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Landlords need to be aware that many tenants are using overdrafts to pay their rent, as they are unable to make ends meet.
From April 6th new FCA rules will see bank fees scrapped, and most major banks greatly increasing their annual interest rate on overdrafts to compensate.
While many landlords will think that it is not their problem, according to research by comparethemarket, over a third (37 per cent) of individuals believe that the flat rate of 39.9 per cent proposed by most banks will end up costing them more money. This could naturally lead to more landlords experiencing problems collecting rent.
The research reveals that nearly one third of UK adults (30 per cent) have to dip into their overdraft because they have run out of money before the end of the month.
Worryingly, the research also shows that one in ten (13 per cent) use overdrafts to cover the cost of their mortgage or rental payments – the equivalent of 1.2 million people. Of these, one fifth (20 per cent) use their overdraft to cover the full payment amount, while a quarter (24 per cent) use it to cover, on average, half of the cost.
Rents are rising at their fastest pace for three years, with the average rental price nationally standing at £886. The average mortgage payment is £680 per month. When it comes to paying monthly bills, overdrafts can be a very expensive way to manage debt.
In response to the FCA regulatory changes on overdrafts – a move designed to make overdrafts simpler, fairer, easier to manage as well as easier to compare between current account providers – a growing number of high street banks have announced a flat fee of 39.9 per cent on all overdraft fees.
So far, only Lloyds and challenger banks Starling and Monzo have announced a different percentage, which will be tied to customer credit scores.
Landlords need to ensure they reference tenants carefully to ensure that they can afford the rental payments.
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.’