Arrears are Stressing Landlords Throughout the UK

By Simon Morris On Thursday, May 28 th, 2015 · no Comments · In ,

A new survey has shown that rent arrears are the most concerning issue for landlords across the UK. This news has prompted property specialist Simon Morris to explore whether investors should turn to Bridging Finance to cover their backs when their tenants fall into arrears.

The profitability of buy-to-let

Buy-to-let is a profitable market for investors. According to the Guardian, data from analysis conducted by Wriglesworth Consultancy for lender Landbay shows that every £1,000 invested in the buy-to-let sector since 1996 was worth £14,987 at the end of 2014.

Changes to pension rules suggest that activity is set to increase in the buy-to-let sector as we move deeper into 2015. People who are 55 or over with a defined contribution pension no longer have to buy an annuity; they can withdraw their pension pot as a lump sum. Figures show that a third of people between 45 and 64 were considering withdrawing their pension to invest in buy-to-let before the change went into effect.

What is causing landlords the most stress?

However a new survey from Property LetBy Us shows that potential landlords across the buy-to-let market are facing a number of significant challenges. Arrears was cited as the most prevalent issue by 87% of landlords surveyed.

Meanwhile, 80% admitted that dealing with tenants’ complaints was the most stressful issue they face. A further 43% cited repairs for properties as their most stressful problem, whilst 40% said the same of new immigration laws. However only a third suggested that void periods between tenancies was a major cause of stress for them.

The importance of background checks

Jane Morris, managing director of Property Let By Us advised landlords to invest in proper background checks. She was quoted by Property Wire saying: “Picking the right tenant can save a long, costly eviction process further down the line. Be thorough in conducting background checks and reference gathering, including bank statements for the past three months, previous landlord references to check the tenant paid rent on time, credit checks, incorporating fraud indicators and employer references.

“It’s important to also check identity and proof of current address, ideally tax or insurance documents, and talk at length to a prospective tenant.” She also suggested that “applicants who are reluctant to produce their identity documents represent a higher risk to the agent’s obligations for customer due diligence under the Money Laundering Regulations.”

Cover arrears with bridging finance?

Background checks are useful, but sometimes they can’t prevent late-paying tenants from slipping through the cracks. In this case, investors may want to consider turning to bridging finance to cover the arrears. This will allow them to fulfil their own financial obligations whilst they persuade their tenant to pay up.

Yet bridging loans are financial products and property expert Simon Morris would recommend that buy-to-let landlords utilise the services of an Independent Financial Adviser (IFA) before they take one out. An IFA will weigh up a landlord’s risk for appetite against their expectations concerning yield to determine whether a bridging loan is right for their circumstances.

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