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Rental arrears: how to protect your income

With the number of tenants falling into arrears increasing, Lorna Bourke examines how landlords can protect their incomes.

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by Lorna Bourke on Oct 08, 2011 at 00:01

Rental arrears: how to protect your income

With the number of tenants falling into arrears increasing, Lorna Bourke examines how landlords can protect their incomes.

Good news for landlords – but not for tenants: rents have increased for a third consecutive quarter, according to buy-to-let lender Paragon. A knock-on effect that will hit landlords, however, is that arrears on rental payments are increasing too.

Arrears rising fast

The latest report from LSL Property Services (LSL.L), which owns Your Move and Reeds Rains, shows that the number of tenants in arrears increased by 19.5% in August. Some 10.7% of all UK rent was unpaid or late by the end of August – up from the 9% in July.

‘In the last two years, average rents have risen by more than £50 a month. With rents rising so quickly, soaring inflation and an uncertain economic outlook, over the long term we anticipate that rental arrears will become a growing financial problem for landlords,’ says David Brown, commercial director of LSL.

Joanna Elson OBE, chief executive of the Money Advice Trust, says ‘It is clear high rent costs are becoming more and more difficult for people to meet. With landlords pushing up rents this has left some people struggling to meet bills, particularly as this has coincided with a rise in inflation, particularly of food and fuel costs.’

So what can landlords do to ensure that their rent is paid and that they are not left out of pocket?

Background checks

Clearly, it is better to avoid arrears if possible by carrying out thorough credit checks on tenants before you sign them up. It may be better to accept a slightly lower rent from a good tenant in secure employment rather than pushing for more money only to discover that the tenant is soon out of work.

A good letting agent will check a tenant’s references before sending them to view the property. ‘We get references from employers, from the previous landlord and from the tenant’s bank,’ says Ed Peel of letting agent Winkworth. But some letting agents are less than efficient in taking up references, and even if you get a good reference from a previous landlord, it might be because they want to get rid of the tenant.

There are a number of tenant-referencing services available to landlords, such as checkmytenant, which is run by credit reference agency Experian. For £15 plus VAT it will provide a quick indication of whether a prospective tenant is unsuitable so that you don’t waste money on a comprehensive report, which costs £25 plus VAT.

Insurer Endsleigh offers a service based on the Experian database for as little as £6.95, and rentchecks has a similar service for £9.95. Unfortunately, detailed information on arrears on credit cards and the like is only available to mortgage lenders and other suppliers of credit.

Housing benefit changes loom

Tenants losing their jobs is one of the biggest threats to landlords' rental income. Because of this, you need to know whether the rent you are charging falls within the new lower levels of Local Housing Allowance (formerly housing benefit), which is due to come into force from January of next year.

The new limits are £250 a week for a one-bedroom property, £290 for a two-bed property, £340 for a three-bed property and the top rate is £400 for a four-bed property. Maximum rents payable by housing benefit will from January be reduced from average local rents to the value of the lowest third of rents. Most of the estimated 21,000 claimants who are affected by the rental caps are in London, while the 775,000 tenants affected by the lower 30% benchmark are spread around the country.

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14 comments so far. Why not have your say?

I meet Landlords a lot and have done presentaions on selecting tenants

I belive picking the right tenant is the hardest part of being a landlord the rest is easy really

selection takes time and effort but the time and effort is well spent

I reviewed my selction process after meeting the normal down falls I now doe

Third Party Garantour (HOME OWNER)

Home Visits

Back Ground checks through my council

ect ect

I belive a Teanat is a hibread between a customer and an employeee

and you must select the tenat as if you are going to employ someone there is a lot of give and take if your goiing to make a sucsess of the buy to let bussiness and you must have trust

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The soft underbelly of BTL.

We will see a lot more of this over the immediate future. The tenants have nothing to lose when the Council have to legally house them

Falling house prices and income, oh dear!

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Hi Dixy, we will await with resigned indifference the tyrade of 'it's no more than they deserve' and they well they push house prices up so my kids can't buy a house' comments shall we!?

You are right on the 'interview' process I interview all my tenants either on the first or if I can't make that a second viewing and run through the costs of the property as a whole, not just the rent serviceability. Also now I am insisting on two months deposit on the basis if they can't raise that now then if they become unemployed and prove difficult to remove then it gives me a better buffer agaist costs. I do not take on any kind of subsidised tenant, even armed services now as history has proved they show the properties the least respect.

I have not put up the rent to my tenants in two years only increasing it to a market level on a move. Turnover is very hight at the moment my average stay is working out at 8 months, well at least the agents are happy!! On our most expensive let we are gettin £875 pcm where we were getting £900pcm for the same property 4 years ago. We try and keep the rents very competative because with that kind of turnover it is better to minimize the void than hold on another 3-4 weeks for another £25 or £35.

When SM says falling house prices and incomes, oh dear I presume that he wasn't listening this a.m. to the Today programme annoucement that ension had fallen a third in the last four years. There isn't an asset class (beyond commodities) that has showed a CONSISTENT good return for the last four years, so we private landlords are in the same boat as other investors by degree. I have stayed in cash for my other investments for four years, missed a good rally but at least slept through it after the volatility of 07/08.

So happy to stay in the sector, with a long term view and continue to work with my tenants and service providers to provide homes for people, something the government are not prepared to do or people sitting on savings or investments growing corns on their ars*s!

