Rent arrears in the Private Rented Sector is a growing problem. It is affecting not just those on low income but also tenants with previously good and well managed financial backgrounds. Issues that can cause a tenant to go into arrears are wide ranging including:
- their employer reducing their hours/pay
- being made redundant
- separation
- running up debts on credit cards
- employer not have money for payroll
- short term cash borrowing from loan sharks
- uncontrolled over spending on lifestyle expenses
There is nothing a landlord can do to prevent any of the above list from happening and little you can do to find out before it is too late. What is important is establishing a framework for discussion as soon as any rent arrears occurs.
Landlords who self manage their properties should make contact with their tenants immediately there are any arrears and offer to call in and talk to them about the circumstances. Thankfully the majority of tenants are very responsible and most often an agreement can be reached whereby arrears can be cleared over a few months. If you use a letting agent they should be checking rental payments daily. A professional agent will contact the tenant immediately arrears are spotted.
If the tenants ignore you or are just plainly unhelpful it maybe the matter is already a lot deeper and an arrears payment plan will not enter into discussion. In these situations it is highly likely you will need to issue a claim for possession. Tenants who vacate before a bailiff warrant is issued are unlikely to get any help with housing from the council or a housing association. So be prepared for a long wait before you get vacant possession of the property; could easily be between 4 to 7 months.
There are lots of tenant default insurance schemes covering non payment of rent and the legal expenses incurred gaining possession with widely differing costs and levels of cover for both self managed and agent managed tenancies.Typical possession action for a rent default claim is 7 months loss of rent and around £1,000 in legal expenses. Can landlords really afford not to insure in this uncertain market place?
Letting to someone in receipt of benefits need not necessarily be a higher risk than to someone employed. Benefits are no guarantee the rent will be paid and at times they are fraught with challenges. A UK based guarantor to the tenant may enable you to secure a tenant default policy.
Self managed landlords or new to the market landlords who are considering appointing a letting agent should consider using an ARLA Licensed agent (Association of Residential Lettings Agents). Would you buy a holiday from a travel agent who is not a member of ABTA or IATA? Why would you instruct a letting agent who is not regulated?
Using an ARLA Licensed letting agent will protect you. It is a requirement for an ARLA Licensed agent to be a member of the Property Ombudsman. ARLA is the only membership body that requires a comprehensive audit of its members accounts and financial procedures.
This article was prepared and written by Terry Lucking owner of Belvoir Lettings Agency Peterborough and Cambridge. Terry offers free advice and free property visits to all investors who are considering buying retal property.
