Protecting landlords from ‘fastest-growing debt problem’

Just one missed rent payment by a tenant can cause serious difficulties for 4 in 10 landlords who are letting their properties on slim margins, according to a recent survey by the National Landlords Association.

Given that rent arrears are reportedly becoming the fastest-growing debt problem in the UK, this is troubling news.

The Money Advice Trust says that its telephone helpline received nearly 20,000 calls from people behind with their rent during the first 9 months of 2013; a 37% increase compared with the same period of 2011.

So, what can landlords do to minimise the risk of their investment suffering as a result of their tenant falling behind with their rent?

According to Leaders, which reports exceptionally low levels of rent arrears among its landlords compared with the wider industry, the answer is simple.

Leaders’ managing director, Paul Weller, says:

“Just 1.1% of our managed tenancies are in arrears compared with an industry figure of 6.6% of all rent late or unpaid in November 2013*. We put this down to two key factors: careful vetting of prospective tenants before allowing them to enter into a tenancy and proactive management throughout the tenancy.”

The firm’s rigorous vetting procedure includes a detailed interview and assessment of the tenant’s ability to afford the rent, full credit and ID checks, proof of residency and references from employers, former landlords and banks. Stringent checks are also carried out on guarantors should they be required.

The approach is clearly effective. In January 2014, just 312 tenancies of more than 27,500 managed by Leaders were in arrears by 30 days or more.

“Given the level of rent arrears in the wider industry and the fact that arrears tend to peak in January as a result of tenants overstretching their budgets during the Christmas period, this figure is impressively low,” said Mr Weller.

“Especially when you take into account that rents have risen over the last 12 months.   “The most common reason among our tenants for getting into arrears is an unforeseen change in circumstances such as losing their job or splitting up with a partner,” says Mr Weller.

“No amount of tenant vetting can prevent such events occurring, but managing the situation carefully can minimise the landlord’s losses. We know from experience that being proactive and communicating with tenants who are having difficulty paying their rent on time means most rent arrears cases can be satisfactorily resolved without the need for the landlord to go to court.”

For some landlords, rent arrears can mean they are unable to pay their mortgage or other essential living costs. Even those with a financial cushion will find their investment in jeopardy if they experience ongoing loss of rent. For those wanting to negate the risk entirely, paying extra for a rental warranty is an option.

However, Leaders warn that not all warranties are the same and landlords must read the small print carefully to ensure they are getting the level of cover they need.   Leaders reports that rents across the areas it covers rose by 1.8% over the last year, the average rent now standing at £825, however there are significant regional variations. For example, in East Anglia the average rent is £686 whilst in Surrey, SE London and Kent the average rent is £1004 having risen 2.2% over the last 12 months.

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