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Reasons why landlords are increasingly falling into arrears

According to a recent study by UK Finance, the number of landlords who are seriously behind with their mortgage payments has jumped by 20%.

There were 1,200 buy-to-let mortgages in "significant arrears" in the last quarter of 2017, a fifth higher than in the same quarter in 2016.

Significant arrears means they owe more than 10% of the outstanding balance.

There were 5,100 buy-to-let mortgages in less serious arrears of 2.5%. This was a 2% rise on 2016, UK Finance said.

There could be a number of potential reasons for this rise in landlord arrears.

1. The roll out of Universal Credit

It is claimed that 3 out of 4 tenants on UC are behind on their rental payments. UC means that the rental portion of an individuals benefits are paid direct to the individual, not the landlord.

On occasion, tenants in receipt of UC are in vulnerable situations such as domestic abuse, or suffering addiction problems, and the statistics suggest that the money intended to pay the rent is not finding its way to the landlord, but being diverted to cover some aspects of the tenant’s life style.

The number of claimants using Universal Credit (UC) in the UK is set to double this year, with more than seven million people - both in and out of work - expected to be registered by 2022.

Sky News recently obtained figures from the National Housing Federation (NHF) which show 73% of housing association tenants on Universal Credit are in rent arrears, compared to 29% of those not on UC.

Of those who are renting to people on the new benefit, a recent RLA/PEARL survey of landlords found nearly a third had needed to evict a Universal Credit claimant in the last 12 months, and in 77% of those cases, this was a result of rent arrears, up from 64% last year.

When a UC tenant goes into arrears, the landlord has to apply to the DWP for what is known as “direct payment”, and this can take some time to organise. The landlord may struggle financially while this is being arranged.

2. The time it takes to evict a tenant

According to the BBC, the average time it takes to evict a tenant is 10 months. This means a landlord could have to fund the mortgage without any rental payment for a significant period.

Additionally, legal costs to evict a tenant can range from a few hundred pounds to a few thousand pounds, depending on the nature of the case and if it goes right through to eviction by bailiffs.

Ex-social worker and professional landlord of 30 years, Leslie-Ann Franklin, is facing having to sell the rental property she lives next door to in March, Cambridgeshire, after a complex case involving an extreme hoarder has left her in financial ruin.

TV programme ‘Bad Tenants Rogue Landlords’ ( aired 3rd May on Channel 5), told how Leslie feels the authorities and legal system let both her and her tenant down, and now she is fighting for a judicial review of her case to avoid paying £25,000 in legal fees, on top of the £30,000 she has already spent.

According to the latest survey by MakeUrMove lettings agency, a quarter of landlords have also faced large bills when tenants have left properties in a state of damage and disrepair. Many have had to pay thousands to restore their property after a tenant has moved out, with one landlord surveyed left with £16,000 of damage.

Of particular note is that landlords say damage caused by tenants far outstrips the sum of the deposit usually taken at the start of the tenancy and held in the government-backed Deposit Protection Scheme.

3. Tenants’ lack of financial resources

Research undertaken last year suggests that many tenants have no financial resources, should they lose their jobs, or be unable to work through such issues as accident, illness, or suffering a personal crisis.

A poll of tenants by Scottish Widows found 30% of private renters admitted they would not be financially secure if their household lost its main income, but just 16% had life cover in place and only 3% had critical illness protection.

Another 35% conceded that if they or their partner were unable to work for six months or longer due to ill health or personal injury, they’d be unable to live on a single income.

Additionally, as rents are increasing, tenants are spending more of their salary on their rental payment, meaning that they have less disposable income or money to save for a “rainy” day.

4. Tenant affordability

Recent data from Lloyds Bank suggests that the ratio between average city house prices and average gross local earnings is at its worst level since 2008, means that a lot of tenants – particularly those renting in city centres – might be just about managing to pay their rent each month.

5. Increasing cost of compliance

Landlord margins are being squeezed by the ever-increasing cost of compliance. As more and more landlord licensing schemes are rolled out across the UK, landlords are finding that one licence can cost from £250.00 to £750.00.

Then there are gas safety certificates, EPCs, insurance, repairs, maintenance, etc … the list goes on. All the time margins are reduced, landlords become more vulnerable to voids and arrears.

6. Tax changes

With the staged roll out of Section 24, landlords profit margins will be reduced. Some landlords may even find they are paying tax on a loss!

As Section 24 starts to take hold, many landlords will find operating margins are unsustainable.

They may not have sufficient funds to repair and maintain their properties, and that means increasing voids.

Conclusion:

As legislation increasingly swings in favour of tenants, the small or amateur landlord may find themselves out of their depth and struggling.

The only solution may be to sell up, and for landlords in crisis, we are the ideal solution.

We are genuine cash buyers who will buy any property, in any condition, in England and Wales.

We will consider tenanted properties, even if the tenant is in rental arrears!

If you are a landlord who is experiencing financial difficulty, our advice is not to bury your head in the sand. Debt issues tend to spiral out of control quickly. The sooner you recognise the problem and seek professional advice and/or take decisive action, the more options there will be open to you and the less harsh the remedy.

Our professional buying property service was set up especially to buy landlord properties, so no hassle, no viewings, no voids, no serving notice on your tenants, no long conveyancing period.

We can buy for cash and you can have money in the bank on the day of your choosing.

If your rental property is set to be repossessed, we can work with your lender to pay off any arrears and halt the repossession, then buy your property, so that you can move on.

Imagine the relief of knowing that you do not need to worry about paying your BTL mortgage any more, chasing the rent every month, and/or dealing with difficult tenants or facing the anxiety and negative consequences of having a property repossessed.

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