The Debt Respite Scheme, which sets out to support people struggling with debts, could have financial implications on your property portfolio. What is Breathing Space, what can you do if you have tenants under the scheme, and what must you be aware of?
What is Breathing Space?
The Government Debt Respite Scheme, or Breathing Space, allows those struggling with debt the right to legal protection from creditors. The Government introduced the scheme during the pandemic to support households struggling with financial difficulty, and with the current cost-of-living crisis, it’s still an essential safety net.
How does Breathing Space work?
Breathing Space supports those struggling with personal debt.
Qualifying debts include:
- Rent, mortgage, Council tax and utility bill arrears
- Personal and payday loans
- Overdrafts
- Credit and store cards
- Government tax and benefit debts
The scheme freezes most interest charges and suspends payment demands and any legal action whilst a tenant receives free debt advice. The scheme will delay or stop any evictions from rental properties, instead focusing on helping those tenants keep their homes.
Approved debt advice providers authorised by the Financial Conduct Authority (FCA) and local authorities providing debt advice to residents can grant tenants ‘Breathing Space’. To qualify, those applying for the scheme must work and engage proactively with a debt advisor during the Breathing Space period.
How long does the Breathing Space last?
There are two different types of breathing space. Depending on which type your tenant enters into will impact how long the scheme lasts.
- Standard breathing space: Anyone with problem debt could be eligible for this scheme, lasting for a maximum of 60 days. During this time, most interest and charges on any debts are frozen, as well as contact from creditors and enforcement action paused.
- Mental health crisis breathing space: This is only available to anyone receiving mental health crisis treatment and works similarly to the standard scheme with some added protections. The scheme will last up until 30 days after their mental health treatment ends, regardless of how long this treatment lasts.
What does Breathing Space mean for landlords?
As a landlord, you cannot give notice or evict a tenant for rent arrears once they have entered their breathing space, including Section 8 notices.
Landlords cannot apply for a warrant or money judgement, or contact the tenant to request payment of the debt during this period.
However, it’s important to note that the breathing space does not cover secured debts. This means you, as the landlord, are still liable to pay your mortgage payments for the property in question. Tenants are encouraged to continue paying rent, if they can.
There are other restrictions in place for landlords under this scheme. For full information, visit the government website.
How can landlords protect their properties?
Should you find yourself in this unfortunate situation, it's essential that you speak with your mortgage lender. They may be able to help you come to an arrangement with your mortgage payments whilst the breathing space is in place.
It’s also important to remember that breathing space is not a payment holiday, and your tenant will still accrue rent arrears if they stop paying rent. They will be expected to pay any accrued debts in full once the scheme ends.
As a landlord, there are some steps you can take to secure your investments:
- Look into different Rent Protection Insurances. There are plenty available on the market, and these could help you ensure you receive your money on time if your tenant doesn’t pay their rent. In some cases, your policy may even pay out if the tenant pays late.
- Wait to see what happens. If the tenant has a mental health breathing space, it’s often the case that they or their carer may ask to cease the tenancy if treatment is to last more than 60 days. As such, you will then be able to find a new, reliable tenant to help you with payments.
As a landlord, you want your tenants to be safe and secure in the homes you provide. Allowing them this ‘Breathing Space’ could be a useful tool in supporting your otherwise perfectly reliable tenant through their financial struggles. You may even be able to arrange a suitable plan to sort out their arrears.
Speak to a mortgage expert
If you are seeking new property finance to boost your investment portfolio, get in touch with our brokers. Their knowledge and expertise within the buy to let sector will help you to make informed property investment decisions to support your next venture. Speak to our brokers by submitting an enquiry, or by calling us on 0345 345 6788.
