Increasing number of tenants struggling with rent payments

The number of tenants in severe rental arrears has defied wider improvements in tenant finance, according to the latest Tenant Arrears Tracker by LSL Property Services.

In Q2 2013, the number of tenants in severe arrears – those more than two months behind on their rent – rose by 3.3% on a quarterly basis. This is despite wider progress in the financial position of other tenants.

In absolute terms, the number of tenants in severe arrears rose by 3000 to 98,000 in the second quarter.

This brings the figure to the third highest level on record, with only the second and third quarters of 2012 seeing any worse.

While still a small minority, the proportion of such tenants has also 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 twelve 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.

Paul Jardine, director and receiver at Templeton LPA, said: “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. 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 anemic wage growth.

“Consumer inflation is persistently outpacing the Bank of England’s target, and escalating much faster than either rents or wages.

“If 2013 isn’t another false economic dawn then the financial position of these struggling tenants could start to improve later in the year. But tenants in severe arrears will be among those squinting the hardest to glimpse the light at the end of the tunnel. Whether the recession included a single, double or triple dip makes very little difference – 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.”

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, 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 Q1 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 Q1 the number of buy-to-let mortgages over three months in arrears fell to 17,900, falling 9.1% from Q4 2012. On an annual basis, buy-to-let mortgages more than three months in arrears fell by almost one quarter (-24.8%).

Jardine said: “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.

“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.”

David Brown, commercial director of LSL Property Services, said: “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.

“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.”

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