Rent Arrears Could Accelerate A Property Crash

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If there are any people still in doubt that a residential housing crash will not happen, then here are a few more nuggets of information which have been released recently which are worth considering.

Property Rental Problems

There have been some rather worrying figures coming out of the allegedly ‘booming’ rental sector which may point to rent arrears becoming part of a further property crash.

At the back end of last year tenant evictions increased by 9% and serious cases of rent arrears were up by 13%. This was just the start. Things have been steadily declining since, regardless of all the ra-ra jolly up statistics bandied about by agents regarding how busy they are. By the end of 2010 £276 m was owed to UK landlords in rent. This had gone up 11.8% by the end of April 2011.

The NLA thought these figures were so significant that by May 2011 they issued a rent arrears warning. Over 50% of landlords that were asked about arrears said the were experiencing problems with tenants not paying. If we add to this the recent government meddling with housing benefit cuts and selective licensing for HMO’s ( house of multiple occupation) then things are not going to get better any time soon. Many tenants are likely to suffer job losses due to company restructures and public sector cuts.

High Leverage = Repossessions

The simple fact is that many landlords who bought in the last 5 years are highly leveraged on their properties, that is – they have no equity left in the property, and hence can’t raise more finance if needed, which will force them to sell at whatever they can get if they can’t meet their payments. If protracted evictions were to become more apparent, many would not be able to pay both the eviction costs and keep the mortgage payments going. In turn, this can only lead to more repossessions of ex rental properties, and, with very few buyers making it through the banking hoops for finance, where does that leave the market?

Sales Sector Issues

Now, lets take a brief trot around the sales market. Right Move have noted the following facts from it’s own stats. The “average asking price” has dropped by 1.6%, this includes London and is the first whole market drop this year ( of course many areas have dropped much more than this), making it the largest July fall since 2008. 70% of all marketed properties are not selling. First time buyer levels in the market have also dipped significantly, 827,000 households are now in negative equity, and finally, home owners are catching on to the fact that values need to go down to sensible levels if they have any hope of selling.

So with all the above pointers, not forgetting the worldwide and local economy signposting further storm clouds on the horizon, can we not yet see that both the state of the sales sector and rent arrears could be the signal for a property crash? There is little more than hot air holding the market together. Sales and rental markets are heavily linked.The signs are there if you choose to read them.

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