Top tips for letting to benefits tenants
Following speculation that buy-to-let landlords could shun tenants on benefits after the introduction of the universal credit scheme George Spencer, chief executive officer of online lettings service Rentify, offers advice to landlords.
Britain’s welfare reforms, currently being implemented nationwide, have been accompanied by a fair amount of bad press. Criticisms of wasted millions, poor value for money and abandoned targets have left many landlords (and tenants) worried and sceptical.
This is before you even get into the detail of the reforms, which provide landlords with even more cause for concern. With universal credit they will no longer receive rent directly but must rely on the tenant’s budgeting. Furthermore, the benefits cap may mean the tenant starts receiving a reduced payment.
This has led to a significant drop in the number of landlords willing to let to tenants on benefits. Most notably, Fergus and Judith Wilson, owners of some 1,000 rental properties, have now evicted all of their tenants on welfare. The National Landlords’ Association (NLA) has also reported this as a trend it is seeing.
This is unfortunate as benefits tenants have traditionally delivered higher rental yields than most other groups, including professionals and company lets. The uncertainty generated by the government’s mishandling of the changes, doom-mongering in the media, and the excessive caution of insurers and mortgage lenders has turned this once profitable category into a perceived ‘risk group’.
Many people have also lost sight of the fact that the reforms are designed to encourage people back into work and improve their ability to provide for themselves. They may well ultimately do just that.
Landlords need to know that there are options open to them before a blanket ban of benefits tenants. Here are some tips, which should reduce the risk of arrears as everyone gets used to the changes:
1) If currently letting to a tenant on benefits, landlords should talk to them about it. Obvious, but it could make a big difference. One survey found that 86% of social tenants believe “strongly” that it is better for housing benefit to be paid directly to the landlord, which suggests most will be happy with proposals for taking the hassle out of their hands.
In any case, if landlord and tenant are both clear on the amount of universal credit received, when it is received, and how it corresponds to the rent and when it is due, it will be much easier for the tenant to budget and give the landlord greater peace of mind.
2) The landlord should consider making the setting-up of a direct debit for rent a condition of the tenancy agreement. At the very least, the tenant should be encouraged towards this as the landlord can then be much more certain of receiving the correct rent on time.
3) Alternatively, the landlord should make membership of a credit union a prerequisite for the tenant. They should be able to set up a direct rent account.
With the approval of landlord and tenant, the credit union will collect the housing element of the universal credit and pay it directly to the landlord without the tenant having access to it.
4) Another option is to make the day rent is due close to the day the tenant receives their universal credit. This will reduce the risk of a tenant being tempted to spend beyond their means and finding themselves short when it comes to the rent.
5) The landlord should make sure the tenant is aware of their options when it comes to accounts. A jam-jar account, for example, is a great way for them to keep rent money and spending money separate and will make budgeting much easier.
Fundamentally, landlords should judge each case on its merits, be open-minded and communicate with their tenants. If the trend of refusing benefits tenants continues, it will create problems for the whole country.