The government has announced that in 2017 a new system will be introduced to help prevent tenants receiving universal credit from falling into arrears, and to improve overall landlord-tenant relations. However the measure will only apply to social housing landlords, meaning that private landlords will remain unable to seek guidance on the issue.
The Department for Work and Pensions estimates that the housing benefit bill will reach a new high of £25bn a year by 2017. It also predicts the amount of housing benefit spent specifically on privately rented accommodation will rise to £10.8bn by 2018-19, compared to £9.5bn for 2014-15. 156,000 new benefits claimants are expected to enter the private rented sector over the next four years. In the words of the Guardian, this essentially ‘makes the increase solely attributable to people living in the private rented sector’. What does this mean for private landlords?
Well, it’s good news in that it shows the government needs private renting to be a viable option for those on benefits and is actively planning for this. People on benefits make up a large market full of good tenants. If your property is affordable to them – as 1/3 of properties should be under the Local Housing Allowance – it should be encouraging that the DWP is supporting the sector (even if it has no other option…). It may even help to alleviate some of the bad feeling surrounding Universal Credit.
So, in terms of the bread and butter of running a private rental business, these figures are good news. But the bigger picture may not be so rosy. The trouble is that people read these headlines and think of “greedy landlords”. If there is enough of a backlash, we could see greater regulation further down the line. Critics of buy to let assume landlords are lining their pockets with taxpayers’ money. Alex Hilton of tenant lobby group Generation Rent said, ‘Because landlords know the taxpayer can pay off their mortgage, this cash perversely fuels the housing bubble, which drives up rents, forcing more people to seek housing benefit.’ Such criticisms fall short in their targeting of landlords as the problem. Rents are not being ‘driven up’: they are staying steady as landlords prefer to keep tenants for long periods on even and fair rents.
The real trouble lies with Parliament and the lack of social housing. In fact the general housing shortage is what is fuelling the surge in house prices. However you interpret the government’s lack of action on this front, the fact remains that the private rented sector helps house people on benefits and landlords are not charging exorbitant rents to do this. Fortunately, the government seems to be fully aware of this, despite uninformed calls for much greater regulation in the private rented sector.
In reaction to headlines about landlords banning benefits tenants, Rentify previously posted about how this could backfire. But first and foremost, it is important that landlords fully understand Universal Credit so that they can make a informed decisions on how to approach those tenants who will be claiming it. A recent survey has suggested such an understanding is far from widespread. Makeurmove.co.uk found that 40% of landlords have heard of Universal Credit, but are unsure about the details. Only 27% said they fully understand the forthcoming changes (perhaps not actually that bad given that even many MPs have been left with unanswered questions.
Whatever the criticisms of how Universal Credit is being handled, it is important to remember that there is a while to go until it is implemented nationwide (most will not be affected until 2016-2017). The delays, while hardly helping confidence, should at least give people more time to learn about what it entails. Landlords can have an active role in helping to spread understanding amongst their tenants as the NLA recently found that 50% of tenants do not know the details and a worrying one-in-five had not even heard of Universal Credit. Of course, it is the job of government and councils to make sure people are aware of the reforms. However, if landlords help their own tenants now, not only will they reduce the risk of a chaotic and damaging changeover period later down the line, they may also do a lot of good for their local reputation as well as the sector’s reputation as a whole. Rentify will be doing all we can to help you stay informed about the developments. Keep an eye on the blog. A run-down of the key details for landlords will be coming soon!
The recent story of landlords Fergus and Judith Wilson, who own nearly 1000 properties, banning tenants on housing benefits has rightly received widespread media attention. Rentify is in a good position to understand the difficulties that housing welfare reforms could bring, but we urge all landlords to consider the implications of such blanket bans. Not only could they significantly limit your chances of finding new tenants, they could also lead to public outcry, a backlash against landlords and further regulation. That is to say nothing of the negative social impact. Rentify has produced a helpful guide on Housing Benefits, which is free to download (along with our other guides).
Under the current Housing Benefit system (i.e. not Universal Credit), the amount a tenant can receive is based on the cheapest 30% of properties in the area. This means that 1/3 of homes in your area should be affordable to those on benefits. If your property is in that bracket you should have a large market of benefits tenants available to you. Of course, this becomes more cloudy under Universal Credit where the tenant receives one lump sum for all of their benefits and must budget accordingly. The big worry is that landlords (generally) will not receive rent directly from the council, creating more uncertainty. But there are still many things you can do before bringing in a ban on benefits tenants and each case must be judged on its individual merits. Consider making the setting-up of a direct debit for rent a condition of the tenancy agreement. Move the rent payment day closer to the day the tenant receives their Universal Credit payment. Encourage your tenant towards a jam jar account, which allows them to budget easily and keep their rent money separate from spending money. Finally, look into credit unions: these could be a big help and should have accounts which transfer the money directly to you without the tenant having to worry about budgeting the rent.
It is of course understandable that people who have had bad experiences with benefits tenants in the past will be wary of the introduction of Universal Credit. All Rentify wishes to highlight is that there are other options which could really help you out. Furthermore, if there was to be a widespread rejection of benefits tenants, the Government would almost certainly react. They rely on private landlords to help ease the housing shortage. A significant reduction in the number of properties available to benefits tenants would make them less inclined to promote the sector, especially in the face of the negative press coverage that would be sure to follow.