The proposed Universal Credit system due to be introduced in April 2013 is set to replace existing benefits, including housing benefit, will put thousands of social (council and housing associations) and thousands more Private Rental Sector (PRS) landlords at a much higher level of financial risk.
The current system of Local Housing Allowance (LHA) or Housing Benefit (HB) is automatically presumed by the local authority to be paid to the tenant and they pay the rent with the allowance, however, landlords can request that direct payments are made to them if the tenant is in rent arrears or is vulnerable in some way.
The new Universal Credit system will work the same way where the benefit will be automatically paid directly to tenants who will then be responsible for paying their rent with it, but landlords will be unable to request direct payment regardless of the tenant’s circumstances.
The fear among UK landlords are that the financial pressures currently faced by a growing number of tenants in both the social and private sectors will mean the proportion of rental arrears and tenant evictions will definitely increase.
The LHA rate cap and benefit cuts of 2012 saw 58% of private landlords admit to wanting fewer tenants claiming benefit in their properties and the new universal credit scheme is set to make the problem worse.
According to a report from Inside Housing last year, 9 out of 10 of tenants claiming Housing Benefit or Local Housing Allowance (LHA) would prefer their housing benefit paid directly to the landlords.
Landlords feel that the Government’s desire to save the nation’s economy and reduce the national deficit has brought about a lax and naive attitude toward the UK Buy-To-Let market and PRS landlords in general and shows little respect or understanding of the UK property business or the housing needs of its people.
The Government official stance of “It’s up to the tenant to pay their rent” is almost laughable if it wasn’t such a serious problem for landlords. Empowering tenants has been attempted before and resulted in local authorities being inundated with landlords requesting direct payments due to rent arrears, there was a dramatic increase in tenant evictions for excessive rent arrears and increased anti social behaviour problems.
The Universal Credit reality will see tenants spiralling into debts, paying the rent will become the lowest priority again and landlords will again be left with little option but to evict none paying tenants as well as having to foot the bill for the privilege. In the first quarter of 2012 there has been a 20% rise in tenant evictions and a 16% rise in homelessness. UK landlords are worried that the proposed housing benefit changes will only exacerbate this problem.
What incentive will landlords have to house tenants on benefit when they will be expected to take such a huge financial risk?