Private landlords will be one of the most significant groups affected by the switch to Universal Credit. This post is adapted from an email exchange I had with a private landlord about Universal Credit and summarises his main concerns and my reflections.
If you are a private landlord and have a view on Universal Credit, why not leave a comment in the box below?
I am not the first to write about this, and Universal Credit does not create the problem. There are several well-established problems for private landlords with the current LHA / Housing Benefit system. For example take a look at http://www.property118.com/
The post shows that landlords don’t want to adopt a ‘no dss’ stance, and that the vast majority of benefit claimants make great tenants. However, the local housing allowance and the benefit system creates problems, and Universal Credit deliberately removes one of the ‘direct payment’ protection that landlords have enjoyed, in order to make benefit more like work and support tenants toward independence.
The most significant problems I have heard from discussion with private landlords, based on their experience, are:
1. When a new LHA claim is made there is a delay of several weeks before the money is actually paid to the tenant, and thus the landlord.
Yes the landlord will eventually be paid, but cashflow is very critical to many landlords and the prospect of this administrative hiatus is quite offputting.[DG] Universal Credit won’t change this, tenants will be paid directly in the vast majority of cases, the tenant will therefore be responsible for making that first payment. Though Universal Credit is paid monthly in arrear, tenants may be able to borrow a months worth of award interest free, the exact details of this are yet to be determined.
2. Housing Benefit is paid to the tenant not the landlord. This was supposed to increase choice and, to some extent, competition. However it does neither as fewer landlords by far are willing to enter the ‘dss’ system. Because landlords are reliant on the tenant passing on the rent they are never sure of payment. Obviously, the same is true for non-benefit tenants, but because benefit claimants have, in general, a much smaller proportion of disposable income, and usually little or no savings, there is no cushion in the system. Some financial challenge comes along and the HB tenant uses the money that ought to have been paid in rent to that end, and then the arrears cycle starts. This gripe is pretty much top of most private landlords’ set of complaints about the current system.[DG] Landlords receive a protection that no other creditor gets, the same problems lead to arrears in utility and telephone bills. This will focus all stakeholders in getting to the root of the problem, whether it is a short term financial shock that a crisis loan can help with, or if it is simply not enough income, or if it is low levels of financial capability, or irresponsibility. There will be exceptions under Universal Credit.
There is an interesting article by the National Housing Federation making the case that UC rules should be drafted as broadly as possible when it comes to defining the class of vulnerable persons in respect of whom payments can be made directly to landlords. Interestingly in the same article research is quoted which indicates that most social tenants, who will have cash in hand once UC is introduced, would prefer that their rent was still paid direct to the landlord.[DG] DWP have no objection to this – they just want the social tenant to make that choice themselves. A new financial product aimed at low income consumers (and part subsidised by DWP) could help to tackle this problem, by creating a direct debit that is safe for low income households.
I am aware that, ironically, some private landlords
3. The risk of clawback from LHA for any false claim made by the tenant is always a worry.[DG] E-claims and a digital by default claiming system, plus automatic notification of changes in earnings, should significantly reduce claimant errors that cause this problem. I doubt these systems will be perfect on day one, but they should be in place as the UC rollout progresses.
4. Many LHA tenants do not have the facility to pay a deposit or provide a guarantor, both of which are pretty much essential for the private landlord these days. Indeed, again somewhat ironically, some private landlords will want a higher deposit from an LHA tenant than from a private tenant, as a hedge against the perception, rightly or wrongly, of higher financial risk.
On deposits, I have often wondered whether it might be possible for the state to take a role, by providing deposit loans, which could be paid directly into the state run Deposit Protection Scheme, and which would be paid back over the course of the tenancy by direct collection out of the benefits before they reach the tenant?[DG] I agree with this solution, in my research with low income consumers the lack of any savings or up-front cash caused significant problems. The DWP could retain control over the DPS amount and if it were not returned in full then either take up the matter with the landlord or reclaim the sum from the tenant.
5. There is an ironic incentive for LHA tenant not to pay rent on time and to build up arrears. Some private sector tenants would like to move into social housing, and in these cases there is a perception that there is a requirement not to make oneself intentionally homeless. Thus some tenants take the view that the best route to getting a social sector home is to stop rent payments and get eventually evicted. Obviously this only applies in a minority of cases. I have personally experienced this situation. [DG] Don’t get me started on social housing. Social housing tenants get an exceptionally generous settlement from the taxpayer and this leads to a race to the bottom to qualify for social housing. I would love to spend nine months or so focusing on housing policy if anyone out there wants to fund it.
6. There are concerns about the quality of the tenants themselves i.e. will they look after the property, will there be any anti-social or even criminal behaviour. For example, in my 25 years of property letting I have had not one but two cases in which a property that I had rented out ended up, without my knowledge, being used for drug dealing and prostitution. And that is from a small portfolio with most of my properties going to working tenants.
Of course this worry also applies to tenants who are not in receipt of benefits. Currently the law is too weak in this area. If a property is leasehold, thelandlord theoretically runs the risk of a forfeiture action i.e. losing the property, whilst the tenant in comparison is in a fairly unassailable position, as even serious anti-social behaviour is not a mandatory ground for the termination of the tenancy contact under the Landlord and Tenant Act 1985. Landlords know this and so, when faced with antisocial behaviour, are not willing to take the financial risk of applying to court for the tenancy to be ended. Another factor is that most private sector landlords
I hope that this brief but frank outline of some of the difficulties faced by private landlords is of some use. I do not claim that it is comprehensive. The quote below I think sums it up nicely.
To be honest much of what is proposed in the UC system will not make much of a change to these private sector landlord worries. However, the general uncertainty that is bound to accompany such a major change to the benefit system will only exacerbate an already fairly poor situation. This is why I think that your UC calculator is genuinely useful. If private sector landlords are not going to run to the hills then they have got to be sure, prior to contract, that the applicant they are dealing with will be entitled to claim enough to cover the tenancy costs.
The premium version of the Universal Credit calculator can separate out the housing element even when a claimant moves into work. To make a licensing enquiry, please contact me.