much. You won't need to liaise with the agent so much. People are looking for better quality, and so the worst quality properties will also lose out.
Jonathan: It could have an impact. But it also could help the agents, because anything we can do to prove the validity of the tenant and to get that security of who they are, which even the best will in the world, they're still out there. Doesn't mean to say that they get past the net because Goodlord and other companies that do the referencing are much better digitally than they ever were. Anything that helps validate who the tenant is is going to help us, I think.
Ellie: I agree with what Jon's saying. I think it will help, given the fact of the new world, new normal, with Covid-19. Anything, any digital offering is going to help in that way. Do I think it will revolutionise the process? I'm not so sure. If you are an agent, as Jon says, using Goodlord, the checks that you guys do already, which we then follow up with the official right to rent checks, and making sure we have all that recorded, is all digitised anyway. I do think it will help in the new normal, but I don't think it will revolutionise anything, no.
Ellie: I think the biggest thing that we're planning for, which might sound a bit stupid because you can't really plan for it, but it's just to be as adaptable as possible. We don't know exactly what this is going to throw up. The same as when we went into the beginning of the lockdown, the pandemic. We didn't know what it's going to throw up. So it's just trying to be prepared for whatever may come out at the end of it. Of course, we'll be keeping our ear to the ground. As soon as we know anything, as soon as anything changes, we will be on that. We've got a full compliance team that works behind us that will be making sure that we stay compliant and we're giving our landlords and tenants as much advice as we can along the way. I'm not sure there's going to be a huge, bang, impact. I think it's going to be more of a steady impact, whether that be positive or negative throughout the next 12, 18, 24 months. …. But because it's so uncertain as to the impact it's going to have on the market.
Jonathan: Well, I think it's more educating the clients, educating our staff, really, to be mindful of interest rates and currency exchange rates because a lot of the trade that goes on, especially in London and with investors, is dependent on what else is happening in the market. It's really important for us to know where the interest rates are going … That is something to be very, very mindful of post-Brexit.
Ellie: We're very confident. Like I said, we were all ready to the point that we could mobilise all of our workforce, and we did within 24 hours at the beginning of this pandemic. We've made more efficiencies throughout that whereby we've managed to upskill our staff. We've managed to speak with our landlords and really make the most out of what we've got. So, yes, I'm very confident with where we will be in 2021. I say that, it could all change. Brexit could change. We could have another lockdown. The vaccine might not work. But on what we know today and where we know we are, yes. I'm very confident.
Jonathan: There is a lot more movement in the market, especially if in March they don't reduce the stamp duty, rentals will be busier. People still want to move. If they're not traveling, they're still going to want to move. They'll be moving jobs more. I'm certainly in between very confident and somewhat confident for the first part of the year.
Jonathan: Well, the majority of the market is trading under £500,000. You look for reasons, why should people be buying at the moment? Well, once that stamp duty level came off, it gave people no excuse. The interest rates are lower than they've ever been. Mortgage availability, although it's not brilliant, is certainly better than it was. You have to go through a lot more hoops to get that mortgage. But I think it's just a huge help to have that confidence. Once March comes, people think, right, well, we've lost that opportunity. There you go. I think it will have quite an impact on the sales of the properties under £500,00, but then potentially those over £500,000, then those people start coming back into the marketplace.
Jonathan: I don't know if they're going to have enough stock to sell. I really don't. I think lettings demand will be so strong. I think you've got to be focusing on letting and management, and sales as a service that you have to provide because landlords need it. But you can't expect them to be trading as often as they used to.
Ellie: We've seen a lot of properties come to market, which is great. And the stamp duty relief has kept a lot of things moving. However, what it has done in some areas we've seen is it has pushed some prices up. It could be a bit of a false economy in some areas. People will always buy and sell properties. But will it be the rush that we've seen? No. I don't think so. I think it will probably be steady.
Ellie: We've still obviously got the Renters' Reform Bill. We're still looking at the abolishment of Section 21. Some of the surveys that have been carried out said that 33% of landlords might look to exit if the abolishment of the Section 21s does go ahead. That does pose a bit of a concern. However, that's not to say they won't be purchased by other investors. We've got the changes to carbon monoxide regulations and the energy performance regulations. We will have to look to make upgrades to properties, which is going to cost landlords money. In a roundabout way, it is all going to cost landlords money, but it just depends what you're in it for as a landlord - if you're in it for the short-term gains or the long-term capital gains.
