Due to the housing crisis, the economic climate and the introduction of the welfare reforms, many buy-to-let landlords are concerned that their tenants will soon start to struggle financially and end up falling into rent arrears. Banks across the country are also concerned by the expected increase in tenants falling into rent arrears, as if they do so it is likely that landlords will start defaulting on mortgage repayments, which is leading to banks becoming more discerning when it comes to lending new mortgages.
To make things worse, a recent report by LSL Property Tracker called the Tenant Arrears Tracker has shown that in the first quarter of 2013 rent arrears increased by from just 4,000 to a massive 94,000. This means that 2.3 per cent of all tenants in the UK are now in rent arrears, which has led to a huge increase in evictions with 25,286 tenants being given notice in the final quarter of 2012 alone. Paul Jardine, director at property receivers at Templeton LPA, which is a part of LSL said: “Household finances are feeling the impact of spiralling costs, particularly energy bills, which were recently predicted to grow by an average of £214 this year. And wallets are under pressure from the other side.”
“According to the ONS [Office of National Statistics] wages are creeping along at 1.2 per cent 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.” It would be wise for buy-to-let landlords who are concerned over their tenants falling into rent arrears to invest in a landlord insurance policy with rent guarantee, however Mr Jardine also pointed out that banks are trying to help landlords that are struggling.
He said: “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. 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.”