In absolute terms, there are now 67,000 tenants in severe arrears, that is those more than two months behind on their rent, an increase of 2,000 since the third quarter of 2013, the latest Tenant Arrears Tracker by LSL Property Services shows.
There was also a quarterly setback in the proportion of tenants in serious arrears of more than two months. Those owing more than two months’ rent now represent 1.6% of all tenancies in England and Wales, up from 1.5% in the previous quarter. Despite this, the proportion of tenants in severe arrears has shown a dramatic improvement on an annual basis, down from 2.2% of cases in the fourth quarter of 2012.
A moderate setback in levels of the most severe arrears contrasts with wider improvements in tenant finances as a whole. According to LSL’s latest buy to let index, overall tenant arrears fell in November, with 6.6% of all rent late or unpaid. This compares with 7.1% of all rent in the previous month.
‘Economic prospects appear to have transformed since this point last year, with a pervading confidence taking hold. But households are still heavily indebted, and wages are only starting to very dimly reflect a brighter economic picture,’ said Paul Jardine, director and receiver at Templeton LPA.
‘After a year of dramatic changes, the closing stages of 2013 have been no less intense for anyone struggling with the monthly rent. For many people the festive period has provided a particularly difficult ending to a long and challenging year,’ he explained.
‘Household budgets will remain under intense pressure in 2014 as the situation for many tenants is not easy by any means. But even with the strains of Christmas and New Year, severe rental arrears are in a much better state than they were just six months ago. That could point towards fewer people facing eviction in months to come,’ he added.
The research also shows that annual improvements in severe tenant arrears are yet to feed into eviction rates. The number of tenants facing eviction through court order rose in the third quarter of 2013, with a total of 30,807 tenants facing eviction notices. This represents a quarterly increase of 11%, up from 27,784 in the second quarter of 2013.
Landlords have continued to benefit from overall improvements in the financial position of tenants, with landlords’ own mortgage arrears falling for the fourth quarter in a row, continuing a long term improvement. By the end of the third quarter the number of buy to let mortgages over three months in arrears stood at 17,500, down 1.1% since the first quarter. This brings the number of buy to let mortgages more than three months in arrears to the lowest level since 2008, after falling by 20.1% over the course of 2013.
‘Since the peak of the recession in 2009, landlords have been paying down mortgage arrears at a steady pace. Now that progress is gradually returning the market to normal, with levels of buy to let mortgage arrears back at 2008 levels. But further progress will require continued caution. Tenants are still gradually paying back late rent but are doing so against a financial background that is still getting tougher for most households,’ Jardine pointed out.
‘Compared to 2007 and before, there is still a long way to go. And there will be obstacles along the way. Certainly on a more individual scale there are likely to be setbacks. So landlords need to keep communicating with their tenants. No two tenancies are the same, and when difficulties do arise, having the best information to hand is vital to finding the best course of action for everyone involved,’ he added.
According to David Brown, commercial director of LSL Property Services, red hot returns from many buy to let investments are offering landlords a burning incentive to invest further. ‘Even as rents rise, the trend of the last five years indicates most tenants can increasingly afford to live in the private rented sector. Wages will probably start to pick up in 2014, allowing overall tenant arrears, of all levels, to keep falling,’ he said.
‘However, today’s biggest risk for the private rented sector is a small minority of tenants who are in a very different financial boat still struggling with several months’ of late rent. For these households, any signs of economic growth have been confined to the pages of the newspaper, and are yet to make wallets any fatter. This small proportion of private tenants is shrinking, but remains a serious concern for some landlords,’ he explained.
‘Ultimately, to keep supplying housing at a price that’s more affordable for everyone, we’ll need more homes to go round. That will require a revolution in the supply of new homes with tens of thousands custom built to rent each year. In the meantime, landlords need to know their tenants, and maintain an attention to detail when it comes to managing their properties,’ he concluded.
