Why private landlords are calling for ‘major overhaul’ of Universal Credit, many refuse to let properties to ‘high risk’ universal credit claimants

A 2011 survey found the most common reasons for landlords to refuse tenants were antisocial behaviour, unpaid rent and damage.

Earlier this year, research by Heriot-Watt University highlighted that England has a backlog of 3.91 million homes, meaning 340,000 new homes need to be built each year until 2031. This figure is significantly higher than the government’s current target of 300,000 homes annually. 

The findings comes as rough sleeping has risen by 169 per cent since 2010, while the number of households in temporary accommodation is on track to reach 100,000 by 2020 unless the government takes steps to deliver more private, intermediate and social housing. The annual Homelessness Monitor shows that 70 per cent of local authorities in England are struggling to find any stable housing for homeless people in their area, while a striking 89 per cent reported difficulties in finding private rented accommodation.

Affordability is a big issue in the private rented sector and a major hurdle to many prospective tenants. The way in which housing benefit is calculated for private tenants has changed drastically in the decade, due to the introduction of the Local Housing Allowance system, (LHA), the erosion of both housing benefit and council tax support and the continued government cuts the welfare system. These changes have made some landlords wary and reluctant to rent to tenants in receipt of benefits.

Most tenants receive significantly less housing benefit than they are expected to pay in rent. While there is some conditional support available for some tenants, in the form of Discretionary Housing Payments (DHP), landlords say they are concerned about what they see as an increased risk of rent defaults amongst tenants relying on benefit payments. DHP is a solution only for the short term. 

Evidence in England shows that increasing numbers of private landlords are not renting to Housing Benefit claimants. The National Landlords Association gave evidence to the House of Commons Works and Pensions Committee stating that “…in the last three years there has been a 50% drop in the number of landlords taking people who are on benefits. It is now down to only one fifth; 22% of our landlord members whom we surveyed say they have LHA tenants, and 52% of those surveyed said they would not look at taking on benefits tenants.”

There are also significant worries that the impact of Universal Credit will make renting to people claiming housing benefit even less attractive to landlords. 

The Residential Landlord Association (RLA) have called for an urgent overhaul of how universal credit is paid, as more than half of landlords applied for the benefit to be paid to them instead of the tenant, which, on average, took more than two months to arrange.

David Smith, RLA policy director, said: “Our research shows clearly that further changes are urgently needed to universal credit. 

We welcome the constructive engagement we have had with the government over these issues but more work is needed to give landlords the confidence they need to rent to those on universal credit.

“The impact of the announcements from the autumn budget last year remain to be seen. However, we feel a major start would be to give tenants the right to choose to have payments paid directly to their landlord.”

As well as meaning claimants could get into debt, the system serves to dissuade private landlords from taking on universal credit tenants.

Last year, research carried out by Politics.co.uk revealed that private landlords across the country are refusing to rent out properties to people who claim Universal Credit. Sixty-nine per cent of estate agents contacted in areas where the new benefit has been rolled out said they had no landlords currently on their books who would accept Universal Credit claimants.

The head of policy at the National Landlords Association (NLA), Chris Norris said:

While the NLA supports the concepts behind Universal Credit, it is clearly divorced from the realities of many tenants’ lives. Problems with its implementation and caps to housing benefit mean that many landlords now view letting to tenants in receipt of housing benefit or Universal Credit as high risk, because they simply do not have the confidence that rent will be paid to them on time.” 

I can’t help wondering precisely which ‘concepts behind Universal Credit’ the NLA actually supports, given the acknowledgement that it clearly isn’t meeting ‘many tenant’s’ needs.

Anti-discrimination legislation protects people from both direct and indirect discrimination.  Indirect discrimination occurs where a policy, which is not discriminatory in itself, if likely to impact disproportionately on people who are protected under the Equality Act.  Some people may argue that this type of policy could be seen as indirect discrimination if, for example, housing benefit claimants were predominantly female, disabled or predominantly from an ethnic minority group. However, this type of discriminatory practice can be legal if it can be reasonably justified.  

