Fears over winter rent arrears crisis as energy costs soar
Soaring energy prices are causing hardship for many families and are only getting worse. Landlords should continue to communicate with tenants and ensure their rents are protected.
Homeowners face a “perfect storm” of potential defaults and rising mortgage interest rates this winter as energy prices soar.
Major insurers say they are already seeing a growing number of rent defaults as families struggle to cope with rapidly rising energy price caps.
The new forecast for Cornwall Insight’s January price cap has risen by more than £650 meaning a typical household would now have to pay the equivalent of £4,266 a year for the three months to March 2023 .
The forecast for the October cap has also seen an increase, rising by more than £200, with the forecast for the average bill now standing at £3,582.
Insurers warn that the massive price spike will leave landlords vulnerable, with many tenants simply unable to meet all their commitments.
Private landlords who don’t use a letting agent – just over half (52%) according to England’s Private Landlord Survey 2018 – are particularly at risk, as they are statistically less likely to have insurance rental guarantee in place.
“We’re on the front line in terms of insurance premiums and evictions, (we) have huge problems,” says Eddie Hooker, CEO of Hamilton Fraser, which offers general homeowners insurance.
“I think tenants are going to have very, very difficult decisions to make from October – will they heat their properties, will they eat – especially vulnerable people, especially families.
“There is no silver bullet here. At the end of the day, when these bills come in, there will be some tough choices.
Hooker predicts evictions are likely to reach between 150,000 and 170,000 over the next 12 months across the UK, up from 80,000 currently.
He says Hamilton Fraser has seen landlord inquiries about evictions rise to 15 a day from six or seven a day 12 months ago.
Hooker’s warnings are echoed by Andy Halstead, CEO of rental guarantee provider Let Alliance, and he makes no effort.
“We have never been confronted with anything like this”
“Is it a risk? Absolutely. What are people going to do if they don’t have enough money? he says. “I’ve been running rental guarantee books for almost 20 years, and whatever the economic cycle, we go through it and we always have, but we’ve never really faced anything like this.
“Do I think we are headed for an increase in rent arrears? Absolutely. No doubt about it. We have already seen rental guarantee requests increase this year by 15%. It’s starting to make itself felt. »
He says if families don’t have enough money to pay their bills, they face a stark choice.
“You can imagine sitting there on payday saying, ‘We don’t have enough money. You then have to choose what you pay and what you don’t. what choice do you have? It’s not about people failing to live up to their responsibilities, it’s about an impossible scenario.
“The average family is going to suffer like crazy, let’s be honest. It’s really ugly.
Halstead thinks there are no easy answers, but offers a crumb of reassurance by saying rent payments are usually the last bill tenants will stop paying.
“From my years of experience and analysis of claims, I can tell you that when rent isn’t paid, it’s usually the last thing that goes wrong. So what people have generally done by the time they don’t pay rent is they’ve exhausted all other avenues – they’ll be behind on credit, loans, cards, HP. Why? Because they lose their house if they don’t pay the rent.
“Rent arrears are a very good barometer of the state of what is going on there. If and when rent arrears start to mount, what this tells you is that there is a serious crisis in the population.
Communication is key
Hooker says good communication is essential to help anticipate any potential rent defaults.
“Go talk to your tenant – don’t wait for that to happen,” advises Hooker.
“My advice is to continue with the Covid approach, which is to keep talking to the tenant. This is key, because if the tenant has stopped paying, you need to know why they stopped paying.
“A tenant will only do this if they feel they have no other avenue to take, and one of the avenues has to be the landlord. They need to talk to the owner, and if they don’t, the owner needs to reach out, or the owner will become the criminal and we don’t want that. There’s enough rhetoric out there to demonize landlords. There is no quick fix for this other than talking and communicating.
Hamilton Fraser also offers a mediation service for landlords and tenants through the Property Redress scheme, with an initial fee of just £25, to help manage rent arrears before things get too serious.
“We are happy to pick up the phone and try to work out a solution with the tenant.”
“Don’t be tempted to raise the rent”
Hooker has another piece of advice for landlords facing what he calls a “perfect storm” of rent defaults and rising mortgage interest rates — don’t be tempted to raise rents.
“We’re starting to see landlords raising the rent; they want the same return,” he says. “If they come out of a mortgage solution, they’ll probably see a triple increase in the interest rate, and so their yield will go down, and so they’ll be tempted to raise the rent – and obviously there’s a lot of demand there. -low, because many owners were tempted to leave the market.
“I think landlords had better look long-term and not be tempted to spike the rent all at once, which would make the problem worse for the tenant, causing arrears.”
However, landlords with HMOs where energy costs are included in the rent may have little option, or they will see their rental income gobbled up by energy bills. The good news is that the entire rent, including the charges part, is generally covered by guarantee policies.
Ellie Wiles, marketing and partnerships coordinator at Vouch, echoes Hooker on the importance of talking to tenants at the first sign of trouble.
“When they find themselves in this situation, at the very beginning, talk to them to understand what is happening so that you can help them, rather than having a big falling out when they stop paying their rent,” he advises. -she.
“Communication is key – it’s the first thing you want to do before you fall out.”
Rent guarantee insurance is essential
Vouch provides a variety of resources for landlords on how best to communicate with the tenant, such as how to have that initial conversation and how to set up payment plans, rent vacations or rent reductions.
“We’re just encouraging people to get insurance now, so if the worst happens to them during the winter, they have that support to fall back on,” adds Wiles.
“At the moment we are waiting to see what happens. Energy prices are expected to rise wildly in winter, but we can’t predict what will happen, so we’re just making sure we have the best product for homeowners, in terms of support, at a price affordable for them.
Halstead thinks it’s vital for landlords to have some form of rental guarantee insurance in place in the current economic climate.
“If properties are not protected by rental guarantees now, landlords are seriously vulnerable,” he warns.
“It’s not just about arrears, it’s also about court costs. What happens when we get into this kind of crisis is people are fighting to stay in their property and giving all kinds of reasons why they shouldn’t be paying rent, and our rent guarantee covers all of those kinds of situations while paying the rent. »
No plans to raise premiums
Halstead says his company has deep pockets and has no plans to raise premiums for the foreseeable future.
“That would be the last thing we would do because I think it’s up to us to get through the tough times,” he says.
But he points out that soaring energy prices pose a serious threat to the industry.
“Will this disrupt the private rental sector? Absolutely. Are we going to find ourselves going through a difficult period? Absolutely. Make sure you have a partner with the financial resources to get through it.
Meanwhile, Cornwall Insight, which has compiled the shocking figures on the planned price cap, is urging the government to take action to support families this winter.
“While our price cap forecast has steadily increased since the summer 2022 cap was set in April, an increase of more than £650 in the January forecast is a further shock,” says Dr. Craig Lowrey, senior consultant from Cornwall.
“The cost of living crisis was already front and center as more and more people face fuel poverty, this will only heighten concerns.
“It is essential that the government uses our forecast to encourage a review of the support program offered to consumers. If the £400 wasn’t enough to reduce the impact of our previous forecast, it certainly isn’t enough now.
Lowrey says the government must make introducing additional support in the first two quarters of 2023 a “number one priority”.
“Longer term, a social tariff or other support mechanism to target support to the most vulnerable in society are options that we at Cornwall Insight have previously proposed. Right now, the current price cap is not working for consumers, suppliers or the economy.
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