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Fewer People Are In Arrears With Their Rent - Articles Surfing


Many landlords will from time to time experience problems with payment of their rent. To help mitigate non payment some landlords take the view that only tenants with good employer references and incomes are suitable, but is this correct? Recent research has highlighted that tenants falling in arrears with their rent is reducing, and it is not just those in employment. For the 10 years up to 2004 the following improvements were identified (tenants not in arrears with their rent for the previous 12 months):

Social sector tenants in arrears reduced from 17% to 12%
Private sector tenants in arrears reduced from 9% to 6%

In effect we are now seeing that social tenants in arrears with their rent are not far off that experienced for private tenants in the mid 1990s (e.g. 12% social tenants compared with 9% private tenants). Of course incomes are lower for the social tenant sector, but many now receive substantial Government benefits to assist them. So why do we so often see property to let adverts with the words *no DSS* or *no housing benefits*? Perhaps landlords need a more effective way of determining whether prospective tenants will pay their rent on time?

According to surveys in 2004 the average incomes where as follows:

Social sector tenants *11,900
Private sector tenants *23,300

But these are averages, and a significant number of social sector tenants have an income well in excess of the *11,900.

When incomes are considered it is understandable that social tenants will have more difficulties in paying higher rents but if this research is correct then are private landlords being too cautious in placing far greater emphasis on employed

With the increasing number of homes in the private rental sector (2.4 million homes in 2005) surely this must be welcome news for existing and potential landlords?

Over the last 20 years the UK has seen a significant reduction in social sector rental properties, but conversely there has been an increase in the private sector which now accounts for around 35% of UK's rental housing stock. During the last 10 years or so there has also been a significant reduction in the number of people falling behind with their rent. For example, the period from 1993 to 2003:

Social sector tenants in arrears reduced from 17% to 12%
Private sector tenants in arrears reduced from 9% to 6%

However there have been some notable exceptions to this trend. In particular 1996 to 1998 when those in arrears with their rent increased for two successive years, and more recently the number of tenants in arrears for the private sector started to increase again from 2003 to 2004 (the most recent data found).

It is not surprising for the social sector have a higher percentage of tenants in arrears with rent when there are dramatic differences in the percentages of people in employment, as highlighted by the following research data:

Social sector (reference person per household)
26% in full time employment
15% in part time employment

Private sector (reference person per household)
67% in full time employment
11% in part time employment

Given these differences it seems remarkable that so few social sector tenants are in arrears with their rent, however other factors to take into account are government benefits made available to those not in employment, in particular people classified as *economically inactive* which are reported to be 45% within the social sector and 17% within the private sector. Another factor to consider is the typical income for people within the social and private rental sector, research for 2003/4 also identifies some very significant differences:

Mean income for the household reference person
Social sector *11,900
Private sector *23,300
Owner-occupier *31,900

This data suggests that those in the private rental sector may earn almost twice as much as those in the social sector. Further, for people who own or are purchasing their home, the average income appears to be almost three times that of people in the social sector.

Overall some interesting data here, but what can be concluded from this? One positive factor is that there is a definite trend in the reduction of people who are in arrears with their rent, not just the within the private sector, but also for social sector tenants. This raises a question for private landlords within empty properties that often advertise *DSS not accepted*, why not consider letting to tenants who claim housing benefit? New property websites such as http://www.simple2rent.co.uk provide the capability for private landlords, letting agents and tenants to advertise or search for homes to rent based on whether housing benefit is accepted.

Submitted by:

Gordon Marchant

Gordon Marchant specialises in the UK property market, in particular London flats to rent or let and research articles for the buy-to-let sector. More information can be found at http://www.simple2rent.co.uk.



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