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Rentify know that Housing Benefit can be a source of real confusion and frustration for landlords. But we have not lost sight of the fact that it's there to help you and your tenants. This guide will tell you what to expect when renting to tenants on housing benefit, and help you get the most from the system.
If your tenant is struggling to pay rent, they may be eligible for Housing Benefit without knowing it. If you are clued up on how it all works, it will be a great bonus for both of you. Easy, right?
OK , we admit it's not that easy. And the changes and cuts which the benefit system is currently experiencing will not make things any easier, at least in the short term. The replacement of Housing Benefit with Universal Credit is under way in some parts of the country and should be completed nationwide by 2017. This may pinch a bit to begin with, like a new pair of shoes, but the ultimate aim is to increase the stability of those receiving benefits.
But take heart! After all, knowledge is power, as they say, and if you know what Housing Benefit means for you and your tenant, you'll be in a much stronger position to prevent problems and see off any that do arise. Rentify will be here to guide you through these potentially difficult times every step of the way.
We understand your time is valuable. If you’re overwhelmed with managing your property, we can do it all for you through our let my property or full management services or call us today on 033 3014 8505.
What is it? (Always a good place to start...)
Housing benefit is a welfare benefit or allowance to help tenants on a low income pay
their rent. It is a regular payment made to the recipient by local councils under rules set
out by the Government.
It is only available as a means of paying rent and some service charges, if applicable. It cannot be used to pay other housing costs (e.g. heating) or mortgages.
What are the implications for a landlord if a tenant or potential tenant requires Housing Benefit?
There are rules and regulations associated with the payment of Housing Benefit which directly affect landlords and how they receive rent.
Also, your financial security is fundamentally tied to that of your tenant, although the degree
to which this holds true will depend on your specific situation. The fact that tenants on Housing Benefit may have limited reserves to fall back on may be a source of worry to some landlords.
For example, a tenant may not be able to afford a deposit. There is a potential way round this with a Discretionary Housing Payment (see below)
You can never know too much about the rental situation you are in (unless it's the premise for a brutal crime thriller). Having an idea of the amount of Housing Benefit which your tenant receives in relation to the rent you are charging will help give you a much better idea of the overall picture.
Some landlords may think it's easiest and best for them to refuse to let to Housing Benefit tenants. This is by no means the right way to approach every situation. If you have a relatively cheap rental property and have done your homework, you can open up a large market full
of good tenants.
Here we'll take a look at the specifics of the current scheme for private tenants before turning our attention to the implications of the upcoming changes.
Although there is only one Housing Benefit scheme, there are two different systems operating within it: the Local Housing Allowance
system and the Housing Benefit system (occasionally called
'Rent Allowance' to avoid same-name confusion!).
LHA introduced new rules for claims made by private tenants on or after 7 April 2008.
These new rules affected neither the pre-existing, continuous claims of private tenants made before the date nor the claims of council or social housing tenants. These are subject to the Housing Benefit system (it has the same name as the overall scheme, 'Housing Benefit', as it was the only system to begin with).
The two systems share many features. As far as landlords are concerned, the key differences are in how the tenant's benefit is calculated and the rules allowing it to be paid directly to the landlord.
Housing Benefit (sometimes called 'Rent Allowance')
The old type, applying to those who have claimed continuously from before 7 April
2008 or whose tenancy began before 15 January 1989. It also applies to council and social housing tenants.
Local Housing Allowance (LHA)
The current, most common type for the claims of private tenants made on or after 7 April 2008.
The money that is actually paid to the tenant is generally just called 'housing benefit', even if calculated under the LHA system.
Remember: Universal Credit will eventually replace all Housing Benefit.
For a tenant to receive Housing Benefit under either system they must:
Be a resident of the UK
Live in the property for which they are claiming
Be responsible for paying the rent or be the partner of the one responsible.
Only one member of the couple can receive it
Be on a low income
Have total capital worth less than £16,000
If they are also on other state benefits, they should be eligible for Housing Benefit:
Benefits automatically qualifying the tenant for the maximum amount of Housing Benefit
Benefits which may qualify the tenant for Housing Benefit
Pension Credit with the savings credit only
Income-based Jobseeker's Allowance
Pension Credit with the guarantee credit
The tenant must apply to the local authority if they wish to claim Housing Benefit. If these conditions also applied for a period in the past when the tenant had a good reason for not claiming (such as illness) they may be able to get benefit backdated.
