A whitepaper published by due diligence and guarantee firm Homeppl, ‘Are you prepared for an increase in tenancy fraud?’ has warned that due to a combination of various factors, landlords should be on high alert for a rise in tenancy fraud.
The paper looked at a combination of job losses among renters, the softening of eviction regulations, and low consequences for fraudulent rental applications, and said that this was combining to create a difficult environment for landlords.
According to the National Residential Landlords Association (NRLA), 11% of renters are currently unemployed – double the UK unemployment rate of 4.8% – and as many as 840,000 private renters in England have built up arrears since the pandemic started in March 2020.
More than half (56%) of landlords have therefore lost rental income as a result of the pandemic, and 2.2% with buy-to-let (BTL) mortgages were found to be in arrears, compared with 0.3% of homeowners, with the number in serious arrears up 8% on last year, according to UK Finance Arrears and Possessions 2021 data.
According to Homeppl’s own data, there was a 71% increase in the number of fraudulent applications between the second half of 2020 and the first half of 2021, which it found meant that one in 50 rental applications were fraudulent, rising to one in 20 in London.
Benham & Reeves recently calculated that legal costs and lost rent mean each fraudulent tenant costs more than £30,000 – whereas the tenant is at very little risk.
Alexander Siedes, CEO and founder of Homeppl, said: “The consequences for landlords of inadvertently approving a fraudulent application are dire – up to £30,000 in lost income and legal costs and fines of up to £3,000 for renting to a tenant with no legal right to rent in the UK – but for the tenant, there is little risk.
“In a worst-case scenario, scammers will lose their holding deposit, but there is little to de-incentivise them from making further fraudulent applications.
“When you add to that the softening of eviction regulation which means landlords have less power to evict fraudulent tenants, increasingly, scammers are renting properties with the intention of illegally subletting them to make easy money, at a huge cost and risk to the landlord.”
He added: “It has therefore never been more important for agents to ensure they have access to the latest verification technology, fraud detection tests, behavioural analysis, and financial algorithms, as well as Open Banking data, so they can ensure they can accurately and safely facilitate tenant referencing to approve legitimate tenants and avoid losing thousands from fraudulent activity.”