Does the thought of rent arrears make your stomach churn?
With 37 per cent of landlords experiencing rent arrears in the last 12 months, it is a very real risk to landlords. And unlike any other type of service provider, landlords are providing homes and are unable to terminate a contract with their tenant immediately in the event of non-payment. But don’t despair, there are a number of precautions that can minimise the impact of rent arrears on a landlord’s ability to meet their mortgage payments.
Firstly, build a buffer into your business plan
We suggest a business plan based on 10 months rather than 12 months’ rent. This allows you to cover the majority of unexpected costs.
Prevention starts before you grant a tenancy
It’s essential to vet a potential tenant to check they are in a position to meet their rental payments and have a good track record with previous landlords. It’s possible to do this yourself by requesting proof of income, an employer’s reference and a previous landlord’s reference or alternatively, you could employ a professional tenant checking service to carry out checks. There are a variety of services on the market. The NLA offers a basic tenant check and a more detailed search available at a 15 per cent discount to NLA Members.
Next think about insurance cover
Landlord insurance offers additional cover to your average home insurance policy. It covers risks such as public liability and accidental damage, loss of rent and alternative accommodation cover. And rent guarantee insurance provides protection in the event that the tenant doesn’t pay the rent.
Consider a guarantor
This is a good idea if you are uncertain about the tenants’ ability to meet their rental payments – likely to be the case with tenant groups including students and those who have poor credit scores. A guarantor can be a friend or relative of the tenant who agrees to meet the rental payments if the tenant fails to do so. Ideally, the guarantor should be a UK based homeowner and you’d be wise to carry out background checks on the proposed guarantor before providing the guarantor agreement. When you’re happy, be sure to issue a guarantor agreement, available to download from the NLA website, allowing plenty of time for the guarantor to read and understand what is required of them.
Once you’ve made efforts to try to prevent arrears, you’ll still need to keep a look out for signs. After all, everyone’s circumstances can change.
Try to keep in regular contact with your tenants so that they have the opportunity to tell you about any changes such as loss of income. This allows you to discuss their future housing plans. Also, be sure to monitor receipt of rent so that you can act quickly if payment is not received.
To learn more about how you can protect yourself from the risk of rent arrears and how you can help your tenants, download the NLA’s landlord guide to rent arrears and the tenant guide to rent arrears.