Rent arrears on buy-to-let properties are now improving after peaking in January, according to figures released today by London lettings agent ludlowthompson.com.
In January 4.5 percent of payments from the company’s managed tenants were at least a day late but that figure has since fallen by almost a third to just 3.15 percent in June.
Director Stephen Ludlow points out that the 3.15 percent of payments in arrears as of 30 June is higher than the 2.05 percent recorded at the same time last year.
He said: “When you consider unemployment figures have risen by over half a million in the last year across the UK, a rise in the number of tenant rent arrears is not altogether surprising.
“What is good to see though is that given the surge we saw in January, arrears have actually started to drop away again, and have now stabilised. We are optimistic that the panic period does now appear to be over.”
According to ludlowthompson.com the ‘state of panic’ within the economy following the collapse of Lehman Brothers last year might have contributed to the surge of late payments in January.
Ludlow said: “Around December and January all the talk was of rocketing unemployment and depression gripping the country for the foreseeable future.
“Banks weren’t lending, jobs were under threat, and even though people knew they had to scale down their Christmas plans, they still had a cash flow hangover in the New Year.”
However he believes that the blow of late rent payments for landlords has been cushioned by the recent decrease in mortgage rates.
Ludlow explained: “As interest rates have brought down tracker buy to let rates with them, the holes defaulting tenants are leaving in their landlords’ finances are not as big as they were a year ago.”
And there are other factors that are also lessening the impact on landlords.
Ludlow added: “Most of our tenancies involve two or three tenants but it is usually just one tenant per property in arrears, which means the landlord’s mortgage is more likely to be covered.
“It is also worth remembering that a considerable proportion of London’s labour market are temporary workers or contractors. Whilst cash flow issues can arise from this, when the tenant faces unemployment between contracts we find that the majority of our rent arrears are in fact no more than a few days late.”
However Ludlow cautioned that while arrears figures do appear to be levelling out, the rental market is still potentially volatile for landlords.
He said: “Unfortunately, unemployment looks set to continue rising, which means landlords and tenants both need to make sure they safeguard their finances wherever possible.
“Buy to let landlords need to obtain solid credit references from their tenants, as well as employment references. They should also make sure rent payments are done by standing order, as cancellation of this is a sure sign that the tenant is in financial difficulty. They can even take out a warranty that covers tenant rent default.
“From the tenant’s point of view the best thing they can do is be open and honest with their landlord, whatever the severity of their arrears.”
