Importance of planning ahead for potential tenant defaults – Fryers

Forbearance is a term most often associated with lenders towards borrowers who have defaulted on their mortgages. It usually enables the mortgage holder to continue to stay in their home for a period of time to sort their finances out.  

However, in these unusual times, landlords may well need to extend forbearance to their tenants. 

Surging costs 

According to The Deposit Protection Service (The DPS), average UK rents reached £889 during Q3 2022, an increase of 8.68 per cent (£71) since Q3 2021. With other costs rising at the same time, there is likely to be a growing number of tenants who struggle to pay their rents – if not now, then as we go into the new year. As a result, it is essential that landlords plan for this. 

Payment issues are likely to be different from those that the sector experienced in previous decades however, when people struggled to find work. The Office for National Statistics (ONS) reports that 76 per cent of the population is currently in employment, so access to jobs is less of an issue. However, for a growing number of people, affordability is.  

Looking ahead, energy prices are expected to continue to rise for the rest of the autumn, which will bring additional pressures, particularly for those on the lowest incomes. Many people then experience another payment ‘shock’ in the New Year, at the point that bills arising from Christmas need addressing. 

While some people may feel they are unable to plan financially beyond the next few months, it is wise for brokers to advise their landlords to plan ahead to help avoid the possibility of issues, including defaults. 

Thinking ahead 

At the moment, many buy-to-let mortgage books still seem to be performing well. Landlords and property investors continue to pay their mortgages, and arrears are lower than many might have expected, but things may well get tougher as the year goes on.  

Landlords who plan ahead, or who have planned already and have reserves built up, are the ones who are most likely to weather the next year or two effectively, and will no doubt see opportunities emerge to build their portfolios. 

There is an opportunity for brokers to make sure their landlord customers receive the most up-to-date information about rent yields and funding structures to enable them to make purchasing decisions that best suit their present and future budgets.