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Households facing serious rent arrears fall by a third

From Property Talk Live on April 7, 2014

Tenants struggling with late rent have made significant progress in the last twelve months, according to the latest Tenant Arrears Tracker from LPA receivers Templeton LPA.

As of the first quarter of 2014, the number of tenants in severe arrears – those more than two months behind on their rent – stands at 68,000, down from 105,000 in the same period last year. Representing a 35% annual improvement, this comes despite an 11.1% seasonal increase in cases of severe arrears between Q4 2013 and Q1 2014.

As a proportion of all tenants, this number in serious arrears of more than two months has also improved. Those owing more than two months’ rent now represent 1.4% of all tenancies in the UK, down from 2.3% of all tenancies one year ago and flat on 1.4% in the previous quarter, Q4 2013.

A moderate setback in levels of the most severe arrears tallies with wider improvements in tenant finances as a whole. According to LSL’s latest Buy-to-Let Index, overall tenant arrears have fallen since December to stand at the second lowest level on record, with only 6.9% of all rent late or unpaid as of February. This compares with 7.4% of all rent in the previous month and 9.7% in December.

Paul Jardine, director and receiver at Templeton LPA, comments: “Personal finances are finally defrosting across the UK, with many people experiencing the first real financial spring for half a decade. Tens of thousands of households are looking forward to a slightly more comfortable year in 2014, without the lurking anticipation of serious rental arrears.

“It’s true there remains a long way to go. Certainly, for any particular tenant still facing serious hardship, this won’t yet feel like an improvement. And the seasonal difficulties of the festive period and New Year have taken their usual toll. But a clear positive trend is emerging. With three successive quarters showing a sharp annual improvement in the number of such cases, the chance of tenants falling so far behind is receding. Slowly but surely a brighter economic picture is breaking through the gloom and is starting to make a real difference to purse strings across the country.”

Improvements in the level of severe tenant arrears are consistent with slightly lower eviction rates. According to the most recent data, the number of tenants facing eviction through court order fell in the final quarter of 2013, with a total of 30,324 tenants facing eviction notices. This represents a quarterly fall of 3.4%, down from 31,380 in Q3 2013.

Landlords have continued to benefit from a buoyant mortgage market and improvements in the financial position of tenants, with landlords’ own mortgage arrears falling for the fifth quarter in a row and standing at the lowest level since Q2 2008. By the end of 2013 the number of buy-to-let mortgages over three months in arrears stood at 16,500, down 4.6% since Q3 2013. This leaves buy-to-let mortgage arrears down 16.2% on an annual basis.

Paul Jardine continues: “Tenant finances have seen a serious change of direction in the last twelve months. Previously, tenants absorbed a huge shock to personal budgets by mostly scrimping and saving. But now we’re starting to see real progress driven by what may become a significant pick up in wages.

“When it comes to landlord finances, comparisons with late 2008 are fast becoming less relevant, since we’re starting to see levels of mortgage arrears nearer to pre-crisis levels. The new benchmark for buy to let mortgage arrears is the 2007 level, and we’re not that far-off. Caution is still advisable, and landlords must maintain regular communication with tenants. Yet the next twelve months could be a real turning point.”

David Brown, commercial director of LSL Property Services, comments: “The most significant concern for most landlords is a small minority of tenants facing serious financial pressure. Knowing your tenants as best as possible and staying in touch is a good way of managing what is generally a low risk from such cases. But as the number of households falling into these circumstances drops, any potential exposure for landlords is falling too.

“Not only is this great news for tenants and landlords, but such an improvement will ripple out to the wider economy. The incentive for investment in the private rented sector is already growing on the back of solid rental yields and gathering capital accumulation – but now lower risk is proving to be the cherry on top for potential investors.”

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Source: Property Talk Live