Tenants Not Paying Rent? You're Not Alone
If you’re feeling the financial effects of your tenants being squeezed, and having to chase up rent payments, you’re not alone. The latest research published by the Association of Residential Letting Agents (ARLA) revealed that in the last few months of 2010, a staggering 40 per cent of member landlords said that the numbers of tenants struggling to pay their rent in the past six months.
The figures have increased over the last 18 months, and it looks as if redundancies, pay cuts, inflation and additional expenses all seem to be having a detrimental effect on tenants incomes at the same time, which obviously has a knock-on effect on their landlords.
The figures also revealed an increase in the number of tenants who tried to negotiate the amount of rent they paid to their landlords, which goes to highlight the financial pressures many people looking to rent a property are in.
Ian Potter, Operations Manager at ARLA said that at the beginning of 2010 the organisation had predicted an increase in rent payment problems, and pointed out that tenants not being able to afford their rents had a serious effect throughout the entire private rental sector – many landlords rely on tenant’s income to pay the mortgages on the properties they rent, so when a tenant isn’t able to pay the rent, at worst it could lead to a property being repossessed.
ARLA recommends that while the current situation is so difficult and unpredictable, landlords should look out for themselves using insurance policies that are designed to cover the cost of unpaid rent, as well as making sure that financial checks and references are followed up every time. If a landlord decides to use a letting agent, they need to also make sure the agent is a member of a trade association like ARLA which will ensure all money, deposits and rent are protected by the relevant money protection schemes.
Tenants Need to do Their Research TooAlthough ARLA is a trade body for residential letting agencies, they extend sound advice to potential tenants as well as their landlords. Their advice to anyone looking for a property to rent is to research thoroughly before signing up to any rental agreement with a new landlord.
Even if renting a property through a letting agent, it still pays to make sure they are a member of a trade body which puts safeguards in place to protect tenants money through a client money protection scheme.
Rent Arrears Are a RealityA recent Buy to Let Index compiled by LSL Property Services indicated that 11.7 per cent of the total UK rent was either unpaid or late by the end of December 2010, a rise from 9.7 per cent in November. This means that the total amount of rent arrears was around £276 million, the highest since December 2009.
David Newnes of LSL said that with unemployment set to increase and the probability of rents having to rise, it was likely that more tenants would begin to fall behind with rent payments.
LSL, who own property companies Your Move and Reeds said that rents had risen already and that on average rents are 3.8 per cent that this time last year, despite a slight drop in December 2010.
Financial FiguresDavid Newnes predicted hard times ahead for landlords, saying that if property prices carried on dropping at the same rate they had done in recent years, any buy to let investor joining the market could expect to make only around £3,259 per rental property - which was equivalent to gaining £8,211 in rent, and taking into account capital losses of £4,953.
If you’re stuck with a tenant who isn’t even paying the rent, that financial future looks even less appealing.