Rocketing rents trigger surge in arrears

To the back end Q2 2011, 74,492 tenants in England and Wales were in severe arrears – a 13% increase compared to the same period in 2010 .

This also represents an increase of 4% compared to 71,483 in the previous quarter. Nevertheless, tenancies in severe arrears represent just 2.1% of all properties in the private rental sector in England and Wales.
             
The growth in tenant arrears has been mirrored by a rise in the number of tenants being evicted through court orders. In the last quarter, 24,170 tenants faced eviction notices – an increase of 9% on the 22,091 a year ago. But the change is not just annual. In Q1 2011, there were 5% more than in the last quarter of 2010.  

Paul Jardine, director and receiver at Templeton LPA comments:

“There’s no denying that tenant finances have been under mounting pressure in the last six months. Rents have risen consistently in the past year to a record high, and the cost of living is taking its toll. This is causing many tenants on lower incomes to fall further and further behind with monthly payments.

"But with demand so strong for rental properties, and  rental income providing the lion’s share of annual return at present, many landlords are becoming less lenient with arrears, and seeking court orders to remove non-paying tenants before they themselves fall into mortgage arrears.”   

The increase in tenant arrears and evictions has not yet fed through into buy-to-let mortgage arrears. In the last quarter, the number of buy-to-let mortgages more than three months in arrears actually dropped by 8% compared to the previous quarter.

Paul Jardine comments:

"However, at 29,400, there are still nearly three times as many buy-to-let mortgages in severe arrears compared with three years ago.  

“The increasing number of tenants struggling to meet the monthly rent has yet to filter through to landlords’ ability to pay the mortgage each month.

"In part, this is down to the change in mentality of landlords, who are acting earlier to identify and resolve payment issues or remove difficult tenants before mortgage payments are affected.

"But with rental incomes at record highs, many landlords have taken the sensible action of setting aside slush funds or buying rental guarantee insurance – which have born the brunt of any non-payment.

“The full impact of public sector spending cuts is yet to be felt, and rent rises are unlikely to slow in the immediate future. Tenant finances will continue to be placed under pressure, and it is crucial that landlords do not delay in contacting tenants to nip any potential payment problems in the bud as amicably as possible.

"Otherwise, buy-to-let mortgage arrears will begin to climb as the year progresses.”

Lee Daniels, Managing Director of Helpland Limited, comments:

"I am not surprised by the sharp increase in tenants’ rent arrears. At Helpland Ltd we have taken on more cases and served more notices month on month, especially in the last quarter.

"Tenants finances have been under increasing pressure due to consistently rising rents coupled with several redundancies and public sector cutbacks not to mention the record high cost of living. This looks like it is finally taking its toll.

"Tenants who are either on low income or benefits are struggling to meet their monthly payments and when they fall behind and the arrears start to mount, they do not have the means to catch up.”

Lee Daniels said that landlords are becoming increasingly less lenient of rent arrears in the wake of strong demand for rental property and with the majority of landlords annual return coming from their rental income.

He said:

"We have also seen a dramatic increase in the speed at which landlords are acting on tenants with rent arrears. It was not unusual for landlords to wait 2-3 months before contacting us. We are now constantly being contacted by landlords whose tenants are only 1 month behind seeking advice and wanting to serve notice.

"It is crucial that landlords continue to act quickly as we predict that rent arrears will continue to rise and with the eviction process taking months, landlords are urged to act as soon as possible to minimise their loss."