A landlord whose mortgage lender imposed certain conditions on him or her would be justified in adopting this practice, and some mortgage lenders already refuse to give mortgages to buy-to-let landlords with tenants who claim welfare support..

Several major lenders have denied rumours that they are planning to refuse to offer mortgages to buy-to-let landlords with tenants claiming universal credit. A survey of almost 3,000 landlords with universal credit claimants as tenants by the Residential Landlords Association (RLA) in March and April 2017 showed 38 per cent experienced tenants going into rent arrears – up from 27 per cent in 2016. The average amount at the time owed in rent arrears by universal credit tenants to private sector landlords was £1,150, the RLA stated. 

However, now claimants owe on average almost £2,400 in rent payments, an increase of nearly 50 per cent on the previous year, where the figure was around £1,600, the RLA have said.. Almost two thirds of private landlords have seen tenants receiving universal creditfall into rent arrears, new research shows, amid growing concern the new benefit system is pushing people into poverty.

At the time of the survey those claiming Universal Credit faced at least a six-week wait before receiving their first payment, meaning they are already two months in rent arrears by the time of the first payment, the RLA stated.

Paul Shamplina, founder of eviction service Landlord Action, told FT Adviser: “The landlords we speak to on a daily basis through our advice line are increasingly concerned because for many, rent arrears could mean they fail to meet their own obligations to lenders.  

“Some lenders are even stipulating buy-to-let loans will not be available where tenants are ‘benefit dependent’ and so as a result, landlords are focusing on private tenants where they can achieve higher rents and the risk of arrears is less.

Many lenders do not lend to landlords with tenants who are welfare recipients, but a number of those that do said they had no plans to change their policies as a result of the switch to universal credit.

However, the State-backed lender NatWest told one of its private landlord customers to evict a vulnerable tenant because she was claiming housing benefits or pay up thousands of pounds in early repayment charges and find another lender. This was after digital broker Habito admitted incorrectly advising the customer. 

Helena McAleer was reduced to tears after NatWest said she had breached her mortgage terms by letting her two-bedroom property in Belfast to a tenant in receipt of support from the state. The tenant is an older woman, who suffers from mental health problems and would struggle with the moving process, according to McAleer.

McAleer was given the harsh ultimatum of making her tenant homeless or footing a £2,500 bill to leave the NatWest deal, after asking for a further advance from the lender.

She told Mortgage Solutions: “I was angry at the fact that another human being could ask me to kick out another human being.

“It was very black and white…  they don’t think about that person, you’re just an anonymised piece of data… that’s what hurt me, that’s not fair.”

She added: “[The tenant] is a vulnerable older lady, she has mental health issues; I’m not putting her out on the street.”

The marketing innovation manager remortgaged to NatWest in January through broker Habito, providing information about her tenant’s situation to the digital adviser.

But when she approached NatWest about taking money out of the property to buy in London in September, the lender said it had not been disclosed that the tenant was in receipt of government support.

McAleer refused to remove the tenant and asked NatWest to reconsider.

The tenant has been in place since 2016 and is set to stay for the foreseeable future.

McAleer said: “I have no doubt the tenant will be there for many years which, as a landlord, is great to know.

“Long-term security and payments, I couldn’t ask for a better tenant.”

But NatWest said it would not change its position.

A spokeswoman for the lender said: “The bank has specific lending criteria and is not able to offer mortgages in certain circumstances, including where the applicant or broker has advised they want to let the accommodation to Department of Social Security tenants.

“There are specialist providers who are better suited for customers in this circumstance.”

Habito admitted that it should not have advised McAleer to take out a deal with NatWest.

The digital broker is to pay any early repayment charges, as well as additional costs including new mortgage fees and charges.

A spokeswoman for Habito said: “We are aware of this issue and have been working with Ms McAleer to resolve it.

“We fully acknowledge that the buy-to-let mortgage product we initially advised her on was not appropriate, in light of Natwest’s policy on DSS tenants.

[It’s clear this policy has been in place some time, as the ‘DSS’ is no more, and was replaced with the DWP some years back.]

“With that, however, we are currently advising Ms McAleer on a remortgage and we will be bearing all the costs associated with it.

