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.”
Exactly one month ago we published an article discussing how Halifax claimed that the UK housing market is improving, and that hopefully this would lead to the alleviation of the housing crisis in both the private rented sector and the buy-to-own sector. Critics were initially wary of Halifax’s findings, and even those that agreed with them said that they did not expect the improvement in the housing market to continue throughout 2013. However, it has been reported today that a new survey commissioned by Halifax has shown that the UK housing market is still going strong.
The survey revealed that in February house prices increased by 0.5 per cent, meaning that the price of houses in the UK are now 1.9 per cent more than at the same time last year. The average price of a house is now £163,600 and Halifax have claimed that property sales are on a “modest upward trend”. Martin Ellis, Halifax housing economist said: “This was the third successive increase in the measure of underlying trend. This increase in both house prices and activity in recent months is consistent with evidence of some improvement in market conditions. The more than half-a-million increase in the number of people in employment over the past year is likely to have been a factor supporting housing demand.”
However, much like last month, there are still those that do not believe that the housing market will continue to improve, such as Mark Harris, a mortgage broker from SPF Clients who said: “The housing market presents a confused picture. One the one hand, prices continue to rise on a monthly and quarterly basis, according to the Halifax, and on the other, lending fell in the final quarter of last year, according to the Bank of England. We need to see some easing of criteria in order to make mortgages more accessible. This is surely the next move from lenders, many of whom tell us they have had enough of a rate war.”
There have been many calls for banks to increase lending for property purposes recently, especially from buy-to-let landlords who want to expand their property portfolios and take advantage of the demand for private rented accommodation. Other industries are also looking to banks to start increasing lending, such as housebuiling industries, landlord insurance providers and the UK public who will all benefit from the creation of new properties across the country.
As reports of mortgage lending hitting a new low in August filter through, it appears that landlords are benefiting from the situation as void periods drop to the lowest for eight years.
A survey by the Association of Residential Letting Agents (ARLA) on its members revealed that void rental periods had dropped on average from 3.6 weeks to 3.2 over the last quarter. Further good news was that the decreases applied to every area of the country, with the Midlands showing the steepest fall with voids there dropping from 4.2 to 3.5 in the period concerned.
As usual London landlords seem to be faring very well with average void periods now down to 2.8 weeks, whereas landlords in Scotland and Wales have the highest void periods although this is still only 3.7. The drop is the fourth quarter in a row where voids have fallen and signifies just how strong the residential letting market is, which prompted Ian Potter, the Operations Manager at ARLA, to say “The rental market is incredibly strong at the moment for those working within the industry but for those consumers who are relying on the Private Rental Sector for housing, the cost of renting must be of concern. The new government must ensure that finance is made available to the sector, so that more properties can be brought into the PRS and ensure that more rental homes are made available.”
The fall in void periods to its lowest in eight years illustrates how fickle the market can be, for in the opening months of 2009 voids were at their highest. With this in mind landlords should always safeguard their portfolio as much as possible, and one way to do this is to look around for cheap landlord insurance
Yet another partly state owned bank has announced profits this week and landlords looking for a bank to provide funds for extending their property portfolio, could be well advised to try Lloyds.
Lloyds Banking Group today posted a half year underlying profit of £1.6 billion in a dramatic reversal of fortune. In the same period last year the bank lost over £3.9 billion. The bank which was rescued by the state and is still partly owned by UK, taxpayers reported good profits from its retail banking section achieved by acquiring bigger profit margins on its mortgage lending and lower loan impairment losses from its commercial banking section.
Surprisingly, the group reported that net lending to the business sector had not increased, despite politicians clamouring for the banks with a state stake holding to support small businesses by lending to them again. Eric Daniels, the Chief Executive of Lloyds, explained by saying “We are seeing very little demand out there … so it is not a question of us being mean and turning customers away.”
The insurance arm of the business was held back by a £70m charge related to its decision to stop offering the now controversial payment protection insurance policies that had been a profit maker for banks in the past.
With Lloyds insurance sector struggling and the retail arm looking to lend to business there would appear to be an opportunity for a residential landlord to arrange cheap landlord insurance at the same time as securing a loan to buy more properties.