After months of landlords and MPs voicing their concerns over the new welfare reforms, this Monday they officially came into effect, meaning that those that receive benefits are now facing a myriad of changes in the way that they receive benefits, as well as how much they are entitled to. Landlords have been concerned that the introduction of a cap on benefits will lead to many of their tenants falling into rent arrears, and without a landlord insurance policy with rent guarantee included many landlords could soon struggle to pay the mortgages on all their properties while making an income.
One of the most controversial welfare reforms is the Universal Credit scheme, which is changing the way that anyone who has applied for benefits will receive them each month. Firstly, instead of receiving payments for different types of benefits separately, recipients will now have all their benefits paid together in one lump sum. Landlords are concerned by this especially if they have tenants that receive housing benefits as it means that if their tenants don’t budget properly then they could struggle to pay the rent each month. Furthermore, housing benefits used to be paid directly to landlords, but under the new scheme they will be directly paid to tenants, meaning there is an even bigger risk of them defaulting on rent payments.
Landlords are also concerned over the fact that the Universal Credit will hit their tenants’ bank accounts exactly one month after they apply for it, which means that all tenants will receive their benefits at different times of the month. This is difficult for landlords who take direct debit payments at a certain day of the month from tenants, and so many have had to invest in new payment mechanisms such as allpay which allows direct debits to be paid any day.
Discussing the welfare reforms, Labour MP Clive Betts said: “The government has promised a great deal. It has provided assurances that the reforms will not undermine the financial viability of housing associations. It has promised guidelines for local authorities on how ‘vulnerable’ tenants – who will have their rent paid to the landlord – will be identified. It has promised an arrears trigger that will switch payments back to landlords when arrears reach a given level. It has promised to take into account the results of the Direct Payment pilots, which show increased levels of rent arrears, before the rollout of direct payments nationwide. These promises are welcome but must be speedily fulfilled.”