Around a third of those receiving housing benefit – that’s 1.2 million people – currently live in private rented accommodation and the number of working people claiming benefit to help with their rent payments doubled between 2011 and 2016 (House of Commons stats). When you look at the rate at which the PRS is growing, while the government continues to fall behind on its social sector housebuilding targets, it’s clear that more private landlords need to be encouraged to let to tenants on benefits.
The Council of Mortgage Lenders’ landlord survey (Dec 2016) found that only 8% of buy-to-let landlords house LHA claimants, while the English Housing Survey 2014/15 showed 28% of all private renters received housing benefit. This suggests that it really is a very niche market, but that those landlords who do let to people claiming LHA are doing so on quite a big scale.
The main reason the majority of landlords are wary of letting to tenants on benefits is financial. Rents tend to be lower than can be achieved by letting to financially independent tenants and are usually paid a month in arrears, rather than in advance. And if tenants aren’t working, they’re likely to spend more time in the property, meaning it suffers more wear and tear than it might otherwise.
That being said, landlords – particularly those who have a large portfolio – can find it personally rewarding to put a portion of their investment towards helping people who struggle to find rented accommodation in the PRS. And for all the hysterical headlines and bad news stories, many LHA tenants are decent, pay their rent on time and look after the property well. More importantly, an increasing number of people are in real need of safe, secure accommodation that the government simply cannot provide.
Five important things to know if you’re thinking of letting to tenants on benefits:
- Some buy-to-let mortgages prohibit tenants claiming LHA living in the property. A recent survey carried out by mortgage consultancy 3mc revealed that two thirds of the largest buy to let mortgage lenders (representing 90% of the market and including TSB, NatWest and Virgin) don’t allow properties to be let to tenants receiving housing benefit. So check the terms and conditions of your product with your lender.
- Insurance premiums are likely to be higher. LHA tenants are usually considered high risk, meaning your landlord insurance premiums will almost certainly go up
- Rent is paid every 4 weeks, rather than every month. This means you might need to keep an eye on your cash flow, as the rental income you receive will probably be out of sync with your mortgage payments.
- The local authority can change allowances without warning. They can amend the amount, backdate overpayments and stop and start payments whenever they like, which could make it difficult for your tenant to manage making regular rent payments.
- It may be very difficult to pursue a tenant who owes you rent. Data protection laws mean that if an LHA tenant leaves owing you money, the local authority can’t and won’t give you any forwarding address or current contact details for them.
More information on LHA (Local Housing Allowance) from Shelter.