The number of tenants in severe financial difficulty has climbed rapidly in the last quarter, with nearly 8,700 more tenants over two months in arrears, according to the latest research by Templeton LPA, the specialist practice of LPA Receivers.

At the back end of Q2 2011, 74,492 tenants in England and Wales were in severe arrears – a 13% increase compared to the same period in 2010. This also represents an increase of 4% compared to 71,483 in the previous quarter. Nevertheless, tenancies in severe arrears represent only 2.1% of all properties in the private rental sector in England and Wales.

The growth in tenant arrears has been mirrored by a rise in the number of tenants being evicted through court orders. In the last quarter, 24,170 tenants faced eviction notices – an increase of 9% on the 22,091 a year ago. But the change is not just annual. In Q1 2011, there were 5% more than in the last quarter of 2010.

Paul Jardine, director and receiver at Templeton LPA comments: “There’s no denying that tenant finances have been under mounting pressure in the last six months. Rents have risen consistently in the past year to a record high, and the cost of living is taking its toll. This is causing many tenants on lower incomes to fall further and further behind with monthly payments. But with demand so strong for rental properties, and rental income providing the lion’s share of annual return at present, many landlords are becoming less lenient with arrears, and seeking court orders to remove non-paying tenants before they themselves fall into mortgage arrears.”

The increase in tenant arrears and evictions has not yet fed through into buy-to-let mortgage arrears. In the last quarter, the number of buy-to-let mortgages more than three months in arrears actually dropped by 8% compared to the previous quarter. However, at 29,400, there are still nearly three times as many buy-to-let mortgages in severe arrears compared with three years ago.

Paul Jardine continues: “The increasing number of tenants struggling to meet the monthly rent has yet to filter through to landlords’ ability to pay the mortgage each month. In part, this is down to the change in mentality of landlords, who are acting earlier to identify and resolve payment issues or remove difficult tenants before mortgage payments are affected. But with rental incomes at record highs, many landlords have taken the sensible action of setting aside slush funds or buying rental guarantee insurance – which have born the brunt of any non-payment.

“The full impact of public sector spending cuts is yet to be felt, and rent rises are unlikely to slow in the immediate future. Tenant finances will continue to be placed under pressure, and it is crucial that landlords do not delay in contacting tenants to nip any potential payment problems in the bud as amicably as possible. Otherwise, buy-to-let mortgage arrears will begin to climb as the year progresses.”