Rental Arrears due to Financial Crisis
Despite the fast growth of rents and long lists of reliable tenants, news for UK landlords is not all that shiny. LSL Property Services’ autumn figures on rental arrears show that nearly 100,000 tenants throughout England and Wales are in arrears by more than two months. This is the highest this figure has been since the heart of the financial crisis in 2008.
Much of the problem stems from wildly increasing rents in a population struggling to recover from severe economic recession. Wages and the supply of jobs simply are not keeping up with the cost of housing, especially in London where rents have increased steadily year-on-year. Some forecasts predict a 24% increase by 2017.
These numbers have serious consequences for landlords. First, landlords must think soundly about end-of-lease rent increases on current tenants. Increasing market prices are only good if you can find tenants that can afford them, and who are responsibly caring for your property. The cost of repossessing your property can be high – especially if you make even a small error in the paperwork and procedures. Even if you do everything right, will the tenants have the funds to pay?
It’s important for any landlord to have a repossession plan in place, along with the right people to get it done right. The repossession process is neither quick nor easy; once a tenant is behind by more than two months, you can count on another month or two until the tenant is out and the property is back in your possession to let again.
Never underestimate the value of a good tenant over a rent increase. Knowing that you have a tenant in your property that can 1) afford to pay on time every month, and 2) keep your property in good repair is an asset in itself. If you’ve had a long-term tenant with an excellent rental history, it may be in your best interest to approach the tenant with a manageable repayment plan as opposed to repossession.