News Review: Scotland


Indebted Scots pose problems for landlords


by Stuart Pender, partner, Lomond Capital


there has been an outcry north of the border over how quickly some disaffected creditors are turning to the dreaded bailiff to recover unpaid debts. and it would seem that it is the put- upon public sector rather than the private that has come in for most criticism. edinburgh and glasgow councils topped the list of uK local authorities to have used enforcement action to recover debts. the two cities account for nearly one in 10 of all uK referrals. Scotland accounted for


over 20% of all cases based on figures from the 27 local authorities which responded to a freedom of information request from Big Brother Watch, a civil liberties and privacy spin-off from low-tax lobby group the taxPayers’ alliance. although these figures represent what is happening currently in the public sector, there is no doubt that the same contributory factors sparking such frowned-upon debt recovery actions are also present in the private sector. For example, there is


no disguising the fact that last year three Scottish towns recorded the highest concentration of people going broke in the uK in 2010, according to information company experian. experian added that there was a high level


of insolvencies among young, single professionals and middle income earners just starting their careers – exactly the kind of people who might be in rented accommodation as they save up for a deposit for that all important first step on the property ladder. this is not just a problem


for the embattled mortgage sector keen to see a revival in foot fall of first-time buyers; it also presents difficulties for landlords and brokers keen to push buy-to-let mortgages, for why would any such investor want the headache of having a property delivering no rental yield and only depreciating in quality?


Tenant arrears Property in edinburgh and other hotspots is undergoing cultural change with the tighter restrictions on mortgage lending forcing many residents away from home ownership towards long-term renting. But while tenant demand has increased across all uK regions the residential Landlords’ association can also point to a significant rise in the number of tenants in arrears for three months or more. nearly half of all landlord


possessions are caused by tenants not paying rent, says the rLa. the situation in Scotland becomes even more worrying when taking into account that more than a quarter of Scots would not be able to pay their bills only a month after losing their job, according to research by the insolvency trade body r3. it found more than a


“No matter what the size of a landlord’s portfolio, the biggest of


their worries is whether or not the tenant will pay the rent on time.”


staggering 26.4% would have to default on all their bills after being made redundant after four weeks. more than half (57%) said they would be in financial trouble within six months. this also comes against


a background where landlords’ cushion of capital is set to be eroded as we move closer to the day when the tenants deposit Protection scheme comes into force in Scotland. no matter what the size


of a landlord’s portfolio, the biggest of their worries is whether or not the tenant will pay the rent on time. one way to help reduce this worry is to find great tenants and referencing is a key part of that process. Landlords


have traditionally protected


themselves against the risk of tenants going into arrears by making sure their buy-to- let insurance features a rent guarantee provision. But, of course, this adds to their costs and reduces profits.


Reference tenants How much better therefore to make sure that you have a good quality tenant in your property at the outset? the best letting agencies will have their own tenant referencing services. Landlords need to


optimise yields as well as the capital value of the property, so as well as seeking to get the highest possible rent, a good agency should ensure that the landlord is protected through a rigorous tenant selection process, as well as keeping a keen focus on the condition of the property. matching the right tenant


to the right property is an art. it’s not just about finding a tenant; it’s about selecting the correct tenant for the property. that’s why a letting agency that will personally carry out viewings, picking the client up and driving them to and from your property, obtains a better feel about the potential tenant and can decide if he or she is a suitable person to place. this is a very important


part of the process as it is the basis of any successful tenancy as it also provides peace of mind for the tenant. Knowing that they’ve got


the property secured is the most important thing for them once they’ve set their heart on their new home. utilising a referencing service that is reliable, quick and cost effective is a vital component for everyone in the process and one that any landlord eager to protect their investment should eagerly embrace.


mortgage introducer MAY 2011 19


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