Severe rental arrears hit two year low

Sam Cordon

October 4, 2013

In quarter three tenants who were behind on their rent by more than two months fell by 25%. There are now 23,000 fewer tenants in severe arrears than in the second quarter bringing the total to 69,000 representing the lowest level since quarter three 2011.

Paul Jardine, director and receiver at Templeton LPA, said: “This is an important landmark. Tenants in these most severe situations could face eviction whereas the majority of arrears cases are resolved much more easily.

“There’s a qualitative difference which makes this particular improvement so important. Such a dramatic fall in the number of people potentially losing their homes is not just an excellent signal for the private rented sector but for the entire UK economy.”

Those in serious arrears now represent 1.7% of all tenancies in England and Wales down from 2.4% in the previous quarter.

On an annual basis the number of tenants in severe arrears has shown an even more dramatic improvement falling by 34% since quarter three 2012.

Fewer cases of severe arrears come alongside a wider improvement in tenant finances. According to LSL’s latest buy-to-let index overall tenant arrears also fell in August with 7.8% of all rent late or unpaid .

This compares with 8.2% of all rent in the previous month.

Jardine said: “Over recent years a small minority of tenants was being squeezed ever harder by harsh economic reality. But now it seems that worrying trend is going into reverse.

“There isn’t yet any dramatic sign that the cost of living is improving but we might be on the turning point of a serious and sustained economic recovery.

“Hopefully that means inflation can be brought back under target and economic growth can accelerate in a way that creates jobs.

“If that happens and wages, jobs, and lower inflation come together in the right way this rapid improvement for tenants could be sustained.”

The number of tenants facing eviction through court order has also fallen. Consistent with lower rates of severe financial strain in the second quarter of 2013, 26,759 tenants faced eviction notices.

This represents a quarterly fall of almost 10% down compared to the first quarter by 9.7%.

The improvement takes the number of eviction notices to the lowest level for a year though evictions in quarter two remain 9.4% higher than in the same quarter of 2012.

Landlords have benefitted from improvements in tenant finances with landlords’ own mortgage arrears continuing a long-term downwards trend.

By the end of quarter two the number of buy-to-let mortgages over three months in arrears fell to 17,700, down 1.1% since the first quarter to the lowest level in five years.

On an annual basis the number of buy-to-let mortgages more than three months in arrears has dropped by 18.4%.

Jardine said: “Tenants really felt the squeeze of the recession and despite absorbing a great deal of that pressure landlords have consistently paid down mortgage arrears over recent years.

“This quarter’s dramatic improvement in tenants’ finances has allowed that to continue.

“But most critical to continued progress will be attention to each individual case. In some ways the financial crisis has changed the industry for the better.

“Landlords and tenants are now more aware of the importance of raising issues at the earliest possible stage. Better communication is one reason the private rented sector is more resilient now, and more flexible.”

David Brown, commercial director of LSL Property Services, said: “Investment in the private rented sector is accelerating. That’s helping to keep supply growing of homes to let.

“And in turn better supply is the only real way to keep rental inflation under control. Over the last quarter rents have consistently risen more slowly than shop prices, and wages and rents are now growing at a similar annual rate. Recently that seems to have really helped tenants under financial pressure. But ultimately many more homes will be needed for them to keep going round at an affordable rate.”

Brown said government assistance such as the latest loan guarantees for developers or the £1bn Build to Rent scheme were helpful.

But he said while these are “beacons for further investment” they will most likely prove insignificant compared to the progress via normal lenders.

And he added: “Buy-to-let mortgage lending looks on track to reach £20bn this year and that’s what’s really driving an expansion in the rental stock. Importantly a resurgence of house price growth is enticing even more investors to buy-to-let and rental developments.

“So the reawakening of the purchase market is having some benefits for tenants too. And the results for landlords of better-off tenants speak for themselves.”

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