As changes to the furlough scheme come into force from August 1 and lockdown measures continue to be eased, letting agencies and landlords should prepare for a spike in rent arrears.
According to PayProp, a leading rental payment automation platform, property professionals can minimise arrears with systems that manage and record payments and tenant communications effectively.
Furlough scheme and lockdown changes could lead to arrears spike
From August 1, employers using the government’s Coronavirus Job Retention Scheme must contribute National Insurance and pension payments for furloughed employees.
From September 1, they will be required to contribute 10% of furloughed staff’s wages, rising to 20% in October before the scheme finishes at the end of that month.
As the furlough scheme winds down over the coming months, the number of redundancies may rise if employers are unable to afford the additional contributions. This could lead to a rise in rent arrears if more tenants find themselves unemployed and in financial difficulty.
What’s more, lockdown measures are continuing to ease, with pubs and restaurants open for a number of weeks now and commuting costs returning as workers are called back to offices – which means people may be spending more than they were during the height of lockdown.
“Rent arrears may spike again in the coming weeks and months as tenants’ finances are affected by a combination of changes to the furlough scheme and easing of lockdown restrictions,” says Neil Cobbold, Chief Sales Officer at PayProp.
“The job retention scheme has helped to keep people employed and subsequently allowed many tenants to continue paying rent but as it starts to wind down, letting agents and landlords should prepare for more tenants to fall behind on rent again – or, in the worst case scenario, not be able to pay at all.”
What impact could increased arrears have on agents and landlords?
Landlords will be affected if the number of renters in arrears increases, but agents also need to monitor the overall amount owed by tenants.
PayProp analysis shows that the average tenant in arrears owed almost a fifth more in May than they did in January.
Having a high number of tenants behind on their rental payments is problematic, but if the percentage of monthly rent they owe continues to rise, this will compound the pressure on landlords’ finances.
“An increased number of tenants in arrears combined with rising debt per tenant presents a double whammy of lost revenue with landlords losing out on monthly rental income and agencies potentially losing out on management fees,” says Cobbold.
“Agents need to focus on how they can recoup tenant debt and reduce the chances of arrears getting worse in a way that is affordable for both tenants and landlords. This will help them to protect their own income as well as that of their landlords in a sustainable way, given the increased financial difficulties that renters are facing.”
How can rent arrears be recorded and managed effectively?
According to PayProp, the best practice for managing rent arrears is to digitally record all payments and missed deadlines.
Having a clear picture of how much is owed allows agencies and landlords to maximise the chance of recovering lost income with practical strategies, such as chasing tardy payers promptly and agreeing affordable repayment plans or lump sum repayments with tenants.
“It’s important that agencies track arrears on behalf of their landlords so that they can attempt to recover debt and don’t have to write off the tenancy as a lost management fee in the future,” Cobbold adds.
“Chasing arrears may seem like hard work with uncertain chances of success, but if this process is automated it can free up time and ensure no communication is missed – as well as building a clear paper trail for a potential eviction process in the most extreme cases. Opening up a dialogue with tenants is key to reducing the impact of rent arrears.”
“In the long-term, agencies can manage arrears more effectively by ensuring all tenants are thoroughly vetted, while having the technology in place to record all payments and deliver automated reminders to improve payment rates,” he concludes.