UNIVERSAL CREDIT, CHALLENGING TIMES FOR LANDLORDS (Part 2) –
Last week we discussed the changes to Housing Benefit / LHA and the new payment of Universal Credit. We explained in detail the new criteria for direct payment and how landlords may struggle to obtain it. In this second article we are going to discuss the problems landlords may face, such as increased arrears, what they can do and our key concerns.
Universal Credit what does this all mean for private rented sector landlords?
The introduction of the Local Housing Allowance and the resulting switch to paying benefit to the tenant instead of direct to the landlord has already had profound implications and landlords have reported increasing problems with arrears. This can only get worse. We do not know how efficient the administration of Universal Credit will turn out to be. At the moment, although far from satisfactory, at least landlords do have an entitlement to direct payment once rent arrears reach 8 weeks. This will no longer be the case. The current system of regulations accompanied by guidance which are reasonably clear cut, although implementation can be variable, will be replaced by a far more flexible system of “guidance” applied on a case by case basis. There is no mention at all about appeal rights even for claimants let alone for landlords. At the moment if a local authority fails to implement a request properly made where there are 8 weeks arrears then potentially the landlord has remedies against the local authority but this is unlikely under the new system. There appear to be no safeguards for landlords. Landlords will have to wait longer for payment with increased risk of default. If systems work correctly it may be that the first payment could be received quicker under the new system but only time will tell. The greater interval between payments, however, poses risks. If the Government deliver on its intentions of restricting direct payment to landlord cases to around 10% of the caseload then this will have profound consequences and will lead to increased levels of arrears and problems surrounding collection. At the moment, we are still somewhat in the dark because we do not know what criteria will apply and how the new system will operate.
What can landlords do?
Private rented sector landlords who rent to benefit claimants have learned to adapt and are going to have to adapt even more. Clearly, many will consider giving up renting to claimants altogether. The Universal Credit will be received by more people because it is intended to be both out of work benefit and an in work benefit to replace the existing system of tax credits. Different considerations for the landlord will depend on whether the tenant is out of work and solely dependant on state benefits; in work receiving benefits as a top up; or retired/a pensioner. You have to remember that people will be able to switch in and out of receiving benefits more readily under the new system; or at least that is the Government’s intention. Even a landlord who only takes on tenants who are in work may become involved because their tenant may become unemployed. More and more landlords may well decide on a policy of not taking on out of work claimants. This, however, very much depends on local conditions and whether there is a sufficient supply of working tenants. In a lot of areas this is simply not practicable. The one thing that comes to me is that landlords will have to tighten up their procedures and monitor payments more closely than they do at present. The norm for the tenancy agreement is likely to become that the rent is paid calendar monthly now rather than weekly and in advance as at present. Landlords are going to have to decide what they do about payments at the beginning of the tenancy. At the moment many landlords are prepared to wait until benefit is paid. Even in those cases where payment is to be made to the tenant some authorities make the first payment direct to the landlord. There is no provision for this under the new Scheme although there is talk of notification to landlords so that they know that a claim is in payment. Landlords will have to consider other ways of protecting themselves if they take claimants e.g. taking a guarantee from a householder. Landlords would also normally consider taking a tenancy deposit but whether this is practicable for a claimant is another matter.
Our concerns about the new arrangements are as follows:-
1. No back stop provision under which a landlord can demand payment direct.
2. Lack of clarity/much greater individual discretion in operating these rules because “guidance” replaces regulations.
3. No means of redress for landlords if things go wrong/no rights of appeal.
4. No proposal that the guidance should reflect the landlords interests to make sure that rent is paid and that a roof is kept over the head of the claimant.
5. The whole concept of trying to improve tenant’s responsibility at the cost of much greater risk to landlords with strong likelihood of significantly higher arrears.
6. Much less likelihood of landlords being willing to take on benefit claimants. This could even translate into less likelihood of a willingness to taken on claimants who are in work especially part time work because the same rules will apply to them.
7. No provision for first payment of benefit direct to the landlord.
8. We have argued with DWP that there should be a right for landlords to be paid direct payments once there are six weeks arrears and also that the whole system of vulnerability should be assessed according to the tenant’s interest of keeping a roof over their head and the landlord’s interest to receive the money, as well as the public interest of making sure that the benefit is used for its intended purpose.
We strongly believe that the Government’s whole approach is flawed and although the objective of helping tenants manage their financial affairs is in isolation a laudable one, the Government has wholly failed to appreciate the consequences of this. There will be a much higher level of arrears, an unwillingness of landlords to house benefit claimants (at a time when there is huge pressure on social housing), increased unwillingness by banks to lend for this kind of property (or increased interest rate to reflect the risk), much higher levels of evictions and much greater homelessness.
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.