Lets wait for the falout o that one!

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FAO Graham

You take sence my freind

Ive for one close my ears to what is said YourTAKING MY CHILDRENS HOMES ECT ECT

we as Landlords need to manage our bussinesses in a proffesional way as I think your doing

I have always taken a very long term view of BTL infact ive never sold a property since i came into the sector

Landlords never lose you may get a bad tenant its a fact of life but in genaral going through an application and vetting is the key to stopping most of the problems

I go on gut feeling to IF I DONT LIKE YOU YOU DONT GET ONEOF MY HOUSES

If you get vetting wrong its a nightmare

I looked all of my bad Tenanats in the past and came to the concludion it was me who did a bad job i did not do the job well enough from the start and i paid the cost court fees solicitors fees and sleepless nights

You should think of home owning garantours it works so well

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I wish that your contributors would run a spelling check on their submissions - would make them so much easier to read

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Some of us don't have the luxury of time to put into a word doc spell check it and paste it in, I think the message is more important than the seplling grammerrr or sintacks (yes that is deriberate)

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let me tell you a story

a man goes for a job in the council as a toilet cleaner

he is interviewd and it turns out he is dislexic

the man is told he cant have the job becasuse he needs to spell to order toilet rolls ect

the man leave the interview starts a market stall and makes the big time with super markets all over the uk

the man is now a chairman of hos bussiness he is sitting in a boardroom with a accountatt

accountant says to man you have done so well in bussiness

just think what you could have achived if you could spell

Man Replys oh I would be a Toilet Cleaner LOL

none of us are perfect we all have strenths and its the strenths that are important

Im just good at bussiness but i cant spell

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No need to protect anything, if the rent is beyond the means of the Tenant then they leave. No one owes anyone else a living. The nanny states in Europe are now in big problems, printing more money will not help. Governments need realistic social programs and night shelters/soup kitchens for the unproductive people.

Thank you dislexic landlord, for the toilet cleaner parable. Without a calculator I could not add and without spell check could not spell, but have worked everyday for 30 years to own my own successful business/properties/investments. OK for 5 'O' levels ?..... it took me 2 attempts to get them and I needed extra lessons.

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Avoid all this property speculation and instead invest in the global markets as your money works 27/7.

The markets deliver a better return than the property as a whole if you look at data vs data for the last 20YRS.

For me property is a Ponzi scheme at best because it is merely driven by amateur investors as you know in a crowd they is no common sense.

Word Of Caution - avoid bad landlords with unstable financial situations if you're a corporate tenant.

Far too common a case seen among many of my colleagues.

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I liked the spelling send-up ! Don't you all have 'Spell Check' ?

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FAO Michal Fenwicks

Ive been think about yoyr comments above

I think you miss one big point here if I may say so

with very little money and hard work and application you can make a lot of money

BTL changed my life its give me an income and time to run my life on my own terms

No as for your comments makeing money in the global markets I dont know if your right are wrong but I would imagin you would need a large amount of cash to invest in the first place from earned income (Saveings )

or a win fall or inherantace from family

But you need the cash in your bank to make money

I started with one flat cost £7000 and a deposit of £1500 (thats all I had)

Ive made my money borrowing other pepoles money just like a lot of bussiness folks (I HAD NO CHOICE)

I could never never made the money i have now with that sort of caplital

when the Crash ends I may well look at other places to invest Global Markets could be a great place and i really would love to see more and learn more

I have spoken to lots of IFA,s and Stockbrokers in the past they cant tell you how to make money they can only advise you to do with money you already have if you understand my point

If I had been born with a large Nestegg i may well have invested in other avenues you have outlined

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I know a very ordinary guy who went into property and seemed to have been a very decent landlord and ended up with 86 properties and zero mortgages; he obviously worked hard. He put his success down to having good advisers (good solicitor etc).

I'm too old to build a property empire but believe it's an excellent career for a young man or young woman who wishes to do so over three or four decades when prices must even out (e.g. if you bought your first place say 40 years ago for 10k and one three years ago for 150k that's now only worth 100k then you're not exactly bothered if properties 1,2,3, that cost a total of 50k are now worth 300+k - that sort of thing).

I have just the ONE property I rent out and so far I'm impressed with the service provided by a leasing agent who earns her 10% and looks after both my interests and the tenant's interests as fairly as possible.

To me the property is 'just another investment' but I have a huge respect for those who've built up their property businesses over many years and deserve their success only gained through their hard work and the ability to get on well with people.

5 'O' levels? Took me two attempts to get my 5 'O' levels also; later as a mature student at University I was the top International student in a business school but what good did it do me? (no good really, but it was fun!).

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I agree with a lot of statements above, as a tenant, i have a good arangement with my landlord, every time he talks about putting the rent up, I show him all the repairs and maintance I have done to the property and say I could have asked you to pay for this, and the next tenant might... And the rent stays the same and we are both happy.....

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S G

Oct 10, 2011 at 12:45

I forgot to mention;

There is an insurance company that offers a product similar to mortgage protection, but can be taken out by tenants and costs about £20 a month. I know some landlords have knocked this £20 off the rent if tenant takes out this insurance. That way if they become unemployeed, their is insurance to cover the rent.....

If I was a landlord, I would do this and have it in the contract. Its an easy sale to tenants as the insurance covers more then just the rent and its not costing them any more money. They are covered you are covered....

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