The government’s much-talked about benefit cap is being trialled from this week in parts of London. From Monday 15th April, people receiving benefits in Haringey, Ealing, Croydon and Bromley have had them capped at £500 a week, or £350 for a single person.
Those receiving benefits at above those amounts are likely to be living in areas where rents are high. A large part of their benefits will housing benefit. If someone is over the cap, it is their housing benefit that will be reduced.
That means that the cap puts many landlords at risk of arrears.
A problem for landlords
For those landlords who are renting to tenants likely to be affected, there may be a huge problem just over the horizon. The cap will be rolled out to the rest of the country by September.
Some landlords may be able to offer their tenants a rent reduction so that they can still pay rent once the cap comes in. But others, especially those who bought at the top of the market with high mortgages, will not.
What should landlords do?
First, speak to your tenants to find out whether they expect to be affected by the cap. Remember that there are some exemptions: no pensioner will be affected, and many disabled people will also be exempt.
This can be a difficult thing to do, but if your tenants’ income is going to be reduced, you need to know how they plan to pay their rent. If there is a shortfall, then the problem is not going to go away. You should act to address the situation before it happens, rather than having to deal with arrears later.
What does ‘dealing with the situation’ actually mean?
If you can give it without leaving yourself in financial difficulty, then a rent reduction could be the right thing to do. Even if you can’t sustain it long-term, it may give both you and your tenants some short-term breathing space.
If you can’t do that, then you have a more difficult problem to deal with. There may be no choice but to look for new tenants. The problem then may be that in some areas, landlords may struggle to find tenants who can pay enough rent without using housing benefits.
Until the next rent payments are due in areas trialling the cap, we won’t really know the extent to which this will affect tenants’ ability to pay rent. If you think that you are likely to be at risk or arrears, think about taking out landlords insurance that will help you cover them. Also talk to organisations such as the National Landlords Association to for expert advice.