What are top tips for avoiding arrears?
No landlord plans to fall into arrears, but it does happen. Follow these top tips to help you avoid falling behind on your mortgage
- Stay on top of your rent. Whether you have one or 100 properties know when your rent is due in and make sure you are immediately aware when it is late. This could be as simple as a diary although computer programmes are also available that alert you when a rental payment has been missed. Dealing with a missed payment quickly gives you much more chance of avoiding future problems.
- Communicate with your tenants. Having a good relationship with your tenants can be vital to avoiding tenant arrears, and therefore your own mortgage arrears. Make sure that they are aware you are approachable and that they should discuss any financial problems with you if they think it could affect their ability to pay their rent.
- Reduce the rent. If you have good long-term tenants going through a bad patch you may decide it is worth agreeing reduced rent with a repayment plan until they get back on their feet. It could end up a much better option than having to go through the eviction process, and then face possible voids.
- Take cover. Consider taking out a rental guarantee insurance policy to protect yourself in the event that your tenant falls into rent arrears. A good policy will pay out a sum equivalent to the rent, enabling you to continue meeting your mortgage repayments – a savvy way to avoid arrears.
- Get rent paid directly. If your tenants are recipients of Local Housing Allowance you may be able to get the rent paid directly to you if they are in arrears. They will usually need to be in rent arrears of at least eight weeks until you can request this. Contact your Local Authority for more information.
- Minimise voids. When a tenant gives you notice do not wait for them to leave before springing into action. Go around the next day and make a note of any repairs that need doing – and get them done while the tenant is still living there. Take photos and get the property advertised immediately – that way there is more chance of moving a new tenant in as soon as possible after your old one has left.
- Cut your costs. Look at all your buy-to-let expenses, not just your mortgage repayments. Could you save money by cutting out your managing agent and managing the property yourself? Also look at your maintenance costs, and if you run a large buy-to-let portfolio as a business, other expenses you incur, such as administration staff or vehicles.
- Switch to a fix. With interest rates expected to rise in 2011, now could be the ideal time to protect all or part of your portfolio by moving it to a fixed rate mortgage. It may be slightly more expensive than a variable rate in the short term, but if rates do rise it could be money well spent in the long term.
- Overpay now. If you have excess rental income overpaying your mortgage can reduce your outstanding balance meaning you pay less interest overall. You also create a buffer zone in case you hit hard times in the future, and your lender is likely to look more favourably upon those who have problems if they have overpaid in the good times.
- Contact your lender. Get in touch with your lender at the first sign you may struggle to meet a mortgage payment. The sooner you let them know of any potential problems the better and they can begin to work alongside you to help you manage your mortgage payments. What they can offer will depend upon your individual circumstances, but they want to help their clients avoid arrears and stay on track with their mortgages.