5 Oct

Growth In Severe Tenant Arrears Slows To 1.6%

Posted 5/10/2012 by: Reeds Rains

The Tenant Arrears Tracker for the third quarter of 2012 from LSL Property Services and Templeton LPA has been released today, providing a measure of tenants who are in arrears.

  • Quarterly growth in severe tenant arrears slows to 1.6%
  • 99,000 tenants in severe arrears
  • Number of court orders to evict tenants down 6% on last quarter
  • Fall in buy-to-let mortgage arrears accelerates, down 7%

The rapid growth in the number of tenants in severe arrears is slowing, according to the latest Tenant Arrears Tracker by Templeton LPA, the specialist practice of LPA Receivers and part of the LSL Property Services plc Group.

In Q3 2012, the number of tenants in arrears of more than two months grew by 1.6% on a quarterly basis. This represents a slower rate of increase than the 4.6% quarterly rise seen in Q2 2012 .

Despite slower growth, the number of tenants in severe arrears is now 99,000, the highest number on Templeton LPA’s records, which extend back to 2008.  Following the steady quarterly rise, the level of severe arrears is 15% higher than the average for the previous 12 months.

Tenants in Severe Arrears

A particularly strong performance from tenants’ finances in Q3 2011 has contributed to an annual growth of 45% in the number of tenants in severe arrears, rather than a sudden deterioration in Q3 2012. In fact, tenants in severe arrears represent 2.5% of tenancies in England and Wales, the same proportion as in the previous quarter.

Although severe arrears cases (tenants with arrears of more than two months) steadily climbed last quarter, overall tenant arrears fell slightly in August, with 9% of all rent late or unpaid, the first improvement in this measure in three months.

Paul Jardine, director and receiver at Templeton LPA, comments: “Rising rents have kept the pressure on tenants’ finances, but it is tenants with the lowest incomes that are feeling the pinch the hardest. While the majority of tenants have shown a slight improvement in their ability to cope with the bigger rent cheques, the minority of renters who are months behind with rental payments is still expanding.

“Nevertheless, it’s encouraging news for landlords that the rate of growth is slowing. The labour market has held up well recently, and if it strengthens further, it may well keep a lid on the number of tenants unable to pay the rent in the short-term.”

Despite the steady growth in severe tenant arrears so far this year, there was a slight reduction in the number of tenants who faced eviction through court order on a quarterly basis. In the second quarter of 2012, 25,422 tenants faced eviction notices, a quarterly fall of 6% compared to the previous quarter, reversing the previous 6% quarterly increase. However, evictions remain 8% higher on an annual basis.

The number of buy-to-let mortgages over three months in arrears fell by 7% to 22,000 by the end of the second quarter of 2012, compared with a previous quarterly fall of 4%. On an annual basis, cases of buy-to-let mortgages more than three months in arrears fell by 21%.

Paul Jardine continues: “With significant capital gains unlikely in most regions, the onus is currently on rental income to provide the lion’s share of an investor’s annual return, not to mention pay the mortgage each month. In this context, many landlords have been acting earlier to resolve payment problems before severe arrears cases result in eviction processes or mortgage arrears. Record low interest rates have also been pivotal for keeping a lid on mortgage arrears. Rock bottom mortgage payments are giving investors the financial breathing room to absorb short-term financial shocks, and allow tenants to get finances in order before an eviction becomes the only option. However, there are still further austerity measures to come. If these result in job losses, we are likely to see an increased level of tenant arrears spill over into a greater number of evictions and mortgage arrears cases.”

David Brown, commercial director of LSL Property Services, commented: “Arrears management and prevention is a crucial consideration for any sensible property investment strategy. Landlords need to have a plan in place for identifying and tackling tenant payment problems early, or face the prospect of a property that is neither providing an income, nor able to be quickly filled. With this in mind, landlords should balance getting the best possible rental income from their property with making sure rental payments are affordable for prospective tenants in the long-term.”