With changes to the furlough scheme now in place, PayProp warns that letting agencies and landlords should prepare for a spike in rent arrears.
The rental payment automation platform advises that property professionals can minimise arrears with systems that manage and record payments and tenant communications effectively.
A rise in arrears could be caused by furlough scheme and lockdown changes
Since 1st August, employers using the Government’s Coronavirus Job Retention Scheme now have to contribute to National Insurance and pension payments for furloughed employees.
This will change again on 1st September, at which point employers will be required to contribute 10% of furloughed wages. This will rise to 20% in October before the scheme finishes at the end of that month.
PayProp points out that as the scheme winds down, there may be a rise in redundancies if employers are unable to afford the additional contributions. This could then lead to a rise in rent arrears if tenants find themselves unemployed.
Neil Cobbold, Chief Sales Officer at PayProp, comments: “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.
“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.”
How could a spike in rent arrears impact agents and landlords?
An analysis by PayProp shows that the average tenant in arrears owed almost 20% more in May than they did in January.
If the monthly percentage of rent they owe continues to rise, this could increase the pressure on landlords’ finances.
Cobbold says: “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.
“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 record and managed effectively?
According to PayProp, the best practice for managing rent arrears is to digitally record all payments and missed deadlines.
The chances of recovering lost income can be maximised if agencies and landlords have a clear picture of how much is owed. They should use practical strategies, such as chasing tardy payers promptly and agreeing affordable repayment plans or lump sum repayments with tenants.
Cobbold adds: “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.
“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.”