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TODAY'S OTHER NEWS

Rising rent arrears ‘likely to mount’ as tenants face financial hardship

Many buy-to-let landlords are heavily exposed to young renters most at risk of losing their job, according to new research from flatfair and Rowan Asset Management. 

With almost half of all renters in the UK aged between 16 to 34, there is widespread concern that many young people face falling into financial distress as a high proportion of those work in retail or the gig economy. 

More than one in three 18 to 24-year-olds are earning less than before the outbreak, research by the Resolution Foundation recently found. 

Two million renters told charity Shelter that losing their job will leave them unable to pay rent. Research from the housing charity also found one in five renters in England expect to lose their job in the next three months.

Buy-to-let landlords who rely on rental income for their livelihood may struggle to meet their own obligations if their tenants fall behind on the rent while housing associations may also find their tenants are falling behind on rents.

Franz Doerr, CEO and founder of flatfair, said: “As more firms start to furlough staff and others cease trading due to the economic impact of the virus, swathes of young renters up and down the country will see their incomes plummet and may not be able to pay their rent. Rising rent arrears are likely to mount over the year as a consequence.

“This may, in turn, see many landlords struggling to meet their own obligations such as mortgage repayments.”

Official estimates suggest joblessness could surge to at least 10% due to the pandemic, a level not seen since the 1990s. It was 3.9% in March.

George Jackman, chief investment analyst at Rowan Asset Management, commented: "It's clear that there is going to be a sharp, short-term impact on many young people's income due to the economic distress caused by the virus. 

“But the more worrying aspect of this whole crisis is how this young cohort of workers will be able to find stable employment over the long-term, with sectors like retail looking set to change fundamentally. It's really hard to see retail being able to employ 2.8 million again any time soon, and right now there aren't any emerging industries in this country that will be able to step in and fill this gap.” 

Number of workers by sector and age

ONS 2018 statistics

 

16-24

25-34

35-44

45-54

55-64

 

Total Workers

3,627,670

7,180,960

6,797,294

7,375,813

5,022,122

Total retail workers

Retail

         

2,805,740

Number of Workers

641,574

673,861

457,946

515,826

401,730

 

% of Total Sector Workers by age group

22.9%

24.0%

16.3%

18.4%

14.3%

             

Total Hotel workers

Hotel & Other

         

246,838

Number of Workers

68,528

66,638

42,911

38,398

21,996

 

% of Total Sector Workers by age group

27.8%

27.0%

17.4%

15.6%

8.9%

             

Total in restaurants

Restaurants

         

837,195

Number of Workers

343,380

202,107

134,473

99,382

50,520

 

% of Total Sector Workers by age group

41.02%

24.14%

16.06%

11.87%

6.03%

             

Total in hairdressing

Hairdressing

         

284,581

Number of Workers

54,554

79,690

68,107

53,833

5,783

 

% of Total Sector Workers by age group

19.17%

28.00%

23.93%

18.92%

2.03%

             

Total in

Sports and Fitness

         

332,731

Number of Workers

112,059

74,650

45,976

49,607

35,716

 

% of Total Workers by age grouip

33.68%

22.44%

13.82%

14.91%

10.73%

PRS Tenants by age and salary

   

16-24

25-34

35-44

45-54

55-64

ONS 2017

% of PRS Tenants

11.5%

35.0%

22.8%

15.6%

8.0%

             

ONS 2020

Pay

£16,250

£24,450

£29,050

£29,050

£26,250

  • Paul Barrett

    The demand by tenants is still there.
    But if they won't pay their contractual rent they will have to leave.
    Alternatively LL will just have to accept LHA rates and that is if their tenants qualify for LHA.
    LL are unable to determine price discovery for their assets if unable to remove rent defaulting tenants quickly.
    Leveraged LL are the most at risk.
    Heavily leveraged LL will be bankrupted if LHA is insufficient to service all costs.

    I predict that the PRS will shrink by at least 40%.
    These will be leveraged LL.
    Those unencumbered LL will be in a better situation even if they can only achieve LHA rates.
    Many tenants would be better off surrendering their tenancies and returning home.

    There are simply too many rental properties available at rates that LL want.
    Few LL will be prepared to let at LHA rates.
    A massive shrinkage in the PRS would be most welcome.

    The economy will suffer mightily with nowhere to rent as LL sell up.

    There will be about 5 million unemployed soon.
    They simply don't all need to rent.
    They can return to the parental home.

    Leveraged LL will be under extreme distress.

    Time for leveraged LL to deleverage and ideally become unencumbered with far fewer properties.

    The time has come for a massive contraction in the leveraged PRS.
    Of course it will mean mass homelessness but that won't be the fault of LL.
    Reducing the BTL sector while increasing the unencumbered sector would be a far better business model than the current very precarious BTL one.

    Anecdotally I am able to assess the distress being experienced by LL.
    MX have stated that most of their time has been spent dealing with mortgage holiday applications.
    This just proves my contention that LL are running very risky BTL business models.
    To have just 2 months for extreme financial distress to occur just proves the BTL business model is unviable.
    BTL LL are nowhere near enough financially resilient enough.
    Things are gonna have to change

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