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Landlords see robust performance from arrears

Just 16% of landlords reported more tenant arrears cases in the past 12 months, with 11% of these only seeing a slight increase in the number of tenants in arrears. This rise has been driven by tenants in cheaper accommodation failing to meet lower rents. Across the UK, the average rent of those in arrears to £472 per month in July – 30% lower than the average monthly rent. One year ago, it was £492 owed per month, 75% of the average UK monthly rent.

As a result, the total amount of rent owed across the UK each month has actually dropped in the last year. In July, £213m of rent was unpaid, according to LSL’s latest Buy-to-Let Index – the lowest figure since the group began compiling the figures over two and a half years ago. This amounts to just 9% of all rent across the UK, down 2% from a year ago, the same as in June 2010 (11%).

David Brown, commercial director of LSL Property Services, said: “The hike in tenant arrears hasn’t materialised in the last 12 months as many feared. With the labour market remaining relatively strong, most tenant finances have been in better shape than expected – keeping the overall arrears across the UK down. But a minority of landlords have experienced an increase, driven by lower income tenants renting out cheaper accommodation. Those who suffered first from the recession were those in lower paid jobs, often the most disposable workers when employers look to cut. Even so, a changed tenant mix has improved the arrears picture for many landlords. Thousands of would-be first-timers are remaining in the private rental sector. These are generally more financially stable, and able to meet higher rents on time.”

The strong performance of arrears has also been helped by the change in practices of landlords.  A quarter of landlords (24%) say they have changed the way they handle arrears in the past 12 months and now move much more quickly to combat arrears.

This has contributed to the improved number of tenants in serious arrears. In July, just 2% of all UK tenants in the UK were late by two months or more with their monthly rent, according to data from the latest Buy-to-let Index. This is at its lowest since April 2009, and represents a drop from its peak of 2.5% in March 2009.

Brown continued: “The changing practice of landlords has helped trim down the number of tenants slipping into severe arrears. In a world where house prices aren’t rocketing up, landlords are no longer focussing on capital gains for their profit – they are more conscious of the value of rental income. Now landlords are reacting more quickly to any situation that may hamper their cashflow – before tenants fall into sever arrears.”

“In the short-term, we expect arrears to continue to perform well. With mortgage finance unlikely to loosen up in the foreseeable future, we predict thousands of financially robust frustrated buyers will continue to rely on rented accommodation. But when the full impact of government spending cuts are felt, the knock-on effect may well hit both high end, and low budget renters, causing arrears to return to the higher levels of two years ago.” 

The increased demand for rental property has limited the number of days landlords’ properties stay vacant for each year. 82% of all landlords witnessed less than four weeks worth of void periods last year – with 58% stating that their properties were empty for less than two weeks in total. Just 7% saw void period of more than ten weeks, a figure that includes landlords who were refurbishing their properties.

And landlords are positive about the next year. Nine in ten (88%) expects void periods to be lower than four weeks, with just 3% anticipating their properties will be vacant for ten weeks or longer. 

Brown concludes: “Void periods are a landlord’s worst nightmare. As their property remains tenantless, they must dig into slush funds and savings to pay their mortgages. But the good news is that voids are looking very respectable. At present, we are seeing a very high turnover rate of rental properties. It’s peak season, and in many locations – especially the desirable parts of London – tenants are snapping up properties within twenty four hours of them hitting the market.”

“Landlords have seen increasing tenant demand in the past year, and are confident that properties will spend less time unoccupied next year.  We forecast that voids to remain at their current low level for the foreseeable future. In the next two years, the constraints in mortgage finance  will continue to prop up demand for rental accommodation as buyers are unable to get on to the property ladder. For landlords, this is not just going to mean increasing rents, but will keep the time their property stands empty to a minimum.

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