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Buy-to-let market: Rent increased with rental arrears

July 28th, 2009

Report demonstrated a slight recovery in the buy-to-let market as indicated by the increase in average rent prices. However, an increase in unpaid rent is illustrated in the same report.

New statistics announced by a Property Service Association revealed an increase in average rent in June for the first time in three months. The average rent rose to £659 – up by 0.1% compared to the previous month. This figure is still down by 3.4% since the peak rental prices in August 2008, while the rental yields have reached the highest point of 5.1% in five years in June. Rent price increased at its fastest rent particularly in London with a rise of 1.7% in June – which has reached an average rent of £900 a month.

The above statistics prone to show a positive trend within the market – yet, while the property rental market is looking stable; the same report recorded an increase of £1.5 million in the amount of unpaid rent in June – reaching to about £254 million. The growing amount of unpaid rent came along with a decrease in the total number of tenants who were in rent arrears – which was down from 557,000 to 529,000 compared to the previous month.

Typically, tenants in arrears are mostly coming from the lower-earners cluster who rent cheaper properties in the country. However, the trend has shifted: individuals who paid two-thirds (66%) of the average rent were the most likely to fall into rental arrears in January; while now the group of people who pay three-quarters (76%) of the average rent are the typical group who fall into rent arrears. This represented that the rental arrear is now trapping the higher-income earners.

At the beginning of the recession, the lower-income earners were the group that is more likely to be affected; nonetheless, as the economic downturn progresses, it starts to affect the higher-income earners. The unemployment rate is said to remain high while employers are practising salary freeze to limit cost increases to survive through the recession. These factors would gradually affect the higher-income earners.

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