Due to the financial impact of the Covid-19 pandemic, rent arrears have become a more pressing issue for landlords and letting agents since March 2020. With arrears rising consistently since last spring as the pandemic continues to cause havoc for the economy and people’s personal finances, there is concern that the situation may get worse this year before it gets better.
With the number of Covid cases continuing to surge over the festive period, the government recently introduced a third national lockdown which is likely to last until the spring. The hospitality and leisure sectors are once again under significant pressure and there could be serious financial consequences for many tenants working in these industries over the coming months.
The UK economy has been in recession for a number of months now and there is concern that more businesses will go under leading to a further surge of redundancies across the country.
The Chancellor, Rishi Sunak, has announced a further package of support for businesses, including the extension of the furlough and Self-employed income support schemes until the end of April, but many commentators believe this won't be enough to stop the unemployment rate from rising.
The Office for Budget Responsibility suggested that unemployment peaked at 9.7% in 2020 and, in the worst-case scenario, may not return to pre-pandemic levels until 2024.
Rising unemployment will have an effect on many renters and so rent arrears could once more increase sharply over the coming weeks and months. If tenants don't or can't pay rent, landlords don't receive their expected income and this puts a letting agent's management fee at risk so it's in your interest to help landlords get on top of arrears before they get out of hand.
With this in mind, here are our top tips to help landlords manage arrears effectively
Use PropTech to your advantage
Using online systems to keep a record of all payment activity can provide you with a clearer picture of how a landlord's portfolio is shaping up. Tech solutions can also help you to automate rent reminders and late payment communications, which can save your team valuable time. Sending these reminders via SMS or WhatsApp message can be highly effective.
It also pays to advise tenants to set up standing orders for their monthly rent payment - this reduces the chances of them withholding rent and means they don't have to remember to pay and you don't have to remind them.
Finally, having a robust digital referencing system in place can provide your landlords with the protection they need when taking on new tenants, reducing the chances of letting to renters with a bad track record who are more likely to miss payments or fall into serious arrears.
Take the initiative and don't be reactive
Landlords hire you to manage their portfolio, so it's important you take this responsibility seriously when it comes to arrears. Being proactive is the key - if there are tenants you are concerned could fall into arrears, contact them first and get a handle on their financial situation.
By being transparent and upfront with tenants, you can start to build a relationship. The better the relationship, the more chance you have of working out a solution and getting the renter to pay back what they owe.
If tenants know you are there to help on the landlord's behalf, they are likely to be more forthcoming with crucial information about their circumstances. Having all the information to feed back to your landlord is essential - you can't manage rent arrears effectively if you're not aware of the full picture.
Offer landlords rent protection
In the event that arrears escalate into a long-term problem or the tenant defaults on their payments, a rent guarantee product can provide landlords with the cover and peace of mind they require.
If landlords can receive cover for the rental payments they are missing out on, this protects your management fee. In times like these, landlords will be looking to work with letting agencies which offer a full package of services.
Building rent protection services into your management package provides you with opportunities to earn additional revenue, as well as more reasons for the landlord to stick with you for the long-term. This is something Canopy can help with. Contact us to find out more.
Make sure everything is in writing
This is a key measure you need to take in order to offer your landlords the protection they need. If rent arrears become serious and lead to a potential eviction, having a record of all communications and payments could act as crucial future evidence.
Of course, it's important to speak to tenants in person from time to time and to communicate about certain issues. However, if you make any arrangements or agreements over the phone or in person, make sure they are followed up in writing so you are covered.
Advise landlords on their options
When arrears get serious, your landlords may start to worry and not know which way to turn. As their letting agent, it's important that you are on hand to reassure them and let them know the options available to them.
For example, it could be worth their while to speak to their lender or insurer about issues they are facing, while contacting a guarantor is a good way to recoup lost rent when arrears escalate.
In the worst cases, landlords may need to pursue an eviction. If so, make sure you are on hand to advise them on the steps they need to take and can refer them to the necessary services at the right time.
Take control of communication
When tenants fall into arrears, communication is key. If you can't get in touch with them, it's highly unlikely you'll be able to recoup unpaid rent on behalf of your landlord.
As a letting agent, it is your job to keep in touch with tenants, find out valuable information and remain professional in the face of difficult circumstances. If you can build a positive relationship with tenants, your chances of receiving a lump sum of unpaid rent or being able to agree an affordable repayment plan are significantly increased.
With the economic outlook remaining uncertain and the prospect of rent arrears getting worse over the next few months, letting agents will play an important role mediating between landlords and tenants.
By doing so, you can help tenants through a difficult period while also providing your landlord clients with an invaluable, professional service which protects their investment.