Landlords brace themselves for increase in rental arrears from April

Rollout of new national payment directly to DSS tenants will cause problems for landlords

Landlords are reporting concern that the national roll out of the Local Housing Allowance (LHA - the replacement for the payment of DSS tenants’ rent) on 7 April 2008 may cause an increase in the number of tenants in rental arrears and could see some landlords and mortgage lenders pull out of the sector altogether.

From 7 April 2008 almost all local authority tenants will receive a LHA payment directly into their own bank account with the responsibility to pay landlords rents directly. Previously, rent would be paid directly to the landlord by the local authority.

If a tenant fails to pay their rent for over eight weeks then the landlord can make arrangements to receive rental payments directly from the local authority.

Jonathan Moore, Head of Marketing at Mortgages for Business, comments: “This scheme has been piloted in a number of areas over the past 18 months and we have received reports from landlords where tenants have struggled to cope with this responsibility.”

“Landlords face a dilemma; there are already a limited number of lenders willing to lend on property let to tenants relying on benefits and if tenants begin to default, lenders could further shy away making it more difficult for many landlords to fund the purchase of similar property - particularly given that lenders are becoming increasingly risk adverse due to the credit crunch”

“We will also be watching with interest to see if lenders make any changes to their lending criteria which makes funding properties in this sector more complicated. A few lenders may decide to opt for lower risk, high performance areas of the market, avoiding any risk in providing funding where there is potential for tenants to default on a regular basis.”

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Case Study

Mick Roberts a large portfolio landlord from Nottingham who has expressed doubts about the scheme and thinks the introduction of a two week rule would be more sensible to stop tenants from missing their rent payments. Mick is happy to be contacted to discuss his reservations about the scheme.

Notes for editors

Mortgages for Business are independent experts in buy-to-let and commercial mortgages managing single and multi-let property portfolios for thousands of UK investors. Its brokers have access to a large portfolio of fixed and variable interest rate mortgages from a panel of over 30 lenders and offer truly independent advice that is appropriate to investors.

For more information on products and services call Mortgages for Business on 0845 345 6788 or visit www.mortgagesforbusiness.co.uk

Contact

Jonathan Moore, Head of Marketing

Mortgages for Business

Tel: 01732 471600 / 07810 717421

Matt Baldwin, Coast Communications

Tel: 01233 503200 / 07930 439739