The average rent arrears claim saw a sharp increase in Q3 2024, rising to £2,064, which marks a 22% increase from the £1,694 recorded in the same period the previous year. This notable climb in arrears is reflective of the ongoing financial strain being felt by both tenants and landlords, largely due to a combination of persistently high interest rates and steadily rising rent prices. With both parties facing increasing financial pressures, the latest figures paint a concerning picture of the state of the rental market.
For much of Q3, the Bank of England’s interest rate remained high, reaching 5.25% in July and August. In September, it dropped marginally by just 0.25% to 5%, but this slight reduction failed to provide much relief. During the same period, rents continued to climb, with a 3% rise bringing the average rent for the quarter to £1,149. For many tenants, these rising costs have made it increasingly difficult to keep up with rent payments, contributing to the growing arrears.
Landlords, too, have felt the weight of these rising rates and rents. According to the latest UK Finance data, the number of buy-to-let mortgages in arrears of 2.5% or more of the outstanding balance reached 13,000 in Q3 2024. While this is a 4% drop from the previous quarter, it represents an increase from the 11,540 arrears cases recorded during the same period last year. These figures highlight the mounting challenges faced by landlords as they navigate the impact of higher interest rates on mortgage payments, alongside the pressure of rising rents.
The combination of increased rent arrears and more landlords falling into arrears themselves underscores the financial strain within the rental market. As both tenants and landlords adjust to higher living costs, these trends may continue to affect the overall stability of the market in the coming months.
While the total amount claimed in rent arrears cases has seen a significant year-on-year increase, the overall percentage of tenancies ending with outstanding rent has actually decreased, in line with seasonal expectations. This suggests that while the overall value of arrears is on the rise, the proportion of renters who ultimately default on their payments is falling, indicating that many tenants are still able to stay on top of their payments despite financial pressures. Interestingly, when comparing the third quarter of the year with the previous quarter, the arrears value showed only a slight decrease. This provides a hopeful sign that, while arrears remain a pressing issue, the market may be stabilising and is not facing a dramatic downturn in the short term. However, landlords may still find themselves feeling the pinch as they face mounting arrears claims.
Meanwhile, tenants continue to grapple with a serious shortage of available rental properties, a trend that has worsened over the years. Available stock has reached its lowest level in 15 years, with only 259,000 properties available to rent in the UK in September 2024. This figure represents a significant drop of more than 22% from five years earlier, when 332,000 properties were available in the same month. The reduced supply is being driven by various factors, including the affordability challenges facing renters and landlords alike, as well as the broader housing market constraints. As a result, the competition for rental properties has intensified, leading to higher rents and more challenges for tenants trying to secure suitable accommodation.
Ben Grech, the chief executive of Reposit — a service offering deposit alternatives — weighed in on the matter, stressing that the growing arrears issue is having a direct impact on landlords. He pointed out that the average amount claimed in each arrears case has now exceeded £2,000, which is significantly higher than the standard value of a five-week cash deposit. This increase is concerning for landlords, as it leaves them exposed to additional financial risk, with the average claim amount being £700 higher than the value of the deposit typically held. The added financial burden, coupled with rising operational costs for landlords, puts them in a precarious position, especially as many still face challenges in recovering the full value of the arrears. These factors contribute to the ongoing uncertainty in the rental market and leave landlords increasingly vulnerable to financial instability.
This combination of increasing arrears, limited property availability, and rising costs creates a complex environment for both landlords and tenants, and highlights the need for continued vigilance and adaptation in the face of the changing economic landscape.
With the upcoming Renters’ Rights Bill, landlords are becoming increasingly aware of the need to safeguard themselves in the face of growing rent arrears. This heightened awareness is leading to a significant rise in interest towards deposit alternatives. Landlords are particularly attracted to products like the FCA-regulated service offered by Reposit, which provides additional coverage, offering three extra weeks of rent on top of the usual eight-week deposit. This extra security offers landlords reassurance against the current economic climate, where affordability challenges for tenants are increasingly common.
Many tenants are struggling to save the large lump sum typically required for a cash deposit, which has made alternative solutions more appealing. The financial pressures faced by tenants due to the ongoing cost of living crisis have intensified the demand for more accessible and flexible deposit options. At the same time, landlords are recognising the importance of having more comprehensive cover for rent arrears, especially as the risk of tenancies ending with significant outstanding rent continues to rise.
Currently, 17% of tenancies are ending with arrears exceeding five weeks’ rent, highlighting the increasing financial strain on tenants. This statistic underscores the need for landlords to have more robust protections in place to offset potential losses. As the financial squeeze on tenants continues, the demand for more efficient, lower-cost deposit alternatives is expected to grow, offering a practical solution that relieves cash flow pressures for tenants while providing greater security for landlords.
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