There has been a fall in the number of tenants in severe arrears for the first time in over a year, according to Templeton LPA’s latest Tenant Arrears Tracker.

In the final quarter of 2012, the number of tenants in arrears of more than two months fell by 15.6% on a quarterly basis. This compares with the trend in the preceding four quarters, where severe arrears rose by an average 10.8% per quarter.

The number of tenants in severe arrears fell by 16,000 in the fourth quarter to 86,000. This is the lowest level since Q4 2011. The fall leaves the level of severe arrears cases 9.2% lower than the average for the previous four quarters.

The quarterly drop slowed annual growth in the number of tenants in severe arrears to just 0.3%. Such tenants now represent 2.2% of tenancies in England and Wales, down from 2.5% in the previous quarter.

While severe arrears cases (tenants with arrears of more than two months) fell back rapidly, there was also a wider improvement in tenant finance. According to LSL’s latest Buy-to-Let Index, overall tenant arrears fell in November, with 7.4% of all rent late or unpaid. This compares with 8.1% in the previous month.

is the specialist practice of LPA Receivers, and part of LSL Property Services plc.

Paul Jardine, director and receiver at Templeton LPA, 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. But the recent strength of the labour market has played the biggest role in halting the upwards climb in the number of tenants in severe financial difficulty.

“Unemployment has fallen dramatically to 7.8%, and with 44,000 more full-time jobs in the three months to November, fewer households have faced seeing their monthly income halted and their ability to meet the monthly rent cheque hampered. If the UK’s economy can avoid falling into a triple dip recession in 2013, a further improvement in employment levels will go some way towards preventing arrears cases from rocketing up.”

Meanwhile, 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.

At the same time, 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, compared with a fall in the previous quarter of 9%. Despite this small step backwards in Q3, on an annual basis, buy-to-let mortgages more than three months in arrears fell by 15.8%.

Jardine added: “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, the Funding for Lending scheme is bringing historically low mortgage rates down further, and this should continue into 2013, which 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.”