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Rent arrears and how to deal with them

In 2017 rent arrears are expected to rise. The reason being is that inflation – i.e. the general cost of living for you and your tenants – are rising mainly thanks to the fall in sterling, so tenants have less to spend and, from your perspective as a landlord, the likelihood of a harsher tax regime and increased health and safety costs means you may have to increase rents. In most areas, it is expected that in 2017 rents will rise faster than property prices for the first time. 

Coupled with things like 18-21 year olds losing their entitlement to housing benefit and other benefit cuts, whether a tenant is working or on benefits which have been capped, they are likely to feel somewhat squeezed this year.

As a landlord, especially if you are reliant on the rent to pay your own costs such as a mortgage, it is vital to make sure you sort out very quickly with the tenant what happens to:

  1. Recoup the lost rent 
  2. Ensure the tenant can afford to stay in the property 

One of the best ways to make sure your tenant doesn’t fall into rent arrears is to align your rent collection date with the day or day after they get paid. If you are ‘last on the list’ at the end of the tenant’s monthly payments, it is less likely you will secure the rent if they have a bad budgeting month.

However, tenants do have finance issues as we all do. The key is to understand whether this was a one-off – for example, they fell ill during the month and for whatever reason didn’t receive any sick pay so were short, but are now better and can pay next month’s rent, although they need some time to be able to make up the shortfall. Under these circumstances, good tenants who work hard, keep your property in good condition and normally pay on time and in full are likely to be worth keeping and helping. If you look after them, they are much more likely to stay for the long term too, saving you money securing new tenants on a regular basis. 

But if the tenant turns out to have lost their job or split with their partner and can’t afford the property themselves, then it is likely the rent arrears will build up and eventually they will need to move out. Ideally in these circumstances, coming to a swift (but legal) conclusion is best. For example, do they have a guarantor who could help? Anyone in long-term financial difficulty is likely to be tough to secure lost rental income from in the future. If they are on a six-month contract, it might be worth letting them out of that contract early if they are willing to leave and replacing them with someone who can afford the property.

Sadly, if the tenant is determined to stay, then you are likely to have to evict them and be prepared for this to take some months as you have to abide by the law and ensure the correct legal notices are issued and then will have to go to court. All of this takes time as the tenant is given weeks if not months to respond to notices you issue and, in my view, it also requires expertise so if you haven’t evicted anyone before, do consider using a fixed fee eviction specialists. 

Evictions take time and money, so weigh up the risks of this happening and, if you haven’t done so already, consider taking out insurance to cover the costs – which can add up to thousands of pounds at a time when no money is coming in.

Any questions, feel free to get in touch with us. 

Because we play by the book we want to tell you that…

Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances.
The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.

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