Will benefit changes result in private sector landlords not renting to benefit claimants, asks Lewis Silkin’s Simon Bagg.
Mr and Mrs Fergus and Judith Wilson, private rented sector landlords (PRS) who own a large property portfolio in Kent, recently hit the headlines as they reportedly sent “eviction notices” to 200 of their tenants claiming Housing Benefit. “Eviction notices” probably means Section 21 (Housing Act 1988) Notices, and are the first step in requiring a tenant to give up possession of their property. A valid s21 notice giving two months’ notice provides a mandatory claim for possession. Some PRS landlords serve such a notice at the outset of the tenancy – so what’s the news?
Debate has followed about whether benefit changes will result in PRS landlords not renting to benefit claimants.
Mr Wilson gave various reasons for serving “eviction notices”. He was reported as saying that Eastern European tenants were more reliable. He cited the disparity between rent levels and housing benefit payments, the higher level of arrears for benefit claimants, and the inability to obtain rent guarantee insurance where a tenant is on benefits. Not all PRS landlords agree.
Whether the Wilsons are correct remains to be seem. What is clear is that the benefit system is being reformed and some PRS landlords may refuse benefit claimants.
Welfare reform includes:
- From April 2011, the rate at which housing benefit has been calculated has reduced from the 50th percentile to the 30th percentile. This is because the benefit is now based on the level of rent of around the lowest three in ten properties in the relevant area as opposed to five in ten properties in the area.
- The benefit cap limits the amount of certain benefits (including Housing Benefit) that those aged between 16 and 64 can receive.
- Universal Credit (UC) is due to be phased in by October 2017. Working-age tenants will receive a combined single monthly payment of all benefit and housing benefit will no longer be paid directly to the landlord. However, the DWP may review and pay direct where arrears are equivalent to one months’ rent. The tenant will be offered budgeting support and rent may be paid directly to the landlord. When arrears reach an equivalent of two month’s rent (the ‘trigger point’), an alternative payment arrangement will be put in place to allow a managed payment to the landlord.
- UC claimants will be required to enter personal commitments to find work. A failure to take all reasonable action to obtain employment will result in some benefits (but not housing costs) being stopped for 28 days and repeat offences potentially 91 days.
When UC is rolled nationally, assuming it is, claimants will receive less and it will be paid to them directly and this could be stopped for failure to comply with a personal commitment.
For PRS landlords the risks are set to increase. There is a risk of arrears increasing. Costs and expenses, including administration costs are likely to increase. Lenders will have concern. S21 may be mandatory, but this too is being eroded by Human Rights legislation. For some PRS landlords, particularly where demand is high, the risks might mean that they are no longer prepared to accept tenants in receipt of benefits.
Simon Bagg is a senior associate at Lewis Silkin