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Buy to Let
We have all heard recently about the unprecedented rental boom in the UK, but as a consequence of what created the boom, landlords now face a new threat as the number of tenants in severe arrears begins to grow rapidly.
UK rental demand has soared because for one reason or another first time buyers have been unable to buy, either through inability to afford to buy at current prices or inability to get a mortgage, and at the same time those who have had their homes repossessed have also added to the core rental demand.
While the number of people choosing to rent is also thought to have grown, most have been forced into renting. This combined with weak supply in many areas and the fact that UK law supports the tenant over the landlord, some renters have either chosen or been forced to move into a home that was barely in reach (or even outside) of what they could afford. So as rents continue to grow and wages continue to stagnate this is a problem that many have seen coming.
According to the latest release of data from Templeton LPA's (specialist LPA receivers) Arrears Tracker, the number of tenants in severe arrears grew 18% in 2011 compared to 2010. The report also shows that in the last quarter alone 11,400 more tenants were in severe arrears (more than 2 months) than in Q4 2010. However, the figures also show that just 9.3% of all rent was late or unpaid in November, and that those in severe arrears represent just 2.4% of UK private rental tenants.
‘The soaring cost of renting has created a two speed market. The overall tenant population has coped relatively well with rising rents and soaring living costs with total arrears actually down year on year in November. But a growing minority of renters are falling deeper and deeper into payment difficulties, and the number of severe arrears cases is rising,’ said Paul Jardine, director and receiver at Templeton LPA.
"While the wider tenant mix has changed since the mortgage market downturn with a greater number of financially sound yet frustrated first time buyers, a growing number of tenants are seeing their job prospects affected by the UK’s economic malaise," he added.
This is of course bad news for landlords, many of whom have recently been taking advantage of increasing buy to let mortgage availability to expand their portfolios. However, according to LPA increasing tenant arrears have yet to translate into mortgage arrears in the BTL sector. In fact, the number of buy to let mortgages in severe arrears of more than 3 months fell 7% between Q3 and Q4 taking the annual drop to 17%.
This could be because landlords are taking a stricter stance on arrears. According to LPA some 24,966 tenants were facing eviction because of arrears, an 11% growth compared to Q4 2011 and a growth of 5.4% compared to the previous quarter. This is hardly surprising giving the level of competition in the rental market; landlords feel they have a strong chance of replacing struggling tenants with financially sound ones, and possibly even charging higher rent to boot.
Another threat faced by landlords in the post Christmas period is the wild UK weather and its penchant for damaging properties. In mid-January the UK (especially Scotland) was ravaged by some of the worst storms in years. Chimneys crushed cars, power-cuts plunged thousands of homes into darkness, trees blocked roads, the police evacuated entire estates and the forth road bridge swayed like a drunken sailor.
This reminded us all about the possibility for structural and interior damage during the winter months, and this is something all landlords must be prepared for. On all rental properties landlords should ensure that all pipe work is properly lagged to avoid burst pipes. On old properties landlords should ensure that they have regular surveys done to check and repair any structural weaknesses.
In the words of Sarah Beeny, "all landlords should have special landlord insurance, and any landlords of old properties should ensure that they are properly covered against structural damage." Finally it is a good idea to sign up to a boiler and plumbing maintenance program, especially if you have multiple properties, or properties a considerable distance away.
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*This page is provided for information purposes only and should not be construed as offering advice. IPIN is not licensed to give financial advice and all information provided by IPIN regarding real estate should never be treated as specific advice or regulations. This is standard practice with property investment companies as the purchase of property as an investment is not regulated by the UK or other Financial Services Authorities.