Updated: 29 November 2022
Rising Rent Arrears, Higher Mortgage Rates
Rent arrears cases are likely to rise still further as the cost of living crisis cuts deeper into household budgets.
And tenants are not the only ones suffering. Their predicament has left landlords trapped between rising mortgage interest rates and a shortfall in the money owed to them.
Swift debt recovery procedures have seldom been more important than they are now.
Rents Are Rising At Record Levels
Let’s cut to the chase: the shortage of properties means rents are rising at their fastest rate since Office for National Statistics (ONS) records began. And rising rents drive increases in arrears.
Almost 1.1 million tenants – one-in-seven – had their rent increased in the last month, reported Shelter in September 2022. That seems all but inevitable given the current economic situation.
One-in-three tenants was spending at least half their income on rent – a very worrying statistic when you also factor in the huge surge in energy prices, along with rising inflation.
That has left more than half a million landlords facing rent arrears following a collapse in government housing support, a report by the charity Crisis and property website Zoopla revealed in August 2022.
National online letting agent for tenants and private landlords MakeUrMove said 47% of buy-to-let owners have had problems with tenants failing to pay their rent on time.
Rent affordability hasn’t been helped by the red tape and tax disincentives being piled upon long-suffering landlords. All this hassle has prompted many landlords to reduce their portfolios – depleting the nation’s vital stock of private rented housing.
The shortage of affordable housing stock shouldn’t come as a surprise to anyone. A crisis that stretches back decades is now being further exacerbated by government policies and economic conditions that disincentivise letting.
Why Landlords Are Leaving the Sector (Pushing Up Rents…And Therefore Rent Arrears)
The list of tenant-centric rules for landlords makes very long and painful reading. Here is just a sample of the legislation being levelled against landlords…
- Landlords who employ a letting/managing agent will be required by law to join either the Property Redress Scheme or the Property Ombudsman scheme to deal with disputes.
- Councils will be able to take action against landlords who do not join a scheme.
- Free redress scheme for tenants to complain – whereas landlords must pay for proceedings to seek redress.
- Landlords could be forced to issue an apology to tenants when the property is below determined standards – and pay tenants up to £25,000 in compensation.
- Rent Repayment Orders for various offences, including failing to comply with an improvement notice for the property. Justice For Tenants (a non-profit organisation) said these cases had risen from three per month in 2018 to 29 per month in 2022. This year (2022) landlords have paid £804,772 to around 300 tenants – compared with around £75,000 three years ago.
- Calls for changes to help tenants with the cost of moving.
- It is taking the county’s overburdened courts longer to deal with possession claims.
The government says that new laws banning evictions during the pandemic prevented 40% more people from being made homeless (compared with the previous year). What the government fails to mention is that landlords were not able to evict anti-social tenants and were forced to incur large losses of rental income.
Landlords were faced with claims for properties to be repaired when tenants were not looking after them properly or paying rent.
There is a database of rogue landlords and rogue agents (effective from 6 April 2018, available only to local authorities). And the Mayor of London has set up a rogue landlord and agent checker. But the government has made no mention of a database of rogue tenants!
The Impending Abolition Of Section 21 ‘No Fault’ Evictions
Landlords have repeatedly warned what would happen if the government pushed them too far. And sure enough, it has.
Cast your mind back to the planned abolition of Section 21 ‘no fault’ eviction notices. At the time, it seemed like the final straw. (If only it were…)
After all the furore, you would have thought that the various governments we’ve had over the last few months would have listened to the views of landlords. But apparently not.
The Queen’s Speech of 10 May 2022 – given by the then HRH Prince Charles on behalf of Her Majesty to the then Boris Johnson administration – committed to a Bill in the 2022/23 parliamentary session to get rid of Section 21.
And the abolition of Section 21 is still due to happen, despite various delays. Here’s the 54-page House of Commons Library report from 24 October 2022.
There is growing concern that landlords are rushing to evict tenants and/or sell up before Section 21 is abolished. This is reducing the amount of available housing stock for rent. And this in turn is creating yet more upward pressure on rents...and making arrears more likely.
The government first mooted the abolition of Section 21 on 15 April 2019. Significantly, from Q2 2019 to Q2 2022, England saw an 18% rise in the number of households listed as homeless or 'at risk'.
Worst hit regions were the North East (up 88%), North West (up 63%) and Yorkshire and the Humber (up 52%). The South West had a below-average rise of 15% with the South East slightly higher at 16%.
So far from solving the homelessness problem, the proposed abolition on Section 21 is currently fuelling it because landlords re voting with their feet.
Landlords At Risk From Litigation
But Section 21 and all the other red tape and economic woes are not the only disincentives. There are also concerns over the possibility of litigation by tenants.
Landlords are becoming increasingly worried about whether their tenants will be able to afford to heat their properties. Failure to do so can lead to damp and mould. This is more than unsightly – it is a health hazard with potentially fatal consequences.
Landlords worry that they could be sued if their property develops mould and the tenant suffers ill health as a result. Damp and mould can lead to breathing problems, respiratory infections, allergies, asthma, and immune system issues.
The Energy Saving Trust found that 37% of homes had condensation and 28% had mould.
Given that most people are facing higher energy bills, it’s no surprise that tenants often fail to heat or ventilate the properties as required.
Capital Gains Tax Changes Hitting Landlords
Just when you thought life couldn’t get any worse for landlords (with inevitable consequences for their tenants), along comes Chancellor Jeremy Hunt’s Autumn Statement…
His various tax increases announced on 17 November 2022 include reductions in the Capital Gains Tax allowance – first from £12,300 to £6,000 from April 2023 and then to £3,000 in April 2024.
This will inevitably accelerate the exodus of landlords from the sector. Landlords keen to get out while the getting is good (or at least average) will want to do so before their CGT liability increases.
Dealing With Rent Arrears, Evictions And Other Tenancy Issues
Now more than ever, landlords need expert legal advice in a complex area of the law that is becoming increasingly tenant-centric.
As a landlord, you need to be able to deal with rent arrears and evictions quickly. The longer a problem persists, the more expensive it can become…and the less likely it is that you will be able to recover your money.
Drafting and serving Section 8 (tenant at fault) and Section 21 (no fault) eviction notices is a simple process for a specialist in landlord and tenant law. But you can leave yourself vulnerable to legal loopholes if you attempt it yourself.
After all, there’s only one thing worse than a troublesome tenant owing you rent – and that’s them getting away with it because your legal paperwork was not correct.
So don’t chance it. Get expert legal advice from a debt recovery specialist with extensive experience of landlord and tenant matters.
Get Expert Legal Advice On Landlord And Tenant Law
Contact Coles Miller Debt Recovery Manager Eric Holt for specialist legal advice on recovering rent arrears, enforcement proceedings, tenant evictions and statutory demands. He is based at our Poole head office.
