More than 100,000 renters are now in severe arrears

A two speed rental market is developing between frustrated first time buyers who can afford higher rents and a growing minority who are failing to keep their heads above water.

The number of tenants in severe financial difficulty climbed by 8% in the second quarter of 2012, with over 7,000 more tenants over two months in arrears than in the first three months of 2012, according to the latest Tenant Arrears Tracker by chartered surveyors Templeton LPA.

In the second quarter of 2012, an average of 100,400 tenants in England and Wales were in severe arrears – an increase of 24% compared to a year ago. This is the highest number on Templeton LPA’s records, which go back to 2008.

“As the private rented sector grows, the number of tenants in dire financial straits is steadily climbing," said Paul Jardine, director and receiver at Templeton LPA. "Falling wages in real terms have been compounded by rising rents, pushing a greater number of rented households over the edge financially. With the instability in the labour market and wider economy, and public sector cuts still to come, the section of renters in multiple months of arrears is likely to continue its expansion."

Although the number of severe arrears cases (tenants with arrears of more than two months) continues to climb, the general level of tenant arrears across the entire market has improved, with 8.9% of all rent in the private rented sector late or unpaid by the end of May, a decrease from 9.9% at the end of April.

The increased number of tenants in severe arrears has driven a rise in the number of tenants being evicted through court orders. In the first three months of the year, 26,060 tenants faced eviction notices, 6% more than in the previous three months, and 5% more than in the same period of 2011.

A report from housing and homelessness charity Shelter last month showed that calls to the charity about problems with deposits have surged by over 80% in the last two years.

Kay Boycott, Director of Campaigns, Policy and Communications at Shelter, said: "This is yet more evidence of the crushing impact that rising rents and stagnating wages are having on family finances. Shelter research found that average private rents are now unaffordable for working families in over half of England, with many paying up to half of their income each month. And with home ownership out of reach for so many, hundreds of thousands of families are beginning to realise that renting looks set to be a way of life, not just a temporary stopgap."

David Whittaker, managing director of Mortgages For Business, said: “More and more tenants are finding themselves in financial difficulty as real term wages fall and rents rise and this is impacting their ability to pay their monthly rent bill. Arrears are a serious issue for landlords and so anyone investing in the private rental sector must balance the size of yield with the likelihood of arrears. Ensuring you invest in areas where tenants are less likely to fall behind in their payments may mean sacrificing a percentage point on the monthly returns but it could be the difference between receiving a full twelve months of rent and not.”