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Taking Tenants on Benefits

social housingMany landlords refuse to take tenants who plan to pay their rent using housing benefit. There are several reasons for this. Some landlords are worried about frequent government changes to housing benefit rules causing delays in payment, and there may be worries about what happens if a tenant loses their benefit for any reason.

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Landlord Licensing and Accreditation: the good and bad

Since 2006, property owners in Scotland have had to be registered with their local authority in order to let their property. Registering costs £55, with landlords who fail to comply facing hefty fines of up to £5,000 and risking a criminal conviction. Wales is likely to introduce their own licensing scheme following a vote in the Welsh Assembly, and while there are no plans to do so in England, some English local authorities have brought in schemes in all or part of their areas.

Some, like the scheme in Sheffield, are voluntary, and some, like that in Leeds only apply to certain areas, in which housing standards are generally poor. Newham’s recently announced scheme is the first to be mandatory for all landlords across the authority, and will be introduced from January 2013. Landlords will have to pay £150 to register with the scheme, and prove they have relevant safety certificates and landlord insurance. Fines for failing to register could be up to £20,000.

Potential Costs

Understandably, registration schemes can be unpopular with landlords, being an extra layer of bureaucracy to get through before they can let their properties. Those who let through agencies still need to register as landlords, so cannot pass on the responsibility. They can also be costly, especially for those who own multiple properties. The National Landlords Association has come out firmly against compulsory registration.

Commenting on the Newham scheme, Chairman David Salisbury said ‘It is deeply disappointing that the London Borough of Newham has taken the decision to license all landlords in its area’. They believe that a mandatory scheme is unfair to landlords who do look after their properties and tenants, and could discourage people from becoming landlords.

Potential Benefits

These concerns are understandable, but there are some benefits for landlords too. Licensing helps drive out rogue landlords, improving the public reputation of landlords as a group. Better-quality housing stock helps improve the market for all, and can help landlords in run-down areas let their properties more easily and for a better price. Better quality housing can help reduce anti-social behaviour and encourage tenants to take more pride in their homes, reducing costs to landlords.

Licensing can help the public see landlords as a genuine and accredited profession, increasing respect between tenants and landlords. With a sluggish housing market and reduction in social housing provision making the private rented sector more and more significant, increased professionalism may mean that tenants are more willing to work with their landlords to keep their properties in good condition. There is evidence that tenants prefer to use accredited landlords. Newham landlords may find that while they face increased costs when letting their properties, they also have more tenants to choose from.

Charities and landlords criticise benefit change

The prospective dilemma facing investors holding residential property insurance and their young tenants in the coming 12 months just will not go away, and now an organisation created to look after the interests of landlords is letting their voice be heard.

Shared accommodation rate now applies to under 35’s

The National Landlords Association (NLA) has backed up concerns voiced by housing charities such as Crisis and Shelter who say the impending change in the shared accommodation rate of benefit could lead to thousands of young people being made homeless. The changes will come into force next January and specify that any single person claiming housing benefit under the age of 35 will only be paid the average rent charged for a room in a shared property. The drop in benefit rates could mean many landlords will find themselves letting out property to tenants who can no longer afford to pay the rent.

Survey reveals the problem

Although the changes don’t come about till January the change is already having an effect. Crisis and Shelter’s prediction that private landlords will refuse to take on single tenants under the age of 35 has been corroborated by a survey carried out by the NLA. The survey asked landlords who already let properties to tenants on housing benefit what their future plans would be in regard to whom they let their properties out to. Almost a third said they had already stopped offering new tenancies to people claiming Housing Allowance. Less than 1% said they intended to take on more and it’s fairly plain to see why.

Landlords can afford to look elsewhere

The risk for landlords who are always keen to avoid property insurance claims is just too much and the survey indicated they would advertise elsewhere to find new tenants. In the current situation they should not encounter too many problems. Tenant demand all over the UK is proving to be extremely strong in the current financial climate. The NLA also backed the housing charities on their assertion that there are definitely not enough shared properties in the country to house the number of people the change in benefit will affect. The Welfare Reform bill still seems to have some way to go before it satisfies its many critics, from both sides of the fence.

HMO regulations proving to be a stumbling block for landlords

With the changes to local housing allowance just four weeks old, the impact it has had on landlords and tenants is still hard to determine, but there is no doubt that changes have caught some landlords checking their property insurance policies as they wonder whether they will soon be experiencing void periods in their properties.

Caps on benefits well documented

The changes in the rules regarding the limits those on housing benefit can claim in housing allowance should by now be common knowledge to landlords with a vested interest. They are £400 a week for a four bedroomed property, £340 a week for a three bedroomed property, £290 a week for a two bedroomed property and £250 a week for a one bedroomed property. In addition to this rental charges will be now set by the 30th percentile rather than the median level. These rules apply to any contracts signed by tenant and landlord after April the 1st 2011, and existing tenants nine months after their anniversary contract renewal date.

Food for thought

One incentive landlords have received to lower their rental demands to encompass the new rules is that they will receive their rent direct from the local authority and not from the tenant if they do bring their rents down. This has long been the aim for landlords concerned about rental arrears and will no doubt prove a tempting carrot for some. It has not gone unnoticed by local authorities either and many more are beginning to offer this option. However, landlords should note that this is a transitional arrangement at the moment and will only last two years.

Young tenants on the move

The big concern for professional landlords with student property insurance is the situation with Homes of Multiple Occupation (HMO). The new housing benefit rules mean that single renters under the age of 35 will now only qualify for shared room accommodation benefit, a significant drop from the allowance on a one bedroomed flat. The result will probably drive more young people to look for accommodation in HMOs but just as this situation develops many towns and cities with student populations are prohibiting buildings being used as HMOs under the controversial article 4.

It is this part of the new system that could create most problems. Some experts predict up to 80,000 young people will be forced out of their present home due to lack of funds, while landlords wanting to offer accommodation to them may be thwarted by local authority guidelines.