Jonathan: The main one for people to get used to is paying their taxes, paying the profit. Now that there's no more mortgage interest relief, that's been tapered off over the last few years. They haven't started seeing that pinch in their pockets yet, and they will do. What will that do? That may open them up to selling because they can't really justify holding it. It might be in an area where they don't see capital appreciation. Or they’re not making that monthly profit like they used to be. But it's that once they actually see that in their pocket when they're doing their tax returns, I think that's going to have an impact in certain areas.
Ellie: I don't think the stamp duty holiday will be extended. I think it's kept the market moving in the most challenging of times. The notice periods, I have to be honest, I'm on the fence with. Once furlough starts ending, I think they may extend it, because we may see more tenants not able to pay their rent, and they'll want landlords to work with tenants to keep them in their properties, and to be sympathetic to that. But then there will be such a backlog that the courts are trying to catch up with, it may be that they do reduce that back down to three months, or potentially four. That's something we will have to watch closely.
Jonathan: It's really out of our hands. Between now and March, a lot can happen, they’re going to have to make many decisions. They may be short of people, they may just have such a backlog. It's just unknown. But in terms of the stamp duty holiday, I'll be massively surprised if they extend it. You can see the government is using March as a deadline for various things with furlough, with stamp duty. By March, there'll be quite a number of people vaccinated. Brexit will be three months out of the way. I can't see they'll extend it.
Jonathan: I think it's still a great investment. But you just have to make sure that it's for the longer term. Everyone's got to have in their mind five to 10 years, and then on to pension, realistically. If you're cash rich and you've got money in the bank, you know you're not getting anything in the bank. The stock market is very risky, and it's ultimately for the experts. You can put it in your pension, which will be safer in terms of the stock market. But property is still something that everyone knows and understands, and it's still there at the end of the day.
Ellie: I absolutely agree. If you're looking for a quick win, monthly profit, no, it's probably not where you want to put your money. But where else is there, right now? If you are cash rich, or you think I want this for 10, 15, 20 years' time pension, or to help children in the future, it’s the best place to put the money at the minute. It's the safest place. If the house prices go down, as long as you're in a position that you can ride it out, they will always come back up.
Ellie: I think so. We've managed to make efficiencies and really educate our landlords on rent and legal protection, and the importance of references and things like that, if landlords weren't seeing that before. Our stance is more to work with who we've got and to make sure we make the most of them and we protect our landlords wherever possible.
Jonathan: One word sticks out there for me more than anything else, which is technology. We can't underestimate how much technology we still need, how a lot of us are still not embracing it enough, and how people are expecting technology to improve in our sector, possibly more than any other sector in the market. And we can't let ourselves down. We have to improve everything we do and everything we can do on technology. And we need to do it pretty quickly. Recently I was listening to someone talk about a “phigital” presence. So, it's physical and digital. But we can't be all tech. Absolutely not. We need to be able to talk, communicate, phone. But we need technology to be making our tenants and our landlords and our staff's lives much better.
Ellie: That's a good word. I like it. Any new technology that's going to enable the “phigital” experience to be better is where it will be. We obviously work very closely with Goodlord, and it's just a seamless process. From start to finish, you can find out where you are at any point in any journey, and I think that's going to come in more and more in terms of landlords finding out where they are with rents coming in and out, property management, tenants understanding where they are throughout a property management journey. Anything that helps with the customer experience, the phigital experience, will just be where 2021 is going to be headed.
Ellie: We're really embracing it. There is so much legislation out there anyway in the lettings industry alone that we should be regulated. Somebody should be able to use an agent and understand who they're using, what it is that they've got behind them, as in the agent, the support. We run a full compliance team here anyway. It just will be a case for us of just proving that we know what we know. To us, it will not be a huge change. We will just make sure that we are regulated, we have those qualifications, and we can prove that we already comply with everything that will be required anyway.
Jonathan: Any good agent, whether you're one branch or multibranch, will not fear or should not fear being regulated in some way, shape or form. Anyone that's good wants the bad people out, in which case that's going to help. But I think there should be a minimum level of standard and education just as a market practice. There are - I don't know how many it is - 200 regulations or something that could affect what we're doing. There's enough regulatory process out there. But it certainly doesn't scare us, and it shouldn't scare any decent agents out there.
This Q&A has been edited for clarity and length.
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