Rise in severe rental arrears give private residential landlords a tough time

The number of private sector tenants in England and Wales with severe rental arrears has increased by 3.3% on a quarterly basis despite wider improvements in tenant finance, according to the latest research.

The Tenant Arrears Tracker by LSLProperty Services also shows that those more than two months behind on rent has reached 98,000, the third highest level on record, with only the second and third quarters of 2012 seeing any worse.

And strained tenant finances are reflected in evictions as court orders have risen by 5% in the first three months of the year.
While still a small minority, the proportion of tenants with serious arrears has continued to increase. Those in serious arrears now represent 2.4% of all tenancies in England and Wales, up from 2.3% in the previous quarter.

On an annual basis, the number of tenants in severe arrears has shown a slight improvement, falling in absolute terms by 2.9%. However this leaves severe arrears over the last 12 months 20% above the long term average.

While severe arrears cases have worsened, there was a wider improvement in tenant finance. According to LSL’s latest Buy to Let Index, overall tenant arrears fell in May, with 8.2% of all rent late or unpaid. This compares with 8.4% in the previous month.
‘Tenants as a whole have already shown great resilience to set-backs, and we expect the proportion of all rent in arrears to halve between 2008 and 2018. But a troubled minority is feeling the pinch most sharply,’ said Paul Jardine, director and receiver at Templeton LPA.

‘Slower rent rises in the last couple of months have provided some relief. However, the longer term battle is with other forms of inflation, plus unemployment and anaemic wage growth. Consumer inflation is persistently outpacing the Bank of England’s target, and escalating much faster than either rents or wages,’ he explained.

He pointed out that if the economic outlook improves then the financial position of these struggling tenants could start to improve later in the year. Whether the recession included a single, double or triple dip makes very little difference as there are a growing block of tenants who can’t keep their heads above the rising tide of inflation and weak wage growth. Until the rising cost of living begins to subside, the number of tenants in severe arrears is likely to mushroom even further,’ he added.

Reflecting a growing minority of tenants experiencing serious financial strain, the number facing eviction through court order has also grown.  In the first quarter of 2013, some 28,473 tenants faced eviction notices, a quarterly rise of 4.9%. This puts evictions at the highest level ever recorded, beating the previous record set only in the last quarter. Evictions in the first three months of the year were 9.4% higher than the same period last year.

Continued falls in overall tenant arrears contributed to a further improvement in landlords’ finances. By the end of quarter one the number of buy to let mortgages over three months in arrears fell to 17,900, falling 9.1% from the fourth quarter of 2012. On an annual basis, buy to let mortgages more than three months in arrears fell by 24.8%.

‘Most tenants are paying down their debts. However, landlords are absorbing a stream of severe arrears from a minority of troubled tenants. Given that this situation has been mounting for some time, more landlords know the process and the most constructive approach to take,’ said Jardine.

‘Frequent and honest communication between everyone is essential. That matters all the time, but if any issues arise then everyone should understand all their options as early as possible,’ he added.

David Brown, commercial director of LSL Property Services, said that investment in this sector is paramount, and the government’s latest billions in loan guarantees are a welcome addition. ‘However, the effect of these programmes will probably be minimal. What’s more important is the improved availability of buy to let mortgage finance, which has reached the same proportion of mortgage lending as in 2007. If improvements in the availability of finance can be sustained and keep growing, then landlords will be able to keep investing in new homes to let,’ he explained.

‘In addition to better access to finance, falling void times and lower total arrears are further incentives to expand the supply of rented homes. But if landlords are unprepared, a case of severe rental arrears can undo these advantages in a stroke. Only very rarely will tenant arrears cause landlords such problems, but the situation needs attention from tenants, landlords and their agents at every stage of the process,’ he added.

Article courtesy of Property Wire

RentPro property management software for letting agents and landlords , helping you to keep track of arrears.

You may also like...