Landlords Warning Many Tenants Paying Rent By Overdrafts
With the lockdown landlords should be aware that many of tenants will be forced into having to pay their rent using their overdrafts.
The new FCA rules came into force from April 6th scrapping bank fees and the majority of major banks will be compensating for this by greatly increasing their annual interest charges on overdrafts.
According to a survey carried out by comparethemarket, many landlords believe that tenants having to use their overdrafts to pay rent it is not their problem and are not overly concerned by this as more than a third of respondents – 37% believe that the majority of major banks who have proposed a flat rate of 39.9% will undoubtedly cost users more. However landlords should take into account that eventually many tenants will be unable to afford pay their rent because of the new flat rate.
The research has also found that 30% of UK adults always use their overdraft to make ends meet as they run out funds by the end of the month.
One of the major concerns found by the research is that 13%, around 1.2 million people, use overdrafts to pay their monthly mortgage or rent; of which 20% use their overdrafts to cover all of the rental or mortgage payments and virtually a quarter (24%) pay half of the cost.
Since 2017 rents have spiralled upwards at their quickest rate with the current average monthly rent standing at £886, and the average monthly mortgage payment is £680.
The FCA new regulatory changes were brought in to make overdrafts simpler, easier to manage, fairer and to help make it easier when comparing the charges made by banks. So far the majority of high street banks have announced that their overdraft fees are set at 39.9%
Many landlords and agents already use industry standard reference checks for potential tenant’s affordability to pay the rent, however ‘accidental’ landlords may just use a simple credit check which is not nearly as robust as the industry norm.
John Crossley, Head of Money at comparethemarket, said: “With the rise in overdraft fees, there are other solutions available to pay off debt in a responsible way. Borrowers should ensure they only borrow what they can repay and use a soft eligibility checker to prevent damaging their credit score. Anybody struggling to make repayments should contact their provider in the first instance.”