This reversed the trend in the preceding four quarters where severe arrears rose by an average 10.8% per quarter leaving the number of tenants in severe arrears at 86,000, a drop of 16,000 tenants.
Paul Jardine, director and receiver at Templeton LPA, part of LSL, said: “Tenants’ finances have suffered a grueling combination of rising living costs and rental inflation throughout much of 2012. With many budgets balanced on a knife edge a slight reprieve from rapid rent rises towards the end of the year has been very significant.”
Jardine said the recent strength of the labour market played the biggest role in halting the upwards climb in the number of tenants in severe financial difficulty.
The fall leaves the level of severe arrears cases 9.2% lower than the average for the previous four quarters annual growth of these cases slowed to 0.3%.
Such tenants now represent 2.2% of tenancies in England and Wales down from 2.5% in the previous quarter.
The wider picture of tenants’ finance has also improved highlighted by LSL’s buy-to-let index which claimed overall tenant arrears fell in November with 7.4% of all rent late or unpaid.
This compares with 8.1% in the previous month.
Jardine said: “Improvements in tenants’ finances come on the back of surprisingly strong unemployment figures. But after a year of increasing severe arrears landlords are more aware of their legal protection than ever, and a more proactive approach to tackling arrears has helped rein in severe tenant arrears.”
However those facing eviction through court order are yet to feel the impact of a better financial situation for tenants. In the third quarter 25,756 tenants faced eviction notices, a quarterly rise of 5.5%.
On an annual basis this puts evictions marginally up increasing 0.25% from a year ago.
And improvements in tenant arrears haven’t yet filtered through into landlord’s mortgage arrears. The number of buy-to-let mortgages over three months in arrears rose by 0.9% to 21,900 by the end of the third quarter of 2012.
This is compared with a fall in the previous quarter of 9%.
Despite this small step backwards in quarter three on an annual basis buy-to-let mortgages more than three months in arrears fell by 15.8%.
However Jardine expects the Funding for Lending scheme to continue having positive effects on the mortgage market in 2013.
He said: “This will leave landlords increasing room for manoeuvre when cash-flow problems do emerge. In turn this is likely to place downwards pressure on buy-to-let arrears over the medium-term in the absence of a major downturn in the labour market.”
But David Brown, commercial director of LSL Property Services, warned more investment in the private rented sector was needed to ensure stability of tenant payments.
He said: “Investors should place financial suitability of any prospective tenant high up their agenda when letting a property. Cutting corners at the point of vetting a tenant is a false economy and can prove costly.
He added: “It is far easier to take action to prevent arrears in the first place than to resolve them after they have occurred.”
