Industry experts are warning that hundreds of the smaller, under insured and less robust operators in this sector will soon face serious financial problems as tenants struggle to pay their rent.
The UK’s small ‘guaranteed rent’ companies operating within the private rental market face being forced out of the market over the coming weeks and months as the Coronavirus crisis intensifies, industry experts are warning.
Guaranteed rent schemes are popular among landlords who want peace of mind from a reliable rental income, and a sizeable industry has sprung up to offer this kind of service.
But industry experts are warning that small operators who don’t hold professional indemnity insurance or possess other financial buffers now face being wiped out if tenants stop paying rent in large numbers.
“No one ever predicted or dreamed that we would be where we are today,” says consultant Eric Waller. “It was inconceivable even six months ago that millions of tenants would face losing their jobs and be unable to pay their rent – and the smaller guaranteed rent operators just aren’t set up to cope with that.”
Rent default rates
The large corporate estate agents and property companies who are also active in this field plan for up to three to four percent of their tenants not paying their rent, in normally times.
But with some rental markets dominated by low-income and other vulnerable tenants, anything between 20% and even 50% of them could struggle to pay their rent as the economic shut-down bites, LandlordZONE has been told.
“The guaranteed rent sector is under threat because the commercial agreement between the landlord and the company involved is now all up in the air as tenants struggle to pay their rent,” says Paul Shamplina of Landlord Action.
“I can see the smaller operators who don’t have the financial buffers in place simply giving the keys back to the landlords.”
Walker says the difference between the large corporates, who Guaranteed Rent business models are robust, and the small-fry operators is that the large players have professional indemnity and other insurance policies in place to cover them, and therefore are protected from a huge downturn in rent payments. But the smaller ones often don’t and therefore are exposed