Many people do not realise certain students can claim Housing Benefit. Usually they must be part-time students. If full-time, they may be eligible if they are legitimately claiming other benefits, are qualified for disability allowance or are a lone parent. Some other situations may make them eligible. Be aware of this if you are letting to a student!
Under LHA the maximum amount of benefit which can be paid to a private tenant is calculated by the market rent prices in the area and the number of bedrooms in the property. This replaced the previous method of calculation, which was done by assessing properties on an individual basis.
LHA rules apply to any private tenants making a new claim for Housing Benefit or those who made their claim on or after 7 April 2008. The amount of benefit the tenant will receive under LHA depends on:
The rent prices in your area
The number of rooms required for the household
The level of the tenant's income and savings
In some cases the amount benefit will be affected by other things, such as:
How much the rent is
Whether anyone living with the tenant is expected to contribute to their rent. Such a person is known as a 'non-dependant' and may include an adult son or daughter
Since 1 April 2011 (probably not an April Fool) there has been a maximum weekly LHA rate which a tenant can receive, based on the number of bedrooms:
£250 for a one-bedroom property
£290 for a two-bedroom property
£340 for a three-bedroom property
£400 for a four-bedroom property
Of course, this is the absolute maximum and it is likely to be lower in most areas. The specific local rate is based on the cheapest 30% of properties in the area. Contact your local authority to find out the LHA rate or search here: http://www.rentify.com/howtoguide/3/lha
The fact that the local LHA rate is based on the cheapest 30% of properties means that roughly 3 out of 10 properties (at least) in your area should be available to tenants on Housing Benefit. Consider whether your property could be around this level: it may benefit you to reach out to them.
For claims made on or after 1 January 2012, if the tenant is under 35 and single with no children, the LHA rates based on number of bedrooms do not apply. They can only receive benefit at the LHA rate for a single room with shared facilities, even if they have exclusive use of, say, a one-bedroom property.
This applies to those who have claimed Housing Benefit continuously from before 7 April 2008 or whose tenancy began before 15 January 1989. It also applies to council and social housing tenants.
It is therefore unusual, but not impossible, for this system to apply to a rental situation between a tenant and private landlord.
It also applies to the following groups, who are not covered by LHA :
People living in council or housing association accommodation
People living in hostels or bed and breakfast accommodation
People living in mobile homes or on houseboats
Under the Housing Benefit system (contrasted with LHA ) calculations are based on the specific rent the tenant pays to their landlord, not on the number of bedrooms and market rent.
To work out the amount of rent the tenant can get help with (the 'eligible rent') the council looks at the amount of rent they must pay. They may reduce it, however, if:
They pay service charges or other charges in with your rent
Non-dependants are living in the property
The property is considered too large for the tenant's needs
Under either system a tenant can apply for a Discretionary Housing Payment (DHP) to cover any shortfall between benefit and rent.
It may also be used to pay for:
Rent in advance
Rent arrears (unless the tenant was receiving enough benefit to pay all of the rent at the time the arrears built up)
Reductions in LHA resulting from changes from April 2011
The council decides who is eligible and will take into account things such as financial difficulties resulting from periods of illness, legal costs the tenant may have or if there is a real threat of homelessness.
The Council will also decide how long it is to last for - it may only be a few months.
With this background we can now focus more on the landlord's involvement in the system
There are two important regulations regarding LHA which directly affect landlords. Let's take a look at them.
LHA is usually paid directly to the tenant and not to the landlord. If you think this seems rather counter-intuitive, it's probably because it is a bit: it removes a further potential layer of security for landlords.
The idea behind it is that because payments are going to tenants, the tenants will be responsible for paying back any overpaid benefits. This removes the possibility of landlords being asked to repay large amounts in overpaid benefit. Under the LHA scheme it is unlikely that the council will ask you to repay any money that your tenant has paid directly to you.
In some cases the rent can be paid directly to the landlord:
The council must pay LHA directly to the landlord if:
The tenant has rent arrears of 8 weeks or more
It is already taking money out of any of the tenant's income-related benefits to make up rent arrears
The council may decide to pay LHA directly to the landlord if:
It thinks the tenant is likely to have trouble paying it to you (usually because of a medical condition, drug or alcohol problems)
The tenant has a track-record of failing to pay rent or manage their money responsibly
Since 1 April 2011 LHA can be paid directly to you if it will help a tenant secure a property or keep an existing property. What this really means in practice is:
You have a good potential tenant who wishes to take on the tenancy or an existing tenant who wishes to remain in the tenancy
That potential or existing tenant is worried they may not be able to afford the rent or any rent increase
To help them secure the tenancy, you agree to make the rent affordable in exchange for having the LHA paid directly to you
Making the rent affordable usually means reducing it to the LHA rate for that area. That way, if they receive the maximum amount, you'll be sure of receiving the full rent from the council (providing the tenant's benefits aren't cut). However, the new rate may be slightly more than the LHA rate if the tenant has other resources to pay the difference.
