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Prepare for a potential rent arrears spike: Experts’ best practice advice

Buy-to-let landlords are being urged to prepare for a spike in rent arrears ahead of changes to the furlough scheme this weekend. 

The furlough scheme has seen the government pay the wages of millions of workers throughout the coronavirus pandemic, but the first set of changes are soon to come into effect.

From Saturday 1 August, firms will be asked to start paying National Insurance and pension contributions for the first time since April. 

From September 1, companies will be required to contribute 10% of furloughed staff’s wages, rising to 20% in October before the scheme finishes at the end of that month.

The concern is that closing the government scheme which is paying furloughed workers' wages could push up unemployment, leaving many renters in financial difficulty and unable to pay their rent. 

“Rent arrears may spike again in the coming weeks and months as tenants’ finances are affected by a combination of changes to the furlough scheme and easing of lockdown restrictions,” said Neil Cobbold, Chief Sales Officer at PayProp.

“The job retention scheme has helped to keep people employed and subsequently allowed many tenants to continue paying rent but as it starts to wind down, letting agents and landlords should prepare for more tenants to fall behind on rent again – or, in the worst-case scenario, not be able to pay at all,” he added. 

PayProp analysis shows that the average tenant in arrears owed almost a fifth more in May than they did in January.
 
Having a high number of tenants behind on their rental payments is problematic, but if the percentage of monthly rent they owe continues to rise, this will compound the pressure on landlords’ finances.
 
Cobbald continued “An increased number of tenants in arrears combined with rising debt per tenant presents a double whammy of lost revenue with landlords losing out on monthly rental income and agencies potentially losing out on management fees. 
 
“Agents need to focus on how they can recoup tenant debt and reduce the chances of arrears getting worse in a way that is affordable for both tenants and landlords. This will help them to protect their own income as well as that of their landlords in a sustainable way, given the increased financial difficulties that renters are facing.” 
 
To help ensure rent arrears are recorded and managed effectively, PayProp advises landlords and letting agents to digitally record all payments and missed deadlines.
 
Cobbald added: “It’s important that agencies track arrears on behalf of their landlords so that they can attempt to recover debt and don't have to write off the tenancy as a lost management fee in the future. 
 
“Chasing arrears may seem like hard work with uncertain chances of success, but if this process is automated it can free up time and ensure no communication is missed – as well as building a clear paper trail for a potential eviction process in the most extreme cases. Opening up a dialogue with tenants is key to reducing the impact of rent arrears. 

“In the long-term, agencies can manage arrears more effectively by ensuring all tenants are thoroughly vetted, while having the technology in place to record all payments and deliver automated reminders to improve payment rates.” 

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    Surprise, surprise! yet another blow, and probably the death knell for many landlords.
    Better get out of the ever-increasing and horrendously risky business of letting out your property, before total bankruptcy and losing everything you saved and worked for..Games up!

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    The game could be up for highly leveraged landlords, but those of us that own our properties are better placed to weather the storm, I've said for a long time we need to be very careful who we rent to, no benefits, no one under 25, no single mums and no all day curry eaters, better an empty property than a property with a rouge tenant in, and there are plenty of good tenants out there.

     
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    If I was in that position, I would prepare as much of the red tape as possible and be ready to go and assume that these stinking robbers and thieves will certainly NOT pay and just evict them anyway, before the Govt. makes any more changes and before Sec. 21 goes.

    And then be VERY careful and vigilant of your choice of future tenants....

    And DO IT NOW!

  • Paul Barrett

    Feckless tenants with reduced costs whilst being furloughed should have built up some savings so that they can pay rent.

    But most such tenants will just refuse to pay rent.


    They know they will be able to live rent free for years as the eviction case backlog will take that to clear.

    Unless leveraged LL are able to resource mortgage payments then many will be bankrupted.
    Rent defaulting tenants know there is little chance of any LL being successful at civil recovery of rent arrears from them.

    The ending of significant furloughing will signify the end of BTL.

    BTL LL will finally realise that it is simply too risky and that to survive they need to reduce all properties to unencumbered status and if they can't they will need to sell.......................if they can!

    For unencumbered LL it will just be annoying not having the rental income they are rightly used to.
    But they will never face repossession.
    Unfortunately many LL will be having their BTL properties repossessed.

    The feckless tenants walk away scot free!

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