Trouble ahead for buy-to-let investors

Landlords of rental properties face a tough year when it comes to rental arrears, particularly those with social tenants.

With unemployment set to rise further and increasing numbers of people struggling to manage their personal debt, Landlord Assist, an organization that helps landlords evict problem tenants, claims that 150,000 tenants will face court action by the end of this year and that figure is set to rise in 2010.

Graham Kinnear, managing director of Landlord Assist, belies that as unemployment has risen, more people have abandoned plans to buy their own homes and turned to renting instead, with many styruggling to meet their rent payments.

More tenants in arrears combined with falling property values has left buy-to-let investors in a weakened position. He said:

“Landlords are less equipped to sustain non-paying tenants than they were a year ago and need to take precautionary measures to minimize the risks of being exposed to rent arrears.”

The growing number of tenants in arrears has not been helped by the Local Housing Allowance for social tenants.

This allowance, which was introduced in April 2008 goes straight to tenants rather than being paid directly to private landlords. While tenants in theory have a responsibility to pass the money on to their landlords, in practice many have failed to do so.

Landlord Assist’s prediction comes just as a report from the National Landlords Association (NLA) reveals that the total rent arrears run up since April 2008 now owed to 1,000 landlords who operate LHA tenancies is £4.4m, or £4,400 per landlord.

The Conservatives have said that, should they come to power next year, they would reinstate the direct payment of housing allowance to the landlord if the tenant agreed.

Paul Shamplina, director of Landlord Action, another company specializing in eviction, said:

“We have seen LHA evictions rise by 20% in the last year and this could be alleviated if the system gave the choice to have the rent paid directly to the landlord. We have found that most tenants are happy to have their landlord paid direct.”