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More Tenants found to be in severe arrears in second quarter

July 18, 2012 | Landlord News  

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Despite the huge growth in the buy-to-let property market in recent years, it’s not all sunshine and rainbows for buy-to-let landlords. A landlord’s financial gain is limited by their tenant’s financial stability, and as new data from the latest arrears tracker by Templeton LPA shows, things are looking as wet and miserable as our summer weather.

In the first quarter of this year, as discussed in a previous article, the arrears tracker by Templeton LPA, the specialist practice of LPA Receivers and part of the LSL Property Services plc Group, found that an estimated 94,000 tenants in England and Wales were in severe arrears (two months or more), which was in itself a significant rise. In the second quarter of this year, the number of tenants in severe arrears is an estimated 100,700, an increase of just over 7% from Q1, now 24% higher than this time last year, and the highest Templeton LPA has recorded since their records began in 2008.

However, in the last quarter, the number of buy-to-let mortgages more than three months in arrears fell by 4% from the previous quarter, resulting in total decline of 19% compared to the same time the previous year. But, looking at the bigger picture, with 23,700 in severe buy-to-let mortgage arrears, despite the impressive fall, this number is still nearly double that of four years ago.

The rise in tenants in severe arrears represented a proportional rise across the private rented sector in England and Wales, rising from 2.4% of all tenancies in the first quarter of 2012. to 2.6% in the second quarter.

Paul Jardine, director and receiver at Templeton LPA, said, “As the private rented sector grows, the number of tenants in dire financial straits is steadily climbing. Falling wages in real terms have been compounded by rising rents, pushing a greater number of rented households over the edge financially.

“With the instability in the labour market and wider economy, and public sector cuts still to come, the section of renters in multiple months of arrears is likely to continue its expansion.

“Although the number severe arrears cases (tenants with arrears of more than two months) continue to climb, the general level of tenant arrears across the entire market have improved, with 8.9 percent of all rent in the private rented sector late or unpaid by the end of May, a decrease from 9.9 percent at the end of April.

“The wider rental market currently includes a much higher proportion of financially comfortable tenants who would have been buyers before the initial credit crunch, reining in general arrears across the market as a whole.

“However, this will be no comfort to the growing minority of tenants several months behind with their monthly rent cheque. As mortgage finance remains difficult to secure, the contrast between better-off frustrated buyers stuck in rented accommodation and renters in severe arrears will grow starker yet, and the number of tenant evictions is likely to increase.”

Correspondingly, the number of tenants being evicted through court orders has also risen; 26,060 tenants faced eviction notices in the last quarter. This is 6% more than in the previous quarter, and 5% higher than the same period of the previous year.

Historically low mortgage payments have helped to lessen the damage to landlords caused by late rent payments, but this problem of tenants in severe tenant arrears could yet be a thorn in the side for a long time to come.

David Brown, commercial director of LSL Property Services said, “The average landlord hasn’t seen anywhere near the level of capital gains they did a couple of years ago, and the onus is firmly on rental income as the main driver for annual returns.

“In this environment, late or non-payment of rent is even more of an issue for investors, and it’s not uncommon to see landlords be flexible on the rent at the outset of a tenancy to secure renter with the strongest evidence of sound finances and affordability.”

In other news, the London Borough of Hammersmith and Fulham has been whacked with a hefty fine of nearly £100,000 by the Health and Safety Executive (HSE) for neglecting to carry out annual gas safety checks on properties used to house its tenants.

The council has apologised for failing the 21 privately leased properties that had no gas safety certificates, in contravention of the law.

By law, landlords are required to arrange annual checks by a Gas Safety registered engineer as well and keeping and maintaining gas safety records for all properties. It was revealed through an investigation by the HSE that the council had failed to provide adequate certification for appliances across many properties in its control between April 2008 and July 2010.

The HSE was first alerted when a tenant at an emergency hostel complained that a gas safety certificate was not available. Further probing found that the gas safety record for the property, which contained several gas cookers and other appliances, had expired 15 months earlier. Expanding their investigation further, the HSE levelled the charge at Hammersmith and Fulham Council of nine separate breaches of Regulation 36(3)(a) of Gas Safety (Installation and Use) Regulations 1998, with a further 14 breaches taken into consideration.

Having pleaded guilty to all nine breaches, the council was fined £83,600 and ordered to pay full costs of £15,553.

The court heard the startling revelation that a member of staff had deliberately entered inaccurate information in their computer systems, leading them to believe that the properties had in fact undergone annual gas safety checks. They have now updated their systems so that management can monitor all data submitted.

Following the hearing, HSE inspector Nicola Maisuria said, “Carbon monoxide can kill quickly, without warning, and approximately 20 people die each year as a result of carbon monoxide poisoning from gas appliances and flues that have not been properly installed or maintained or that are poorly ventilated.

“As a landlord, the London Borough of Hammersmith and Fulham is legally responsible for the safety of its tenants in relation to gas safety. In failing to carry out the required annual gas safety checks on appliances in its properties, and maintain records of each safety check, the authority could have exposed tenants to additional potential risks of carbon monoxide poisoning.

“The council has now instigated a new monitoring and control regime to improve safety and to meet its legal obligations as a landlord. I welcome this improvement, and I hope this prosecution sends a clear message to other local authorities and all landlords that they must ensure they carry out all necessary gas safety checks.”

A spokesperson for Hammersmith and Fulham Council said, “The council pleaded guilty to a series of serious administrative failures between April 2008 and August 2010 concerning the timely completion of gas safety certificates and would like to apologise unreservedly to our tenants in the private sector leased properties concerned.

“As a responsible landlord, there is nothing more important to the council than the safety of our tenants and, as soon as we discovered these failings, we acted decisively to rectify these unacceptable breaches.

“All of the officers directly associated with these failings no longer work for the council and we have completely overhauled our procedures in this area so that every one of these properties now has a valid gas safety certificate.”

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