Date Published 05 July 2012
The number of private tenants in severe arrears climbed by 7,000 (8%) in the second quarter of this year, putting pressure on landlords’ finances.
The number of court orders to evict tenants was 6% up on the previous quarter.
The figures come from Templeton LPA, the specialist practice of LPA Receivers and part of the LSL Property Services Group.
Templeton says that in the second quarter, 100,400 tenants in England and Wales were in severe arrears – an increase of 24% compared to a year ago. This is the highest number on Templeton’s records, which go back four years.
The increase also represented a proportional rise. In the second quarter of 2012, tenancies in severe arrears represented 2.6% of all tenancies in the private rented sector in England and Wales – an increase from 2.4% in the previous quarter.
Paul Jardine, director and receiver at Templeton LPA, said: `As the private rented sector grows, the number of tenants in dire financial straits is steadily climbing.
`Falling wages in real terms have been compounded by rising rents, pushing a greater number of rented households over the edge financially. With the instability in the labour market and wider economy, and public sector cuts still to come, the section of renters in multiple months of arrears is likely to continue its expansion.`
Although Jardine said that the number of severe arrears cases (tenants with arrears of more than two months) continues to climb, the general level of tenant arrears across the entire market has improved, with 8.9% of all rent in the private rented sector late or unpaid by the end of May, a decrease from 9.9% at the end of April.
Jardine said: `The wider rental market currently includes a much higher proportion of financially comfortable tenants who would have been buyers before the initial credit crunch, reining in general arrears across the market as a whole.
`However, this will be no comfort to the growing minority of tenants several months behind with their monthly rent cheques. As mortgage finance remains difficult to secure, the contrast between better-off frustrated buyers stuck in rented accommodation and renters in severe arrears will grow starker yet, and the number of tenant evictions is likely to increase.`
The increased number of tenants in severe arrears has driven a rise in the number of tenants being evicted through court orders. In the first quarter of the year, 26,060 tenants faced eviction notices – 6% more than in the previous quarter, and 5% more than in the same period of 2011.
The growing number of severe tenant arrears cases and evictions has yet to filter through into increasing buy-to-let mortgage arrears.
In Q1 2012, the number of buy-to-let mortgages more than three months in arrears fell by 4% compared to the previous quarter, representing an annual decline of 19%.
However, at 23,700, there are still almost double as many buy-to-let mortgages in severe arrears than four years ago.
Jardine said: `The rising level of severe tenant arrears has yet to filter through into buy-to-let arrears. In fact, buy-to-let mortgage arrears have been steadily falling since the Bank of England reduced interest rates in 2009.
`Landlords have been enjoying historically low mortgage payments, which has cushioned the blow of late rent payments, and many have met the lower mortgage costs with money set aside from slush funds, or rental guarantee schemes. However by necessity an increased number of landlords have had to resort to court orders to remove tenants in long-term arrears, and this has increased.
`While landlords’ mortgage arrears are unlikely to rocket up until the interest rates are hiked, rising tenant arrears and an unsteady labour market will provide upwards pressure.`
David Brown, commercial director of LSL Property Services, said: `The average landlord hasn’t seen anywhere near the level of capital gains they did a couple of years ago, and the onus is firmly on rental income as the main driver for annual returns.
`In this environment, late or non payment of rent is even more of an issue for investors, and it’s not uncommon to see landlords be flexible on the rent at the outset of a tenancy to secure renter with the strongest evidence of sound finances and affordability.`
Kay Boycott, director of campaigns, policy and communications at Shelter, said: `This is yet more evidence of the crushing impact that rising rents and stagnating wages are having on family finances. Shelter research found that average private rents are now unaffordable for working families in over half of England, with many paying up to half of their income each month.`
David Whittaker, managing director of specialist BTL lender Mortgages For Business, said: `Arrears are a serious issue for landlords, and so anyone investing in the private rental sector must balance the size of yield with the likelihood of arrears.
"Ensuring you invest in areas where tenants are less likely to fall behind in their payments may mean sacrificing a percentage point on the monthly returns, but it could be the difference between receiving a full 12 months of rent and not.`