Serious rent arrears up 4%

New data, tracking tenant arrears from estate agency chains Your Move and Reeds Rains, has found that progress for tenants significantly behind on rent has halted at the start of 2015.

Warren Lewis
20th May 2015
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As of Q1 2015 there are now 70,900 tenants facing more than two months of unpaid rent. This is 1,500 more households than in the previous quarter, when 69,400 tenants were over two months behind on rent, or a quarterly increase of 2.2%. Since the same point last year the number of tenancies in such a position has grown by 4.0%, with 2,700 additional households falling into this most serious category of late rent.

This setback represents a levelling off in the number of tenants in the most dire financial situation. Compared to the worst peak of serious rent arrears in Q3 2012, when 116,600 households faced more than two months in late rent, this has moderated significantly, to the tune of 45,700 fewer such cases in Q1 2015. However, progress has now been incremental or even backwards for over eighteen months – with Q4 2013 still the best calendar quarter on record, when just 63,500 struggled with serious rent arrears.

Despite a lack of progress since the end of 2013, the chance of a given tenant falling so far behind on rent is extremely low. As a proportion of all tenants, just 1.4% owed more than two months’ rent in Q1 2015, the same as in Q4 2014. This compares to 2.9% in Q1 2008 (twice the current proportion) even before the worst of the financial crisis and recession.

A setback for the most severe cases of rent arrears comes despite a more encouraging trend among those who fall more incrementally behind on payments. As of March 2015, 7.4% of rent is now in arrears of any length, down from 7.6% in February 2015 and down from 7.8% of all rent late a year before in March 2014. As with severe arrears, rent arrears of all lengths remain considerably lower than in previous years, since peaking at 14.6% in February 2010.

Adrian Gill, director of estate agents Your Move and Reeds Rains, comments: “Tenants are now far less likely to be out of work than at this point last year – a low-paid job is clearly better than no job at all, and this has had a massive effect on tenant finances as a whole.  But the easy progress from a lower unemployment rate may now have been made.

Earnings are a crunch point too.  Many tenants are still struggling to keep up with household expenses in the face of extremely modest wages.  There are some signs on the horizon this will improve, but in the meantime a small but significant minority of households are facing a real challenge to find the rent every month.

Other factors are at play too.  There are also more cases of severe arrears, in absolute terms, because there are more people renting their home overall. The chance of a given tenant failing to pay the rent within a couple of months is extremely low – and falling. The flipside to these figures are that more than 98% never get into serious arrears.”

Eviction rates pick up in response to arrears

In the latest data for Q1 2015, 28,900 tenants faced a court order for eviction, on a seasonally adjusted basis. This is up 2.3% since Q4 2014, while on an annual basis there has still been a fall in eviction orders, down 7.9% since Q1 2014.

Landlords’ mortgage arrears lowest since Q1 2008

In the ninth consecutive quarter of improvements, the number of buy-to-let mortgages over three months in arrears has fallen by 4.8% between Q3 and Q4 2014, to stand at just 11,900 cases at the end of 2014. This represents the lowest level of landlord mortgage arrears since the start of 2008. On an annual basis, the number of such distressed loans to landlords has fallen by 27.9% since standing at 16,500 in Q4 2013.

Adrian Gill concludes: “After the election result, many landlords will be grateful that certain policies are no longer an immediate threat.  In particular, the long-term effect of rent controls would have only been to raise rents by squeezing supply, diminish the quality of rented homes and make life for tenants worse. Whatever the rather different uncertainties of a Conservative majority, it now looks like Labour’s rent controls are completely off the cards.  A serious risk of disruption to landlords has evaporated overnight – and in the short term this will boost investment.

However, in the longer-term, tenant finances are the most effective limit on rents. Tenants must be able to afford their rent for any landlord to realise their financial plans on paper.  In this way landlords depend more on the prosperity of their tenants than on any particular policy or political environment.

Given demand for homes to let is still surging, and the financial position of most households is starting to improve, the big picture is increasingly optimistic for any landlord looking to grow their portfolio. The only caveat must be that there is still a very small chance that tenants will fall into financial difficulties. Landlords can’t discount that completely – and need to keep all lines of communication open and investigate any potential problems at an early stage.”

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