Dealing with Rising Rent Arrears: Strategies for Landlords

With the cost of living rising and rents reaching record highs, many tenants are finding it increasingly difficult to keep up with their monthly payments. For landlords, this has led to a growing concern: rent arrears. According to the Goodlord State of the Lettings Industry Report 2024, rent arrears have been on the rise across the country, with 33% of landlords in the North West reporting an increase in arrears.

If you’re a landlord in Manchester or the surrounding area, understanding how to effectively manage rent arrears is essential for protecting your income and maintaining a healthy portfolio. Here are some practical strategies to help you deal with rent arrears and safeguard your rental business.

Why Are Rent Arrears Rising?

There are several reasons why rent arrears have become more common in recent years:

• Cost of living pressures: As energy prices and general living costs increase, many tenants are struggling to make ends meet. In the North West, tenants are now spending around 35% of their income on rent, making it harder to keep up with payments .
• Rising rents: The demand for rental properties continues to outstrip supply, leading to higher rents across the region. Although this can be beneficial for landlords in terms of increased yields, it also places more financial strain on tenants, which can result in missed payments .
• Job insecurity: Economic uncertainty and job instability are also contributing factors. Many tenants have faced job losses or reduced income, making it more difficult to pay rent on time.

As rent arrears continue to rise, it’s important for landlords to be proactive in managing this issue and minimising its impact on their rental income.

Strategies to Manage and Reduce Rent Arrears

1.Thorough Tenant Screening - One of the best ways to prevent rent arrears is to thoroughly screen tenants before signing a lease. Comprehensive tenant checks—including credit reports, references, and proof of income—can help you identify reliable tenants with a lower risk of defaulting on payments. In the North West, 63% of landlords already work with letting agents like us to help with tenant screening and compliance, ensuring they are letting to the right people.

Tip: Use a trusted letting agent such as Property Genius or tenant referencing service to verify income stability and past rental behaviour. Consider asking for a guarantor, especially for tenants with borderline financial profiles.

2.Clear Communication and Payment Plans - When a tenant does fall behind on rent, open communication is crucial. Reach out to the tenant early, understand their financial situation, and try to work out a payment plan that suits both parties. Often, tenants may be facing temporary difficulties and are willing to resolve the issue if given some flexibility.

Tip: If a tenant has missed one or two payments, offer to spread the outstanding rent over a few months, making it more manageable for them while ensuring you still receive the full amount owed.

3.Offer Rent Protection Insurance - Rent protection insurance is an increasingly popular way for landlords to protect themselves against rent arrears. Property Genius offer rent protection insurance to landlords, which can provide peace of mind by covering missed payments in the event of tenant default.

Tip: Speak with your letting agent about rent protection insurance options and consider incorporating this into your tenancy agreements, especially if you’re renting to tenants with less secure income streams.

4. Regular Rent Reviews - Regularly reviewing your rent levels can help you strike a balance between keeping rents competitive and ensuring they remain affordable for tenants. In some cases, rent arrears occur because tenants cannot keep up with regular rent increases.

Tip: If your property is located in an area like Manchester, where demand is high, consider implementing moderate rent increases to avoid pushing tenants into arrears. At the same time, ensure the rent remains aligned with local market rates.

5. Early Intervention with Legal Action - While legal action should always be a last resort, there may be cases where tenants consistently fail to pay rent, leaving you with no other option. The Renters’ Rights Bill could make the eviction process longer and more complex, so it’s important to start any legal proceedings early if necessary .

Tip: Before pursuing legal action, send formal notices to the tenant and give them time to catch up on payments. If the situation does not improve, seek legal advice to ensure you follow the correct procedures, especially under new legislation that limits no-fault evictions.

Long-Term Solutions for Reducing Arrears

While managing current arrears is crucial, it’s also important to implement long-term strategies that can help reduce the risk of arrears in the future:

• Build a Strong Tenant-Landlord Relationship: Maintaining a positive relationship with your tenants can encourage them to communicate openly if they’re experiencing financial difficulties. When tenants feel supported, they’re more likely to work with you to resolve payment issues, rather than avoiding them.
• Consider Shorter Rental Periods: For tenants with uncertain financial situations, shorter rental periods might be more appropriate. This can give you the flexibility to reassess their payment history before renewing their contract, helping you avoid being locked into long-term agreements with tenants who struggle to pay rent.
• Upgrade Your Property: Tenants are more likely to prioritize rent payments if they feel they’re getting value for money. By making small improvements to your property, you can attract higher-quality tenants who are less likely to fall into arrears.

The Future of Rent Arrears: What to Expect

Given the current economic climate, rent arrears are likely to remain a challenge for landlords in the near future. However, by taking a proactive approach, you can mitigate the risks and protect your rental income. The combination of thorough tenant screening, flexible payment options, and rent protection insurance can go a long way in safeguarding your investment.

As new legislation like the Renters’ Rights Bill comes into effect, landlords may face additional hurdles when dealing with problematic tenants, particularly when it comes to eviction. Preparing now by ensuring compliance with the latest regulations and implementing strong arrears management processes will be key to navigating these challenges.

Conclusion: Take Control of Rent Arrears

While rent arrears can pose a serious threat to your rental income, having a strategy in place to manage them can make all the difference. By being proactive, offering flexibility where needed, and protecting yourself with rent protection insurance, you can reduce the impact of arrears and maintain a healthy portfolio.

If you’re concerned about rent arrears or want to discuss your options, get in touch with us today. We’re here to help you navigate the challenges and ensure you have the right protections in place for your rental business.

Source of Data:

The statistics and insights mentioned in this article are based on findings from Goodlord’s State of the Lettings Industry Report 2024, focusing on rent arrears and landlord challenges in the North West.