Landlords face looming arrears crisis as rising costs hit renters

Landlords face a looming arrears crisis as the cost of living crisis disproportionately hits renters, official data has suggested.

Tenants are 4.4 times as likely to be experiencing financial hardship compared to homeowners amid soaring interest rates and household bills, data by the Office for National Statistics (ONS) showed.

More than half of renters said they would be unable to afford an unexpected but necessary expense of £850, the ONS said, with just one in eight outright homeowners saying the same.

The findings were based on survey responses of 18,464 adults between September 2022 and January 2023.

Some 1.4 million low-income private renter households were already in arrears with their household bills or lending repayments in October last year, according to the Joseph Rowntree Foundation.

Darren Baxter of the Joseph Rowntree Foundation, said: “Private renters are facing costs that are spiralling out of control. Rapidly increasing rents are leaving many with no choice but to go without essentials or take on debt to pay for them.”

Meanwhile, smaller landlords are seeing their profit margins get wiped out by soaring mortgage costs as their fixed rate deals expire.

Tax changes that came into full effect in 2020 mean those who own their properties in their own name face a double blow, as they are no longer able to deduct all of their interest costs from their rental income when they calculate their tax bills.

Dominic Agace, chief executive of Winkworth estate agents, said: “There is certainly a looming crisis in the private rental sector, as increased costs for landlords has caused many to sell and shortened supply for tenants.”

Chris Norris, of the National Residential Landlords Association, warned that many landlords who would previously have given their tenants leeway on bills are now too stretched to be able to provide forbearance.

He said: “Lots of landlords would previously have offered to reduce rent bills, maybe to cost price, for their tenants. But now some of them are already not breaking even.

“There is a concern we will see under payment and non-payment of rent. And as much as we talk about tenants' resilience, there is also an issue of landlord resilience.”

An extreme imbalance between supply and demand is driving rents even higher. Annual UK rent growth across all existing lets hit a record high of 4.4pc in January.

Alicia Kennedy, of Generation Rent, a campaign group, warned: “The risk of homelessness relating to rent arrears is stark.”