Why is it a good idea for landlords to budget for potential arrears?

Why is it a good idea for landlords to budget for potential arrears

With the festive period placing an even bigger strain than usual on people’s finances, landlords are shrewdly taking precautions to budget for the risk of arrears as their tenants potentially face financial difficulties.

More people than ever falling behind with rent

Rent arrears are becoming a ‘debt crisis’ according to the Money Advice Trust (MAT) charity, which published figures this month showing that the number of tenants missing rent payments has more than doubled in the past six years. As many as 20,000 calls were received by the charity in the first three quarters of 2013 – a stark difference to the 8,000 calls received over the same timeframe in 2007.

Rents have reached a record high

Why is this? Recent figures from LSL Property Services revealed the cost of rent has reached a record high of £757 a month – and combined with price hikes across a range of goods and services including food and energy bills, the problem is clear for all to see.

Joanna Elson, Chief Executive of the MAT, said:

“The long-term trend for rising rent prices is clear, and its impact on the debt landscape is significant.

“Rent arrears are now the fastest growing debt problem we help people with at National Debtline, and we are in danger of falling into a rent debt crisis.”

Not only is rent rising but more people are also turning to the rental market as house prices continue to rise. According to the Office for National Statistics (ONS), the proportion of people renting has risen steadily from 29% in 2006 to around a third (33%) of the UK population. While this may only be a small percentage change, it is one which may still ramp up the risk of rent arrears.

Will you kick-start 2014 with rental arrears?

Rent arrears are a concern for landlords all year round, but they are being warned to exercise additional caution over Christmas and new year, a time which typically places more strain on budgets.

Graham Kinnear, Managing Director at Landlord Assist, noted that budgeting priorities change in the festive period.

“Christmas is an expensive time of year and many people feel pressured to spend money they simply don’t have, with many also tempted to use credit cards and payday loans to cover the cost,” he said.

“In some instances this leads to an inability to meet their rental obligations and puts tenants in an unenviable position of facing arrears in the new year. We urge tenants to budget carefully for Christmas and not to risk their homes by slipping into arrears with their landlords.”

Impact of arrears on landlords

Late rent payments are one of the main risks faced by any landlord and it is important that they take adequate precautions and establish reliable back-ups to deal with this.

Since landlords often rely on tenants’ rent to supplement their monthly income, some may find themselves unable to make mortgage payments on the property if a tenant misses a rent payment.

In fact, a recent survey commissioned by the National Landlords Association (NLA) found that 40% of landlords earn just enough to break even each month – meaning just one missed rent payment can leave them open to a financial emergency.

Top tips

Landlords should have contingency plans to protect themselves in the event of late payments and take action to minimise the risk of arrears by carrying out financial checks and obtaining references before signing a contract with a new tenant.

Even if all the appropriate checks have been completed, landlords should ensure they have some cash put away for a rainy day (such as if a tenant loses their job) so they can tackle changed circumstances head-on and protect themselves from financial vulnerability.


Charlie Champson works in investment consultancy and enjoys writing about his own experiences in property development. His current projects include working in the student rental sector through Vita Property Investment

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