Mr. Smith lives in a one-bedroom house and pays a weekly rent of £100. The LHA rate for the area is currently £95 and Mr. Smith receives weekly Housing Benefit of £93 paid directly to him. In January 2014 the LHA rate is set to go down to £90 and his benefit is being reduced in line with that to £87 per week. He tells you that he will have difficulty paying his rent (still £100). You agree to reduce it to the LHA rate of £90 in exchange for the payments being made directly to you. You both sign a new tenancy agreement on these terms and supply it to the council, who will then pay LHA directly to you.
Even if your tenant wants the benefit to be paid directly to you and you put this into your tenancy agreement, the council will not grant this unless one of the conditions mentioned above exists.
LHA is paid in arrears (the tenant pays for the rent period that has just passed). Most landlords might prefer the cash-flow security of being paid rent in advance but as long as you are aware of this, you can obviously try to adjust accordingly.
You should always check the conditions of your mortgage as some lenders do not allow landlords to let to tenants on Housing Benefit.
In fact Nationwide and Lloyds have recently lifted blanket bans on landlords letting to Housing Benefit tenants. Restrictions may still apply elsewhere and you should be especially vigilant if you are a new landlord.
You can contact your local council if you wish to find out details of your tenant's Housing Benefit beyond those which the tenant can provide. You will almost certainly require your tenant's written permission to learn important features of it.
Try to get this written permission as a condition of the agreement at the start of the tenancy. Written consent is not legally binding on the Council and they do not have to tell you certain things. They may decide that it would contravene the tenant's human rights or the Data Protection Act to provide you with certain information.
What you may wish to find out
The amount of benefit paid to the tenant
The date any new claim will be paid from
Any dates when benefits will not be paid and why
Why a request to have the benefit paid directly to you has been rejected
How often and when benefits will be paid to you if you are to receive them directly
The details of any overpayments that are due to be reclaimed from you if you
receive the benefits directly from the council
The earnings of any non-dependants.
This is a major issue which makes landlords wary of letting to tenants on Housing Benefit: local councils have the right to reclaim past payments from landlords if it emerges the tenant claimed them fraudulently, even if the landlord was unaware of the fraud.
To avoid this occurring make sure the tenant knows that if their circumstances change (e.g. their income increases), the local council must be informed. Failure to do so may constitute fraud.
Likewise, if you receive the benefit directly from the council, you must inform them as soon
as the tenancy agreement ends. Failure to do so may be considered fraud
This one scheme will replace a whole host of different pre-existing benefits, including Housing Benefit. The intention is to keep a claimant's income 'topped-up' at a certain base-level whether they are in or out of work, reducing insecurity currently caused by income-related benefits stopping and starting according to a claimant's circumstances.
It will be in force nationwide by 2017: check with your local authority for when it'll be implemented in your area
In summary: The tenant will receive their 'Housing Benefit' along with other benefits (listed below) as one Universal Credit payment. They will be responsible for the budgeting of their rental payments within this new set-up.
Universal credit will replace these benefits:
Income support (IS)
Jobseekers allowance (JSA)
Employment and support allowance (ESA)
Child tax credit and working tax credit
Budgeting loans and crisis loans.
Other benefits which are not incorporated may be counted as income for the purposes of calculating the amount of Universal Credit a claimant can receive.
If the tenant is over working age, they must instead continue to claim pension credit; Universal credit will not apply. Universal Credit will remove the option for landlords to receive payment for the rent directly from the local council.
Universal credit will be paid monthly and in arrears. Be aware that tenants may take time to get used to budgeting for this arrangement if they have received housing benefit weekly or every two weeks.
This limits the total amount of welfare benefits (including Housing Benefit) to £500 for families with children (regardless of size) and
£350 per week for individuals.
Those not affected by the Benefit Cap are:
People who are on or qualify for working tax credit
People over the state pension credit age (so above working age)
People who receive, or whose family receive, certain disability benefit
War widows or war widowers
This cap could lead to serious shortfalls between the amount tenants can pay towards rent and the market rent values of a given area. This is especially true for families with 2 or more children. Make sure any Housing Benefit tenants are aware of the cap and whether it will affect them.
If there are real problems, you may have to seriously consider renewing rental agreements.