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Landlords should be wary of pricing tenants out of the market

13th April 2012

Much has been made of the spiralling cost of renting across the UK over recent months, as demand for private rented accommodation seems to grow ever greater.

For many landlords this is welcome news, as it generally means greater returns on their properties.

But some in the industry are also warning of a possible downside to rising rents for buy-to-let property owners - namely that if they are not careful they can end up pricing tenants out of the market.

Matt Hutchinson, director at SpareRoom, warns that if rents keep going up, they will quickly become unaffordable to many tenants.

"Landlords can increase rents as much as they like, but if people can't afford to pay those rents, then it is an unrealistic expectation," he commented.

"Rents can only rise so much before people simply can't afford them. It is no use to a landlord to have a commodity that nobody can buy."

Not only can overpricing lead to landlords being unable to find tenants, resulting in longer void periods and a loss of earnings, it can also make it more likely that tenants fall into arrears.

Although taking out rent guarantee insurance and using tenant referencing services to background check potential tenants before taking them on, rising rents coupled with difficult economic conditions means arrears are likely to become an increasingly common occurrence.

Michael Banks, commercial director at Upad, points out that rising rents often go hand-in-hand with increased economic uncertainty, as fewer people can afford to buy a home.

"The lack of job prospects should increase rental buoyancy because people are less willing to buy when there are question marks [about jobs]," he said.

"The rental market runs contrary to the economy generally; the more uncertain the economy, the more buoyant the rental market."

But landlords who do find themselves in the situation of having a tenant who cannot afford to keep up with rent payments need not panic.

Often it is possible to come to an amicable solution for both parties without resorting to legal action.

David Lawrenson, private rented sector expert at LettingFocus.com, explains that communication is often the key in dealing with tenants who may be struggling financially.

"My advice for tenants and landlords is to get together, speak and try to find a workable solution - it might involve the tenant leaving and having to find other accommodation," he said.

"Most landlords ought to be supportive in trying to find a solution. The key thing is to make them aware of the issue and to try to find the solution, which might be perhaps paying less rent. It might be the landlord just being aware of it and just agreeing that they will make [up the shortfall in rent] when they find a job, or it might be them leaving and the landlord allowing them to leave early without making them pay to the end of the contract. It is about finding solutions like that with a flexible landlord."

If all else fails, landlords can seek recompense from the tenant for unpaid rent through the courts.

Taking out rent guarantee insurance will help cover some of the cost of court proceedings against tenants or guarantors.

Posted by Jason Randall

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