The Growing Issue of Welfare Reforms and Landlords

The welfare reforms have been discussed at length in the news recently, mainly due to the fact that they are affecting thousands of people across the UK. The coalition government claim that the whole point of the welfare reforms is to make the benefit system fairer, however a number of schemes have already put some people in danger of losing their homes. Here, PropertyQuoteDirect looks at the issue in further detail:

What are the Welfare Reforms?

The term ‘welfare reforms’ has been bandied about recently, however not everyone fully understands what they are and the effects that they have on anyone who receives benefits. When they came into power, one of the coalition government’s main policies was to make the benefit system ‘fairer’, as at the time there were many reports showing that some people who received benefits were actually better off than those working full time during the recession. This led to some people remaining on benefits for years on end and claiming that they didn’t have any incentive to do otherwise, which is why the government brought in the welfare reforms.

The welfare reforms are numerous, however each is designed to reduce the overall amount councils have to pay to members of their constituencies, thus saving the country billions of pounds per year. Housing benefit, job seekers allowance and even tax credits have all been affected by the welfare reforms, meaning thousands of people across the UK have substantially less per month.

How do they affect Landlords?

The welfare reforms have had a massive effect on the private rental sector, as many landlords have now become less inclined to let to DSS tenants due to the fact that they no longer receive as much in allowances and could potentially receive even less in the near future. For example, the spare room subsidy (also known as the ‘bedroom tax’) means that any tenant who receives housing benefit yet lives in a property that is considered to have a ‘spare room’ will have fourteen per cent of their housing allowance taken away, while those with two spare rooms will have twenty five per cent of their housing allowance deducted.

The aim of this reform is to encourage those living in unnecessarily large properties to move to smaller ones and keep their housing allowance. However, it has actually led to many people remaining in their homes, taking a cut to their housing allowances and then falling into rent arrears. This ultimately has a negative knock on effect on any landlord that lets to DSS tenants.

What should Landlords do?

Even though refusing to let to DSS tenants may sound like an easy way to protect your business against the issues that the welfare reforms have caused, the fact of the matter is that it is actually bad for the private rental sector as a whole. For example, if a large percentage of people can no longer find a property to rent because they receive housing allowance, they will ultimately have to rely on the government once more, creating a vicious cycle.

Furthermore, letting to DSS tenants doesn’t have to be any more risky than letting to any other tenant, especially if you are protected with rent guarantee insurance and have performed thorough background checks on your potential tenants. Don’t forget that even though the economy is recovering a large percentage of the population are still struggling with the cost of living, meaning that even those who do not currently receive benefits could fall into rent arrears if faced with an unexpected bill or a redundancy.

As a landlord, it is important that you think about the bigger picture when it comes to the welfare reforms and DSS tenants and not make any rash decisions after seeing some shocking headlines. As welfare reforms such as the bedroom tax have caused so many negative effects on the private rental sector it is expected for a number of political parties to discuss them in the run up to the General Election, meaning that they could change in the near future. Until then, it is wise for landlords to have contingency plans in place that could help them no matter what changes occur to the welfare system.

Photo by Images of Money / CC BY 2.0

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