The number of tenants in arrears of more than two months fell by 15.6% in the final months of 2012, according to new figures released by Templeton LPA. These figures buck the trend of the previous four quarters, in which severe arrears increased by an average of 10.8% per quarter.
In the fourth quarter of 2012, the number of tenants in severe arrears (more than two months) fell by 16,000 to 86,000. It is now at its lowest level since the final quarter of 2011. Tenants in severe arrears now represent 2.2% of all tenancies in England and Wales, down from 2.5% in the preceding quarter.
As well as severe arrears cases being on the decline, there is evidence to suggest that the wider state of tenant finances is becoming less gloomy. LSL’s latest Buy-To-Let Index found that overall tenant arrears went down in November, with 7.4% of all rent late or unpaid. This represents a fall of 0.7% on the previous month.
Paul Jardine, director and receiver at Templeton LPA, commented, “Tenants’ finances have suffered a gruelling combination of rising living costs and rental inflation throughout much of 2012.
“With many budgets balanced on a knife edge, a slight reprieve from rapid rent rises towards the end of the year has been very significant. But the recent strength of the labour market has played the biggest role in halting the upwards climb in the number of tenants in severe financial difficulty.
“Unemployment has fallen dramatically to 7.8%, and with 44,000 more full-time jobs in the three months to November, fewer households have faced seeing their monthly income halted and their ability to meet the monthly rent cheque hampered. If the UK’s economy can avoid falling into a triple dip recession in 2013, a further improvement in employment levels will go some way towards preventing arrears cases from rocketing up.
“The Funding for Lending scheme is bringing historically low mortgage rates down further, and this should continue into 2013, which will leave landlords increasing room for manoeuvre when cash-flow problems do emerge. In turn, this is likely to place downwards pressure on buy-to-let arrears over the medium-term, in the absence of a major downturn in the labour market.”
Data from Move With Us shows that it has been a strong year for buy-to-let investors, with advertised rental prices increasing by an average of 1.9%. The Move With Us index found that the average rent in Great Britain increased by £37 per month culminating in a 12-month high of £976 pcm at the close of October 2012. This was followed by a slight fall in the final quarter.
Throughout Britain in 2012, rental yields remained at 5%, the majority of regions returning an average yield of 4%. While returns remained stable, both house prices and rents increased at similar levels, indicating that buy-to-let properties were a good investment in 2012. Landlords responded to these positive market trends, with applications for buy-to-let mortgages increasing by 8%.
Advertised rental prices in London experienced growth slightly ahead of the UK average, increasing by 3% in 2012. Rents jumped most significantly in April as property owners tried to make the most of the Olympics. The local rental markets exploded with short-term lets, charging up to £3,000 per week. These markets returned to sanity when the Olympics ended in August.
The North-East experienced the largest change in rental rates; advertised prices increased by more than 13% in October and November alone. Investors are being attracted to the area by its lower house prices and stable yields.
Yorkshire and the Humber is another region that experienced a large increase in advertised rents (7%) compared with other regions in the third quarter of 2012. However, it remains one of the cheapest places to rent in the UK, with advertised rents averaging at just under £600 per month.
Robin King, director of Move With Us, said, “Stable yields and rising rent values throughout the year have increased revenue in most regions. Investors are increasingly holding properties for longer periods with tenants staying for longer, house price gains, more debt repayment and improving absolute returns. These conditions look set to continue in the medium term making selective investment in rental property attractive.
“Overall, advertised rental prices in 2013 are projected to continue to increase at a similar rate to 2012.
“However, they are likely to remain below Q3 2012 levels until April of next year. Yields are expected to remain at 2012 levels, as rental prices will consistently react to changes in average property prices.
“This, combined with rent increases in the majority of areas, could increase the revenue generated by rental properties. The current cyclical trend suggests that the average advertised rental price will remain below £1,000 next year and is likely to peak at around £990 in 2013.”
David Brown, commercial director of LSL Property Services, concluded, “More investment in the private rented sector is needed. Thankfully strong tenant demand and yields are tempting more people to invest in the sector and existing landlords to expand their portfolios. But investors should place financial suitability of any prospective tenant high up their agenda when letting a property.
Cutting corners at the point of vetting a tenant is a false economy, and can prove costly. It is far easier to take action to prevent arrears in the first place, than to resolve them after they have occurred.”