94,000 tenants in severe rental arrears

In absolute terms, the number of tenants in severe arrears rose by 4,000 to 94,000 in the first quarter. This leaves the quarterly figure the fourth highest on record, only 10% below the record set in Q3 2012.
 
On an annual basis, the number of tenants in severe arrears remains down marginally, by 2.9%. However, the level of severe arrears over the last twelve months is now 20% above the long-term average. Such tenants represent 2.3% of tenancies in England and Wales, up from 2.2% in the previous quarter.
 
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 February, to levels not seen since November 2012, with 7.4% of all rent late or unpaid. This compares with 8.1% in the previous month, and 10.1% in December.
 
Paul Jardine, director and receiver at Templeton LPA, comments: “Household finances are feeling the impact of spiraling costs, particularly energy bills, which were recently predicted to grow by an average £214 this year.  And wallets are under pressure from the other side.  According to the ONS wages are creeping along at 1.2% annual growth, well behind a rebounding rate of inflation.  Many tenants have finally pulled their finances back together after the strain of the festive period.  But for a significant minority the situation is actually much worse than three months ago, and this is reflected in the most severe tenant arrears.
 
“As 2013 progresses, the ability of tenants to pay their rent will depend on improvements in the labour market and wages in particular.  And the number of people out of work has actually risen a little recently, with the percentage defiant at 7.8%.  Looking ahead, better pay will remain fundamentally dependent on the performance of the whole economy.  But as the UK flirts with a triple dip recession, a vigorous rebound in average wages looks far from likely.  Finances will remain strained for some people for many years to come.”
 
The number of tenants facing eviction through court order also reflects renewed difficulties for tenants’ finances. In the final quarter of 2012, 25,286 tenants faced eviction notices, a quarterly rise of 5.7%. This puts evictions at the highest level ever recorded in an individual quarter, and 10.2% higher than a year before.
 
The dip in tenant arrears at the end of 2012 has lead to a fall in buy-to-let mortgage arrears. The number of buy-to-let mortgages over three months in arrears fell by 10% to 19,700 by the end of 2012, compared with a fall in the previous quarter of 0.9%. In Q4, on an annual basis, buy-to-let mortgages more than three months in arrears fell by 19.9%.
 
Paul Jardine continues: “In the first few months of 2013, lower mortgage repayments have allowed landlords more room for flexibility.  As hoped, Funding for Lending has proved instrumental in lowering mortgage rates, especially for landlords with the most equity.  Lower rates have been instrumental in allowing buy-to-let mortgage arrears to fall back beneath the landmark 2008 figure.  However, while the current environment allows landlords more time in any given month to wait for a payment, it doesn’t fundamentally change the ability of tenants to pay rent.  The latest rise in eviction orders highlights the need for long-term solutions that work for both parties.
 
“Luckily, landlords are much better prepared for problems than they were before last year.  Cases of severe arrears have persisted well above the longer-term average for some time, forcing landlords to be flexible with tenants in difficulty, while being as aware of their own legal protection as ever before.”
 
David Brown, commercial director of LSL Property Services, commented: “As long as rents remain close to last year’s record highs there’s a strong incentive for landlords to invest in the private rented sector.  But credit is still extremely hard to find, despite the increasing importance of the private rented sector to the UK’s total housing supply. That’s why the government’s new “Build to Rent” scheme is such a good idea.  It will lead to more investment and help landlords keep up with demand.  But that will take time – whatever the supply of new rental property, for the foreseeable future tenants will continue to feel the heat.  Practically, that means landlords need to look carefully at potential tenants in order to minimise their own financial surprises.”

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