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Posted by Let Alliance on April 4, 2012
A growing minority of renters face severe arrears, report Templeton LPA.
The number of tenants in severe financial difficulty climbed by 10.2% in the first quarter of 2012, with nearly 8,800 more tenants over two months in arrears than in the last quarter of 2011, according to the latest Tenant Arrears Tracker by Templeton LPA, the specialist practice of LPA Receivers, part of the LSL Property Services plc Group.
In Q1 2012, an average of 94,400 tenants in England and Wales were in severe arrears – an increase of one fifth compared to the same period in 2011. At the current rate of growth, the number of renters facing arrears greater than two months will climb above 100,000 in the next quarter.
Paul Jardine, director and receiver at Templeton LPA comments:
“While the general tenant population has absorbed the rising cost of renting in the last two years, a minority of tenants are facing severe financial difficulties –a minority that is growing. These tenants have been pushed into deeper and deeper arrears by a combination of rising living costs, high rents and a weak labour market, and are now months behind with the rent cheque.
“In turn, these severe rental arrears figures have been inflated by the ongoing impact of county court closures. The closures have prolonged arrears cases, with landlords less able to gain court dates to quickly remove non-paying tenants. This is creating a backlog of tenants in extreme arrears, increasing the amount of rental income lost for landlords or their appointed receivers of rent.”
“Despite the recent surge in severe arrears cases, overall tenant arrears have performed remarkably well given the challenging economic environment. In fact, as we often see at this point in the year, more financially robust households are now paying down post-Christmas debt and putting their finances in order, which is helping to reduce the overall level of tenant arrears.”
The annual growth in tenant arrears has been matched by a yearly rise in the number of tenants being evicted through court orders. In the last quarter, 24,702 tenants faced eviction notices – an increase of 9% on the 22,634 in Q4 2010, albeit 4% fewer than in the third quarter of 2011.
However, buy-to-let mortgage arrears have not yet surged as a result of growing number of severe tenant arrears cases. In the last quarter, the number of buy-to-let mortgages more than three months in arrears fell by 5% compared to the previous quarter, representing an annual decline of 22%. However, at 24,900, there are still more than three times as many buy-to-let mortgages in severe arrears than in Q4 2007.
David Brown, commercial director of LSL Property Services comments:
“Non-payment of rent is a landlord’s worst nightmare. A tenant in severe arrears means not only that an investor doesn’t receive the rental income needed to pay the mortgage – but they are unable to fill the property as they would with a void period, because the property is already occupied.
“As a result, in the current economic climate, there is an even greater need to rigorously scrutinise a prospective tenant’s financial circumstances at the start of any tenancy. In many cases, landlords are willing to negotiate on the rent to accept the tenant with the best financial credentials.”