UNIVERSAL CREDIT, CHALLENGING TIMES FOR LANDLORDS – I’m not sure if people are aware but one of the largest changes to the welfare state is occurring next year, a whole host of different benefits are being merged into one single payment called the universal credit. This will mean Housing Benefit / Local Housing Allowance will be rolled into this credit which will have a massive affect on landlords, due to the limited provision of direct payment.
The Government have announced new procedures as to how payment will be made under the Universal Credit system when it is rolled out from 2013 onwards. It means the end of direct payment to landlords for rent as we have known it. The intention for the new procedures will apply across the board including the private rented sector. To some extent it is “work in progress” because the Government are conducting pilot schemes in the social sector between now and June 2013. At the heart of the new procedures is the idea of promoting tenant’s abilities to manage their own finances and to bring the benefit system in line with conditions that affect working people.
The key is that there is no longer any back stop. Landlords will no longer be able to insist on direct payment to the landlord if the tenant is 8 weeks or more in arrears.
How the new system will work
As such, the existing system of regulations will disappear. Vitally, there will be no long stop date. It will no longer be possible for the landlord to insist on direct payment once there are 8 weeks arrears or indeed any other amount of arrears owing. Decisions as to payment will be made individually on a case by case basis according to guidance. All cases will be reviewed from time to time even if direct payment to landlords is being made.
We have yet to see the guidance. Grant Shapps, the Housing Minister, has said that the intention is to replicate vulnerability/safeguarding provisions under the present local housing allowance system but it is clear that a different approach will be taken to decide on those who are vulnerable.
Worryingly, from the landlord’s perspective, DWP’s stated intention is that only 10% of the caseload should be paid direct to landlords. At the moment for local housing allowance this could be at least 25% of a Council’s case load in the private rented sector and a much much higher number in the social sector. Universal credit will be paid calendar monthly in arrears. The effective date of the claim will fix the first calendar month and the intention is that payment be made seven calendar days after the end of this initial period of one month (brought forward to a working date if it falls on a Bank Holiday/weekend). Thus, if you have a claim made on the 7th July the first payment should be due on the 14th August and thereafter on the 14th of the month. Assessments will also be made on a calendar monthly basis (rather than weekly, as at present).
The fundamental rule is that there will be one single payment to the claimant, including the housing element. This will be paid into a nominated Bank account. This could be at a High Street Bank or a Credit Union. As regards claims the intention is that these should be made on line or by telephone and where made by telephone the agent taking the call will complete the details. Exceptionally, claims can be made face to face at an office or by home visit.
Each claim period will be dated from the date of the original claim e.g. if the claim is made on the 7th of the month then each subsequent claim period will start on the 7th of the month and the amounts will not be varied because individual months are of a different length in terms of the number of days in them. The intention is that to help people budget there will be advice services available and financial product offering automatic payment facilities operating direct debit. Credit Unions will no doubt offer this kind of service as at present. It is proposed that for a minority of claimants alternative systems may be paid otherwise than monthly. However, this sort of arrangement will be time limited. Third parties will act for those who are incapable of looking after their own affairs e.g. due mental disorder.
When can direct payments to landlords be made
Eligibility for direct payment to landlords will be subject to combined financial and vulnerability risk factors. There will be a screening process. Measures short of direct payment to the landlord may be applied instead. This will take a number of stages:
1. Referral – this includes self referral, referrals by advisers such as the CAB and third parties such as landlords. Information currently held under the present system will also be used to identify cases.
2. Screening – only those claimants who have reasonable grounds for exceptional payment arrangements will be considered and this will be done by decision makers; rather than automatically. The intention is to target those claimants who will benefit most from such an approach. Claimants most likely to be able to manage their money but require suitable budgeting support as well as those with additional needs who may require more frequent than monthly payments will be identified. Likewise, those where payments should be made directly to the landlords. The approach is going to be tried out in the Housing Benefit Demonstration Projects being undertaken at the moment in the social sector.
3. Decisions – Final decisions on eligibility for payment exceptions will be taken by a member of staff. They will be considered on a case by case basis with a range of vulnerability and financial risk criteria taken into account. These criteria are being worked on at the moment. One of the possible outcomes could be a decision to pay direct to the landlord.
4. Review – The Government’s intention is not to label any claimant as financially incapable and for that reason they say payment exceptions will be on a time limited basis. DWP will look to put in place the appropriate support to ensure claimant’s circumstances can be reviewed, moving them over time to a point where they can manage under normal arrangements. There is no provision for the first payment of benefit to the landlord.
Deductions from Universal Benefit
As with the existing system Universal Credit will permit deductions to be made from benefit entitlement including for rent arrears. This is intended to be as a last resort. Deductions are prioritised and rent arrears along with mortgage arrears are in the first priority category. To qualify for deduction for arrears of rent the following conditions will have to be met:-
(a) The claimant must be receiving Universal Credit including an element of housing cost.
(b) The claimant must be in debt for rent payments (or service charges included in the claimant’s rent).
(c) The claimant must still occupy the accommodation to which the debt relates.
(d) The claimant’s earnings must be below the relevant minimum earnings disregard.
Where these conditions apply DWP may decide to deduct a monthly amount from the Universal Credit. This can then be paid to the landlord. The deduction must be no more than 5% of the standard allowance applicable to the claimant. The circumstances and cases where this deduction can be made will be set out in guidance. Deductions must stop if the claimants earned income reaches the applicable earnings disregard for three months. Overall for the total of all kinds of deductions there is a 40% maximum of the standard allowance although in exceptional circumstances deductions and direct payment to landlords can be made as a last resort to allow someone to remain in their home or to receive fuel and water supplies on an ongoing basis. The standard allowance is the basic element of Universal Credit to cover living costs.
How can NGU help?
As you can see the changes to Housing Benefit / LHA are going to be massive and will potentially seriously affect landlords through increased arrears. At NGU we are continually developing our processes and vetting procedures to ensure our arrears remain minimal, at the moment we collect 99% of all rent within the first month. As the new system is rolled out, we will continue to innovate and change our processes to cope with these changes and hope to maintain the high levels of collections we continue to enjoy. As such we will keep you updated on how we are coping with these revolutionary changes.
Next week I will discuss how universal credit will affect landlords, what they can do and our key concerns.