The number of tenants in severe arrears has increased, reversing much of an improvement in the previous quarter, according to the latest Tenant Arrears Tracker by LSL Property Services, owners of Templeton LPA, the specialist practice of LPA Receivers.
In the first three months of 2013 the number of tenants more than two months behind on their rent rose by 4.8% on a quarterly basis. This overturns much of the improvement in severe arrears seen in the final quarter of last year, when the number of these most severe cases had fallen by 14.5%.
In absolute terms, the number of tenants in severe arrears rose by 4,000 to 94,000 in the first quarter. This leaves the quarterly figure the fourth highest on record, only 10% below the record set in the third quarter of 2012.
On an annual basis, the number of tenants in severe arrears remains down marginally, by 2.9%. However, the level of severe arrears over the last 12 months is now 20% above the long term average. Such tenants represent 2.3% of tenancies in England and Wales, up from 2.2% in the previous quarter.
The figures also reveal the extent of strained tenant finances which are reflected in an increase in evictions, with court orders up 5.7% in the fourth quarter of 2012.
In the final quarter of 2012, some 25,286 tenants faced eviction notices, which puts evictions at the highest level ever recorded in an individual quarter, and 10.2% higher than a year before.
While severe arrears cases have worsened, there was a wider improvement in tenant finance. According to LSL’s latest Buy to Let Index, overall tenant arrears fell in February, to levels not seen since November 2012, with 7.4% of all rent late or unpaid. This compares with 8.1% in the previous month, and 10.1% in December.
‘Household finances are feeling the impact of spiralling costs, particularly energy bills, which were recently predicted to grow by an average £214 this year. And wallets are under pressure from the other side. According to the ONS wages are creeping along at 1.2% annual growth, well behind a rebounding rate of inflation. Many tenants have finally pulled their finances back together after the strain of the festive period. But for a significant minority the situation is actually much worse than three months ago, and this is reflected in the most severe tenant arrears,’ said Paul Jardine, director and receiver at Templeton LPA.
He explained that as 2013 progresses the ability of tenants to pay their rent will depend on improvements in the labour market and wages in particular.‘The number of people out of work has actually risen a little recently, with the percentage defiant at 7.8%. Looking ahead, better pay will remain fundamentally dependent on the performance of the whole economy. But as the UK flirts with a triple dip recession, a vigorous rebound in average wages looks far from likely. Finances will remain strained for some people for many years to come,’ he added.
The dip in tenant arrears at the end of 2012 led to a fall in buy to let mortgage arrears. The number of buy to let mortgages over three months in arrears fell by 10% to 19,700 by the end of 2012, compared with a fall in the previous quarter of 0.9%. In the fourth quarter of 2012, on an annual basis, buy to let mortgages more than three months in arrears fell by 19.9%.
‘In the first few months of 2013, lower mortgage repayments have allowed landlords more room for flexibility. As hoped, Funding for Lending has proved instrumental in lowering mortgage rates, especially for landlords with the most equity. Lower rates have been instrumental in allowing buy to let mortgage arrears to fall back beneath the landmark 2008 figure. However, while the current environment allows landlords more time in any given month to wait for a payment, it doesn’t fundamentally change the ability of tenants to pay rent. The latest rise in eviction orders highlights the need for long-term solutions that work for both parties,’ explained Jardine.
‘Luckily, landlords are much better prepared for problems than they were before last year. Cases of severe arrears have persisted well above the longer term average for some time, forcing landlords to be flexible with tenants in difficulty, while being as aware of their own legal protection as ever before,’ he added.
According to David Brown, commercial director of LSL Property Service, as long as rents remain close to last year’s record highs there’s a strong incentive for landlords to invest in the private rented sector.
‘But credit is still extremely hard to find, despite the increasing importance of the private rented sector to the UK’s total housing supply. That’s why the government’s new Build to Rent scheme is such a good idea. It will lead to more investment and help landlords keep up with demand,’ he said.
‘But that will take time. Whatever the supply of new rental property, for the foreseeable future tenants will continue to feel the heat. Practically, that means landlords need to look carefully at potential tenants in order to minimise their own financial surprises,’ he added.
