I was interested to read this post on LandlordZone from Nigel Lewis recently.
He makes the telling point that a recent briefing paper for MPs on whether landlords can refuse to let to Benefit claimants (the word benefit including universal credit claimants) contains within it the reason why a landlord would want to do this.
And it is largely due to the schemes themselves and how they operate.
- Payments going direct to tenants
- The problems experienced by landlords with the system
- The fact that the sum paid to a landlord is usually less than the market rate
Other reasons include
- Prohibitions on ‘benefit tenants’ by mortgage lenders, and sometimes insurance policies
- Landlords’ perceived negative view of benefit tenants as ‘feckless’ and likely to indulge in anti-social behaviour
- Increasingly punitive tax regimes making landlords increasingly choosy over the tenants they accept
Let’s take a look at some of these:
Payments going direct to tenants
This is a big disincentive. With the best will in the world, it has to be said that some low-income tenants have problems with money and budgeting. This is often why they are low-income!
It is ludicrous that benefit rental payments are paid directly to these tenants, as inevitably, they will end up spending the money on something else.
MPs may pontificate about encouraging them to be more fiscally responsible. However, in truth, the policy is more likely to end up with them falling into arrears, being evicted and made homeless.
Although payments can, in some circumstances, be made direct to landlords, this is not universal.
The problems experienced by landlords with the system
This is a huge disincentive and ranges from the massive delay between an application for Universal Credit and receipt of the money and the fact that the schemes will often refuse to speak to landlords about applications – which are, after all about money intended for them!
Many landlords have said to me that it is not the benefit tenants that they object to but the system. And also the ‘anti landlord’ sentiments of many of the scheme administrators.
There are also big problems in the system that prejudice landlords. For example, as regards overpayments which are sometimes unfairly claimed from landlords. Bill Irvine has written about these and other issues in his articles here.
Issues were also discussed in my Landlord and Lawyer podcast episode here.
The amount paid
This is a big problem for both landlords and their tenants. Tenant organisations may say that landlords are ‘greedy’ and that rents are being jacked up unfairly, and indeed in some cases, that may be the case.
However, we are in difficult times with galloping inflation and the prospect of further interest rate rises. With the best will in the world, landlords cannot absorb losses forever and it is unfair that they should.
Lets have a look at some of the other issues:
Mortgage lender prohibitions
Tenant organisations say that this is illegal and that many lenders have now changed their policies. This may be true. However, not all of them have done this.
You cannot expect landlords to challenge lenders on this if their mortgage includes one of these clauses.
Although – if you are a landlord with a mortgage containing one of these clauses and would like to let to a benefit tenant – do speak to your mortgage lender about it. They may have changed their policy since your mortgage was taken out.
If this is the case, though, make sure you get confirmation of this from them in writing!
Negative views of benefit tenants
As is usual with any group of people, some will be decent, hardworking and honest. Others will be feckless and maybe even have criminal tendencies.
It is up to landlords and their agents, through their referencing process, to work out which group YOUR applicant falls into.
Many benefit tenants are totally honest and reliable, so it is right that they should not be rejected out of hand. Simply because they are on benefit.
Punitive tax regimes
The infamous ‘section 24’ tax changes introduced in, I think 2015, are now fully in force and impacting landlords.
Mind you, most landlords are reasonably well off and are unlikely to suffer the ‘eat or heat’ decisions that face many of their tenants.
However, when you are in business – and being a landlord is a business, whatever individual landlords may think about it – you have to be responsible about money and make sure you are covering your costs and a bit more.
Otherwise, what is the point in being a landlord? It would be financially better to just leave the property empty and wait for the capital value to rise (which is what some property investors do anyway).
So this is something government needs to be wary of.
We are facing difficult financial times. We have galloping inflation and mortgage rates are likely to go up. This will inevitably mean that landlords will have to increase rents.
If benefit levels do not increase to compensate, this will inevitably lead to evictions and other problems for tenants. I suspect that only landlords who own properties without a mortgage will be able to leave rents as they are over the coming year.
And even they will have to face other problems and expenses – such as the requirement to upgrade a property’s energy efficiency, the cost of which is unlikely to go down under this government.
Prohibitions against ‘No DSS’ policies
These are proposed in the new White Paper, and are effectively in force now, following on from the various cases on this point (see also the YouTube video here).
However, although a policy prohibiting DSS tenants may be illegal, it’s not illegal to refuse to let to someone if you don’t think they can afford your rent. All the prohibition on ‘No DSS’ will mean is that all applicants have the right to be considered on their merits.
And with the looming problems, benefit tenants may not be the most sensible choice for landlords looking for new tenants.
Things that can be done to help tenants?
In the past, I always recommended ‘jam jar’ accounts at Credit Unions. This is where tenants arrange for their benefit to be paid into their credit union account with the element for rent ringfenced and paid out to the landlord.
Which gives the landlord a degree of certainty. Plus it will avoid the ‘clawback’ problem.
You don’t hear anything about jam jar accounts any more so I am not sure whether they are still offered (perhaps if anyone knows about this they could leave a comment below).
I also spoke years ago to an agent whose business model was taking tenants on benefit on the basis that a property-owning family member acted as guarantor AND was paid the benefit, which was then passed onto them.
I assume that with Universal Credit, this model is no longer viable, and I understand that this company are no longer in business – which speaks for itself! (See my blog post from 2011 here)
So the things remaining to help tenants are:
- Arranging for the payment date to be just after benefit payments are made to them – to minimise the chance of the money being spent on something else, and
- Helping tenants source grant aid to assist them with payments (described in more detail here plus we have a kit here), or
- (In suitable cases) allowing a spare room to be used for a lodger. Which, in view of the HMO regs, will normally only be advisable where a property is let to a sole tenant with two bedrooms.
If you have any thoughts, suggestions, put them in the comments below.
I suspect that the availability of properties for benefit tenants is only going to diminish with the pending problems.
Government must bear in mind that landlords do not HAVE to be landlords. They can always sell up – which may mean that property being withdrawn from the private rented sector. So although the property will still exist – it will not be available to low-income or benefit tenants.
There is also the fact that landlords cannot be forced to let to benefit tenants. If they are clearly not going to be able to pay the rent, then landlords will have no alternative but to let to someone who can.
A recent video from Martin Lewis makes it clear that things are going to become very difficult for low-income families in the coming months. If the government wants landlords to accept those on benefits, they will have to make it more financially attractive for them.
Or, and this would, in my mind, be the better option, initiate a massive social housing building program (ideally with modular housing) so they can be housed somewhere more affordable.
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