Landlords are being warned that the number of tenants in ‘severe arrears’ is increasing. In the first quarter of this year, the number of tenants behind more than two months on their rent payments increased by a hefty 5%. According to figures by property receivers Templeton LPA, the number of tenants facing court-ordered eviction rose by 10% in the same period.
It’s obvious that this is bad news for both tenants and landlords. Being left without rent for even one month can push many landlords into arrears of their own with their mortgage company. New landlords and those with just one property are particularly vulnerable as they can’t cross-subsidise arrears in one property with profits from another.
The good news
There is some reason for cheer, though. The number of tenants in minor arrears has fallen, suggesting that tenants are getting better at managing their money in a time of restricted household budgets. Those who fall into more severe difficulties are likely to be those who are facing a much-reduced income because of redundancy or illness.
Surprisingly, despite the overall rise in arrears, the number of landlords in mortgage arrears actually seems to be falling: by an impressive 20% in the final quarter of 2012 according to LSL Property Services. This is thought to be partly because rents have risen, so landlords are better able to cover arrears when they happen. It is also partly as a result of the government’s Funding for Lending scheme. This has brought down mortgage costs and meant that landlords can absorb arrears more easily than they once did.
And a note of caution…
If you are a landlord, and you’re currently able to manage arrears without getting into them yourself, that’s great. But it won’t always be this way. Mortgage rates will rise at some point, rents may level out or even fall, the economy may struggle further and push more of your tenants into arrears. Don’t be complacent. Take steps to protect yourself against arrears. If you have tenants in arrears, try and deal with the problem before it becomes an expensive eviction process. And consider using specialist landlords insurance that includes arrears protection.