Arrears are set to rise in the buy-to-let market, as more landlords face having to deal with tenants who cannot keep up their rent payments.
According to research by Templeton LPA, a specialist practice of LPA Receivers, the number of court orders to evict tenants is up by 11%.
In the last quarter, 24,966 tenants faced eviction notices – an increase of 11% on 22,558 a year ago.The number of tenants in severe financial difficulty has also shot up in the last three months, says the firm.
During the last quarter of 2011, there were nearly 11,400 more tenants over two months in arrears than in the same period of 2010 – a rise of 18%.At the end Q4 2011, nationally there were 78,970 tenants in England and Wales in severe arrears.
Paul Jardine, director and receiver at Templeton LPA, said: “A growing minority of renters are falling deeper and deeper into payment difficulties, and the number of severe arrears cases is rising.“While the wider tenant mix has changed since the mortgage market downturn – with a greater number of financially sound yet frustrated first-time buyers – a growing number of tenants are seeing their job prospects affected by the UK’s economic malaise.
” He said buy-to-let mortgage arrears have not yet felt the impact of growing severe tenant arrears and evictions, but this would change this year.In the last quarter of 2011, the number of buy-to-let mortgages more than three months in arrears fell by 7% compared to the previous quarter, representing an annual decline of 17%.
However, at 26,300, there are still more than five times as many buy-to-let mortgages in severe arrears compared with Q3 2006.
Jardine said: “The growing level of severe tenant arrears has yet to filter through into mortgage payment problems for landlords.“Mortgage rates have kept monthly payments low, but there has also been a change in landlords’ behaviour. With capital gains falling by the wayside in the past six months, rental income has become the most important component in an investor’s annual return – but it also pays a landlord’s mortgage cheque.
“As a result, many landlords are being less lenient with tenants facing initial payment problems, and are looking to use court orders to replace tenants quickly in expectation of finding a financially sound substitute – and potentially an increased rent.“Nevertheless, we expect that mortgage arrears will climb this year.
“We anticipate that both overall arrears and severe arrears will rise, and this will feed into increased tenant evictions and hamper a growing number of landlords’ ability to meet their monthly mortgage costs.”
David Sansome, Managing Director of Sansome & George said: “It is of no surprise that at a time of economic challenge with rising unemployment that the number of tenants struggling to pay rent will increase with potential knock on effects for landlords.
Geographically, the issue is perhaps less in London and the South East although rising rents are taking a larger proportion of tenant’s incomes.
We have been advising landlords for some time to be vigilant in their choice of tenants and to protect their rents with rent guarantee insurance.
Whilst there is no 100% safe way to ensure a tenant’s ability to pay, a straightforward and disciplined approach to setting up a tenancy can help mitigate the possibilities of any issues arising. Our experienced lettings team will be pleased to advise.”
