Arrears soar 8.7% as rents outpace house prices

Arrears soar 8.7% as rents outpace house prices

Private rents grew faster than house prices last month for the first time in nearly two years and hit a new record high, according to a recent report.

The increasingly less affordable rents have seen the proportion on people in arrears soaring in June by 8.7%, from 7.6% of all rents in May, and 7.8% compared with a year ago.

Investors and buy-to-let landlords are also facing potentially higher interest rates on what City of London traders have dubbed ‘Super Thursday’ this week. At least two, perhaps three, of the nine members of the Bank of England’s interest rate-setting committee are expected to cast their votes for a rate rise. The first rise in the Bank Rate could be just months away.

Peter Armistead, Director of Armistead Property, comments: “The combination of rising rent arrears and an increase in interest rates could have a massive impact on buy-to-let income.  While rents are rising at a fast pace across the country, interest rate rises could quickly erode rental yields.

Landlords and investors need to be prepared for the worst case scenario. Those that have experience in the private rental market will be able to ‘weather the storm’ that is brewing.  But new investors and landlords may face repossession if that are unable to supplement a loss in income.

Buy-to-let is very profitable in the long term, but only if landlords and investors do their sums properly and structure their investment wisely. A property investment is similar to running a business, so you need a business plan, cash-flow forecast, finance and funding. Therefore it’s sensible to budget for all the costs you’re likely to encounter during the life of your investment. The maintenance costs for a new or recently refurbished property are likely to be minimal at first.

To stay in the black, landlords need to put aside 30-35% of one year’s gross annual rental income to cover rent arrears, void periods, maintenance, repairs and refurbishment, white and brown goods replacement and the ongoing rental costs, such as gas safety certificates and letting agent fees.”

Armistead Property has put together a starting list of some of the costs to be considered when owning a buy-to-let property, which should be catered for from rental income and an appropriate contingency fund:

• EPC certificate
• Gas safety certificate
• Letting agents fees
• TDS scheme fees
• AST fees
• Landlords insurance
• Void allowance
• Council tax
• Ground rent
• Service charge
• Buildings insurance
• Utility bills
• White goods
• Furnishings
• Repairs

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Latest Comments

Tony Gimple
Tony Gimple 09 Dec 2017

Linking professionalism to limited company borrowing is a flawed concept. Despite S24 etc., limited companies are the most tax inefficient way of running a property business and leave borrowers seriously...

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Evelyn Attwood
Evelyn Attwood 01 Dec 2017

It's normal. If you plan to buy a house in one of the most beautiful spots in the country you should pay a high price.

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Evelyn Attwood
Evelyn Attwood 01 Dec 2017

I think that the situation will be the same at December.

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Scott Garnet
Scott Garnet 06 Nov 2017

If you have a patio or a porch it is important to make sure that any connecting doors are secured. Good advice for sliding glass doors is replacing the panels with storm resistant glass and getting heavier...

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richardrawlings 01 Nov 2017

What has not been mentioned here is the effect of not only higher interest payments, but also that these payments are less likely to be offsettable as a business cost due to the scaling back of mortgage...

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Kelvin Lloyd
Kelvin Lloyd 09 Oct 2017

IT is up, to the Planners. If they will only give permission for bungalows on certain (suitable) sites, they will be built.

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maggie swift
maggie swift 09 Oct 2017

It's just the beginning of the shocking rise.

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maggie swift
maggie swift 09 Oct 2017

I have recently read that the bungalows can provide social housing for elderly residents in London.

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zoe glover
zoe glover 05 Oct 2017

Update! Worst company I have ever dealt with. Undervalued a Cambridge property by over 100k, wont take on any evidence of valuation including a RICS valuation done 3 years ago for the very same value...

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Paul Edwards
Paul Edwards 27 Sep 2017

Its nonsense articles such as this that make it harder to get clients to realise just how difficult the market is out there. When you see Rightmove and there are more 'price reduced' then 'new' most days...

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Tom Allen
Tom Allen 20 Sep 2017

Absolutely agree with you!

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RyanGeo 18 Sep 2017

A sharp correction would be a less dramatic expression to use. That is already underway in certain sectors in Reading where I practice as Chartered Surveyor

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