Calculating interest due on late rent payments and arrears

haveabreak

Hello all

Could someone please advise how to calculate interest due on late rent payments and arrears.

The tenant is underpaying each month, hence the arrears are building up. And the main rent payment is delayed about a month.

The tenancy agreement states "the tenant will on demand pay to the Landlord interest on that amount at the rate of 3% above the Bank of England Base Rate calculated from the date due until actual payment". Obviously the bank of England rate has changed too some what during the period

I would appreciated any advice on the best way to calculate interest due on this type of cash flow. As way of example please a rent schedule below:

 

Many thanks in advance.

Edit: To clarify I am have already in process of eviction via section 21 (tenant wants to be rehoused via council). Rent is being paid by universal credit hence underpaid and in delayed installments. The reason for the query above is so I can add the interest element to the rent demand that I am sending out to the tenant on regular basis. Likely will pursue a money claim after tenant is evicted.

Edit2: I've made a rough calculation below based on your replies. Note I have not factored in the BoE rate change at the exact time it changed, therefore the £52.13 interest calculated is slightly lower since BoE rates have been rising. I believe if I factor in the exact time of the BoE rate change then this will give me the correct answer.

Any further comments appreciated.



FYI BoE rates:

thegreenone

What's with the £15.00?

Sorry, can't help on the question but curious.

user1977

haveabreak said:

Obviously the bank of England rate has changed too some what during the period

Yes, that's the point of referring to it rather than a fixed rate.

I think you need to work out the interest on a daily basis depending on the balance of arrears - so 30 days interest on £1,000, then 7 days interest on £2,000, 24 days interest on £1,400, etc, and also watch for whichever dates the base rate changed.

lincroft1710

I would be worrying about actually getting the arrears paid rather than any interest. Does the tenant mistakenly believe the rent is £600 rather than £1000. It may be time to start considering the service of a Section 8 Notice

haveabreak

user1977 said:

haveabreak said:

Obviously the bank of England rate has changed too some what during the period

Yes, that's the point of referring to it rather than a fixed rate.

I think you need to work out the interest on a daily basis depending on the balance of arrears - so 30 days interest on £1,000, then 7 days interest on £2,000, 24 days interest on £1,400, etc, and also watch for whichever dates the base rate changed.

Thank you. This makes sense. Is there a tool like a spreadsheet model that can be used for this?

MalMonroe

Have you had a word with your tenant? Are they in trouble or ill? What is the human element here?

Obviously those arrears are just going to continue building if the matter is left. And you may not be able to retrieve them because the tenant (even if evicted) may never be able to pay them, which would make any interest rates irrelevant.

Before issuing any notices, you could try to have a conversation with the tenant about this since the rent's not being properly paid. Sooner rather than later.

eddddy

You'd probably need to get upto speed with something like Excel to do that calculation.

I made the interest due as of today to be about £90.

I don't know if it would be worth your time and effort to send a bill for that amount, and then argue with the tenant about it.

SiliconChip

I'm in agreement with @lincroft1710 that you should be concentrating on the arrears rather than interest. You say that you'll make a money claim after eviction, but if the tenant is on UC then the chances are they don't actually have the money to pay even if you make a successful claim, so you may not even get the rent back, let alone anything added on for interest.

lincroft1710

A Section 8 Notice should work more quickly than a Section 21.

haveabreak

eddddy said:

You'd probably need to get upto speed with something like Excel to do that calculation.

I made the interest due as of today to be about £90.

I don't know if it would be worth your time and effort to send a bill for that amount, and then argue with the tenant about it.

Thank you. Yes working on Excel now. As you say, I did not see it worth the time and effort, as did not expect it to go on for this long (i.e. waiting on courts). But I thought it would be good to get an estimate.

How did you arrive £90? Did you work out the interest on a daily basis depending on the balance of arrears (30 days interest on £1,000, then 7 days interest on £2,000 etc) as per the previous comment?

BTW the figures in the schedule is an example and not up to the current date - the actual amount of interest will be more.

TBagpuss

YEs, you can do a spredsheet in excel - yocan set it up to calculate the daily interest and then input payments made, addtional amounts owing and alter the interest rate.
You could try googling using terms like excel daily interest calcutor, or see if you know anyone who is good with excel who could talk you through setting up a spredsheet. There are lots of yputube tutorials for Excel 
Alternatively you can do it manually.

e.g. I think the BOE rate in November ws 0.1%, so your interst rate was 3.1%  1,000 x 0.031 give you the interest for a year  - £31, divide by 365 to get the daily rate which would be £0.085, so interest is 8 and a half pence per day.
30 days interest to 1st Deccember would be £2.54.
The BoE rate went up to 0.25% on 15th December so you would need to work out the daily rate on £2,000 for 5 days, at 3.1% then on £1,400 at 3.5% until 15th, then the new daily rate from 15th, and so on.

BoE base rate is currentl 1.75% os your interest rate would be 4.75% so your current daily rate on the arrears (assumingthey are still at about £3710) will be aroun 48ppd. Your total interst to date is likely to be less than £100 so you will need to decidewhether you feel it is worth the effort of calculating it .