Compounding this increased cost and risk of being a landlord in today's market is the softening of eviction regulations and virtually no consequences for fraudulent rental applications - fuelling a rise in tenant fraud.
According to the NRLA, 11% of renters are currently unemployed - double the UK unemployment rate of 4.8% - and as many as 840,000 private renters in England have built up arrears since the pandemic started in March 2020, a trend significantly impacting landlords. More than half (56%) have lost rental income as a result of the pandemic, and 2.2% of landlords with buy to let mortgages are in arrears (compared to just 0.3% of homeowners) with the number in serious arrears up 8% on last year.
The rising unemployment and affordability amongst renters are also impacting the number of fraudulent applications. According to tenant due diligence and guarantee firm, Homeppl, there was a 71% increase in the number of fraudulent applications between the second half of 2020 and the first half of 2021 meaning that one in 50 rental applications are now fraudulent, rising to one in 20 in London.
Not only are landlords having to deal with the financial consequences of fraudulent applications - legal costs and lost rent means each fraudulent tenant costs more than £30,000 - but the tenant themselves is at very little risk.
Alexander Siedes, CEO and Founder of Homeppl explains: “The consequences for landlords of inadvertently approving a fraudulent application are dire - up to £30,000 in lost income and legal costs and fines of up to £3,000 for renting to a tenant with no legal right to rent in the UK[5] - but for the tenant, there is little risk. In a worst-case scenario, scammers will lose their holding deposit, but there is little to de-incentivise them from making further fraudulent applications.
“When you add to that the softening of eviction regulation which means landlords have less power to evict fraudulent tenants, increasingly, scammers are renting properties with the intention of illegally subletting them to make easy money, at a huge cost and risk to the landlord.”
Alex says that the fact there is no consequence for the fraudulent tenant means they will simply keep trying, and due to the sophistication of most fraudulent applications, many will succeed.
He concludes: “It has therefore never been more important for agents to ensure they have access to the latest verification technology, fraud detection tests, behavioural analysis, and financial algorithms, as well as Open Banking data, so they can ensure they can accurately and safely facilitate tenant referencing to approve legitimate tenants and avoid losing thousands from fraudulent activity.”
To explain further about the rise in tenant fraud, Homeppl has published a whitepaper 'Are you prepared for an increase in tenancy fraud?' which can be downloaded here.
