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by administrator @, Thursday, January 05, 2012, 11:23

The number of tenants in severe financial difficulty has climbed in the last quarter of 2011, with nearly 11,400 more tenants over two months in arrears than a year ago, according to the latest Tenant Arrears Tracker by Templeton LPA.

Although just 9.3% of all rent was late or unpaid in November, severe arrears cases (tenants with arrears of more than two months) are climbing rapidly. To the back end Q4 2011, nationally there were 78,970 tenants in England and Wales in severe arrears - an 18% increase compared to the same period in 2010. This represents the highest level since the third quarter of 2008.
Despite the increase, tenancies in severe arrears represent just 2.4% of all properties in the private rental sector in England and Wales.

Paul Jardine, director and receiver at Templeton LPA, said: "The soaring cost of renting has created a two-speed market. The overall tenant population has coped relatively well with rising rents and soaring living costs - with total arrears actually down year on year in November.

"But a growing minority of renters are falling deeper and deeper into payment difficulties, and the number of severe arrears cases is rising. While the wider tenant mix has changed since the mortgage market downturn - with a greater number of financially sound yet frustrated first-time buyers - a growing number of tenants are seeing their job prospects affected by the UK's economic malaise."

However, the growth in tenant arrears has been mirrored by a rise in the number of tenants being evicted through court orders. In the last quarter, 24,966 tenants faced eviction notices - an increase of 11% on the 22,558 a year ago. But the change is not just annual. In Q3 2011, there were 5.4% more than in the second quarter of 2011.

Buy-to-let mortgage arrears have not yet felt the impact of growing severe tenant arrears and evictions. In the last quarter, the number of buy-to-let mortgages more than three months in arrears fell by 7% compared to the previous quarter, representing an annual decline of 17%. However, at 26,300, there are still more than five times as many buy-to-let mortgages in severe arrears compared with Q3 2006.

Jardine said: "The growing level of severe tenant arrears has yet to filter through into mortgage payment problems for landlords. Mortgage rates have kept monthly payments low, but there has also been a change in landlords' behaviour. With capital gains falling by the wayside in the past six months, rental income has become the most important component in an investor's annual return - but it also pays a landlord's mortgage cheque.

"As a result, many landlords are being less lenient with tenants facing initial payment problems, and are looking to use court orders to replace tenants quickly in expectation of finding a financially sound substitute - and potentially an increased rent, given the strength of competition for rental property in many areas of the UK. However, a growing number of landlords are also exploiting higher rents to set aside slush funds for future arrears and void periods, or signing up to rental indemnity schemes. "

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