Cost of Living Crisis May Set Off Arrears Tsunami

Around 80 per cent of letting agents fear the cost of living crisis sparked by considerable rises in energy bills will significantly impact private lettings and could trigger a tsunami of arrears. 

More than one in three predict a rise in arrears as tenants struggle to pay their bills. 

The data comes from a survey published in September 2022 of more than 2,600 letting agents by property firm Goodlord and is the most extensive poll since the government released the rent reform white paper. 

The State of the Lettings Industry Report 2022 lists many areas of concern for landlords and letting agents, and a lack of homes to rent is another concern.

Not enough homes to let

Two-thirds of letting agents have struggled to find homes to let, with landlords leaving the market flagged as a problem. 

Over one in four letting agents disclosed they had seen landlord numbers drop by 10 per cent over the past year. Nevertheless, 43 per cent of letting agents expressed optimism for the year ahead, even though they expect the landlord exodus from buy to let to continue.

Goodlord’s chief operating officer Tom Mundy said: “As the initial report findings show, there is a range of things causing severe concern across the sector. Whilst the pace of lettings remains intense and the market buoyant, various macroeconomic and regulatory factors are cause for concern. “Although these are yet to materially dent optimism amongst agents, landlords and tenants. We hope that the full report will provide a range of useful insights to the market at a time of increasing uncertainty for all stakeholders.”

Unsurprisingly, the likely effects of the government rent reform white paper worry many letting agents.

Rent reform concerns

Eight out of ten agents are concerned about the bill's contents, with a third 'very concerned' and half saying they are 'somewhat concerned' about how the new law will impact the lettings industry. 

Interestingly, a similar proportion of tenants want to see tighter regulation of the private rental sector. 

The proposed abolition of Section 21 no-fault evictions has polarised opinions. Almost a third of letting agents and half of the landlords expect the proposal to impact their letting businesses significantly. At the same time, one in four tenants feels the change will make their lives easier. 

Other rent reform issues worrying letting agents are the proposed switch to periodic tenancies and the introduction of pet lets. 

Although many property professionals foresee a massive rise in arrears, only one in four has seen the amount tenants owe increase in the past year. However, agents with increasing arrears say the amount owed has risen, and tenants also view arrears as an issue. 

A fifth has already moved to save money, while another ten per cent are considering a move. One in six - around 15 per cent - have also set plans to pay to keep their rents on track. The overall effect of a worsening economy and rent reform means two out of three landlords are thinking about selling up and leaving the sector. 

Landlords cited increasing regulation and legislation as the main reasons they would go. Meanwhile, the letting agent trade body PropertyMark has launched a survey into how short-term lettings affect the broader property rental market. 

Letting agents want to know how many landlords are switching homes from buy to let to holiday lets. PropertyMark data suggests landlords could change the use of around 500,000 homes to short-term lets with a devastating impact on supply for long-term tenants.

Rent Reform FAQ

What is the rent reform white paper?

The A Fairer Private Rented Sector white paper is a list of government proposals designed to improve the private rental sector for tenants by giving them more security in their homes. 

The government plans to help tenants feel more secure by changing tenancy agreements and the ability of landlords to end tenancies. 

The revamp of tenancy agreements includes abolishing Section 21 no-fault evictions.

Why don't landlords want pet lets?

The new bill will introduce allowing pet lets as a default for tenants, providing their home is suitable for the pet. However, many landlords feel pet lets should incur an extra charge to account for increased wear and tear.

Why are so many landlords leaving buy to let?

Besides the impact of stricter regulation and changes in tax law that make landlords pay more to the HMRC, another factor is landlord age. 

Many landlords who invested in buy-to-let around 2000 are reaching state retirement age and want to give up working. 

Property price increases since then mean many landlords have significant sums tied up in rental homes that could pay for a comfortable retirement.

Why should tenants be shielded from rent rises?

It seems unfair that renters should ask for rent caps and other financial safeguards when private homeowners are not protected from house price increases. However, the government fears tenants are vulnerable to eviction and have nowhere to go if they lose their homes.

Is buy to let still a good investment?

The value of buy to let as an investment is subjective. For instance, experienced landlords rue the passing of looser regulations and higher profits. Still, new landlords have not witnessed what happened in the past, so they make decisions based on current thinking.