UK tenant arrears down, but more pain predicted as we enter 2021
Letting agencies and landlords could breathe a cautious sigh of relief at the end of last year, as our latest PayProp UK special report showed a downward trend of tenants in arrears over the autumn and winter months of 2020.
Although a 3.3% drop between September and November may seem marginal, this brings the percentage of tenants in arrears down to 11.8% – the lowest level recorded since the first lockdown in March 2020.
During the same three-month period, the research also shows a small but steady fall in the percentage of rent owed by tenants.
With lockdown measures once again tightened across the UK, the next few months are likely to be challenging for the property industry. However, our report suggests that agencies have adapted well thanks to hard work, innovative thinking and good use of PropTech.
Adapting to a new normal
Looking back to the spike in September, the subsequent national reduction in arrears seems surprising. However, in our estimation, it is evidence of property professionals and wider society adapting to the ’new normal’, despite tighter restrictions and ongoing redundancies.
The research also suggests the vast majority of tenants in arrears have been attempting to clear them, with 77% managing to pay off some or all of their arrears between September and October. The data suggests some renters are negotiating affordable repayment plans in the event they cannot pay back the full amount straight away.
Hard data against uncertainty
December’s report concludes our series of three special reports for 2020 which used hard transactional data from the PayProp system to monitor the impact of the pandemic across the UK.
Looking back to the very first report, which revealed that almost one in six renters were behind on payments by May, people across the industry rightly feared the start of an arrears spiral, but the data shows otherwise.
Instead, after the initial lockdown in March, most tenants in arrears have been repaying some or all of their debt, despite the protection of eviction bans. We put this down to the hard work of professional agents and the introduction of government support in the form of the furlough scheme.
More pain to come
It’s tempting to focus on only the positives, but our data from January 2020 and January 2019 show a seasonal spike in arrears after Christmas as tenants overspend during the festive period. Despite the UK facing various forms of tiered restrictions over the festive season, we expect to see the same in upcoming arrears figures from January 2021.
As a result of this and new job losses, we predict more struggles to pay the rent, despite sustained government support. Nevertheless, agents can take some encouragement. Trading restrictions on sectors including hospitality over Christmas presented a timely opportunity for consumers to save money that would otherwise have been spent on social activities. This will enable more tenants to cover rent – and in some cases help them to repay outstanding arrears.
How ready are we for 2021?
Compared to January 2020, it stands to reason that the industry is far better prepared for the challenges of COVID-19. Notwithstanding tiered restrictions and lockdowns, lettings remains essential and will stay open.
The government’s extended furlough scheme until April will also bring much-needed relief and security for thousands of businesses – as well as enabling many tenants to continue paying their rent.
Finally, there is the huge logistical operation of the COVID-19 vaccine rollout which provides hope that 2021 will not be a repeat of 2020. With continued government support and a successful vaccine rollout, we hope to see tenant finances in a stronger position by the summer.
For the most in-depth look at the effects of the pandemic on UK tenant arrears, download our full report. In it, also look out for the first PayProp Rental Confidence Index, our dedicated survey of UK tenants, landlords and agents about their experiences with COVID-19.