Crisis facing landlords could top that of the pandemic

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The cost of living crisis brought on by the biggest military conflict in central Europe since WWII will hit landlords hard – they could end up losing thousand of pounds in rent as the crisis bites this winter.

According to the Centre for Economics & Business Research think tank as reported by Melissa Lawford writing for The Daily Telegraph, around 10 per cent of households in England will fall behind on rent this financial year. That, says the think tank, equates to over 400,000 households in England at risk of homelessness, and all at a time when local authorities are already under extreme pressure housing regular immigrants and Ukrainian refugees.

If this figure is realised it would be around one-third higher that the number falling into arrears during the first year of the pandemic, taking us back to the financial crisis year levels of 2011-12.

With rents at all time highs and inflation racing ahead of wages, tenants will be grappling this winter with one of the biggest falls in real disposable incomes ever recorded. High inflation is causing real earnings in people’s pockets to fall at the fastest pace on record.

Government debt maxing out

The Government is using its remaining fire-power subsidising energy costs. With little left in its now extended borrowing powers to fund the kind of the support tenants received during the pandemic though furlough and other loans and grants, people will suffer. Landlords also will not be granted the mortgage holidays they received then.

According to Hamptons International’s research, real pay has been falling at 3 per cent year-on-year to early summer this year, while at the same point, the average annual rate of rental growth topped 11 per cent, with a 16 per cent plus hike over the past two years.

Paul Shamplina, of Landlord Action, an eviction specialist, is quoted as saying:

“It is going to be worse than the pandemic because the Government support has gone away. There is no furlough scheme now. There are no bounce back loans.

“I set up this company 22 years ago, and we are the busiest we have ever been – and we will get busier. Day in, day out, it is relentless, the number of tenants who can’t pay their rent,” he says.

Adding to landlords and tenants’ woes, there’s already a tenant debt overhang. As real wages have declined over recent years, many tenants have slipped further into debt and rent arrears, and these debts have already started to climb higher, even before we experience the worst of the winter crisis.

Reports by The Joseph Rowntree Foundation, a housing focussed charity, say that over the past year or so the average debt level facing those tenants in arrears increased by over one-third and average arrears climbed from £450 to over £600.

The foundation has forecast that more than 353,000 private renting households were in arrears in rent arrears as of June 2022, and this figure is now likely to rise quite dramatically as the energy bills start to come in this winter.

Mr Shamplina thinks that many landlords will “not bother to chase unpaid rent because of how long the process takes in the backed-up courts, and prefer to cut their losses and just get their properties back.”

In the meantime, over the coming months some landlords will face mortgage payment hikes as much as 40 per cent above those of last year, when loan deals were at their cheapest. When mortgage rates are at between 3.5 to 4.0 per cent interest payments will very likely eat up a big proportion of a landlord’s rental income.

House price growth slowdown

The growth in house prices over recent years has been a big plus for those investors contemplating buy-to-let investments, which improves renters’ choice and keeps rents down. But according to forecasts by Hamptons, house price growth will fall to zero in 2023. As interest rates rise affordability suffers and this will likely bring an end to the housing market boom and put a damper on buy-to-let investing.

There will be 150,000 fewer home purchases made next year as transactions fall from 1.25 million to 1.1 million, a decline of 12pc, and fall back to levels seen in 2013, Hamptons warns.

Exacerbating the whole situation is the army of landlords selling-up faced with all this and the coming Government buy-to-let crackdown: the banning of Section 21 and fixed-term tenancies etc, leading inevitably to a greater shortage of rental housing and therefore even higher rent levels.

A Government spokesman told the Daily Telegraph:

“We are taking action through our £37bn support package.”

The spokes person added that vulnerable households can apply for help through the £1.5bn Household Support Fund and argued that the forthcoming Renters Reform Bill would “help renters challenge unjustified rent increases.”

The Government has just launched a new consultation on improvements to the Decent Homes Standard for the private rental sector

A key proposal in this is giving tenants the ability to claw back rent if homes do not offer safe and warm accommodation.

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