“Ms McAleer will not be financially impacted by this, nor will she need to make any changes relating to her current tenants.

“Great customer service is of the utmost importance to us at Habito and we look forward to resolving this matter swiftly and to Ms McAleer’s complete satisfaction.”

Lenders with outdated acronyms and outdated attitudes

If you check out the rental listings on websites such as Rightmove, or browse the window of your local lettings agent, you will often see “No DSS”. It means the landlord or agent won’t rent a property to someone on housing benefit or local housing allowance, though some younger readers might not even know what “DSS” stands for (it’s Department of Social Security, and was replaced by the Department for Work and Pensions 16 years ago).

 A number of brokers told Mortgage Solutions it is difficult to find deals for landlords with tenants on benefits. 

Too many lenders have “draconian criteria” based on ‘particular views’ of tenants on benefits, according to Steve Olejnik, managing director of Mortgages for Business.

He said: “It’s a very outdated view of the type of property that attracts people on benefits… that they’re not going to look after the property properly and therefore going to potentially damage the security.

“I just think it’s wrong.”

Whether a tenant is claiming benefits shouldn’t affect the risk of the mortgage, so in theory there is no reason why banks or building societies will not lend, Olejnik added.

He said: “Lenders are underwriting the landlord. A decision to lend should be based on the borrower’s credit profile and ability to pay along with the quality of the security provided.

“It is irrelevant whether the tenant is in receipt of benefits and should not add any bearing to the risk decision.”

Olejnik has called for legislation to stop lenders discriminating against tenants.

Simon Nunn, executive director of member services at the National Housing Federation, said: “While there are still a handful of lenders that operate these kinds of outdated policies, the majority have abandoned these restrictions.

“Rightly, they recognise that banning tenants on housing benefit is both unfair and unenforceable, based on false assumptions and stigma attached to people who receive welfare support.

“We’d encourage all lenders to follow suit by scrapping these restrictions – there needs to be a step-change across the sector to get away from the view that tenants on housing benefit are unwelcome.

“This needs to be matched by renewed commitments from letting agents, insurers, landlords themselves and the government that they will not allow people on housing benefit to be excluded from the rental market.”

Shelter has a guide on convincing a landlord to rent to you. It says local councils may keep lists of private landlords who accept tenants on housing benefit, and that some websites such as SpareRoom allow you to select a “DSS OK” filter. There is also a website called Dssmove that connects tenants with agents and landlords “that say yes to DSS”.

Smartmove can also help tenants make a claim for housing benefit and Discretionary Housing Payments.

The House of Commons Library has produced a briefing on this issue. 

 


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25 thoughts on “Why private landlords are calling for ‘major overhaul’ of Universal Credit, many refuse to let properties to ‘high risk’ universal credit claimants

  1. I’d like to learn NatWest’s policy towards private tenants who may be “DSS claimants” but in receipt of State pension which in most cases means an award of 100% housing benefit. As a recipient of SP I have all my rent paid although I chose to have my Housing Benefit paid directly to my Housing Association landlord.

    Liked by 1 person

  2. only this morning i had a go on facebook at a man who stated………..i am getting rid of all my tenants who are on UC…… told him i was disgusted by his attitude.asked him were he thought these tenants would live, and hoped he had no conscience when one of his ex tenants dies whilst living on the streets in winter which is fast approaching….. i also said landlords have a duty of care to tenants, where repairs are concerned. and when they dont do them they wonder why their tenants think ,if they wont do them why should i bother keeping up to the place? i know of one such case. the landlady in this case, gave a very ill woman 2 months notice to quit she had been too ill to keep up with the place for one thing but having lived there 12 years and a whole list of repairs accumulated over that time, none of which had been done ,some from day 1.excuse given by the state agent dealing with the rental for giving her notice was landlady wanted to do it up and sell it.(at a time when housing market was bad for selling?.still is…..)… she had it done up alright then re-let it whats the betting it was let to a working non dss person. meant this woman (former tenant) had to leave most of her furniture cooker fridge/freezer/ washer etc behind cos nothing would fit in a 1 bedroomed flat.

    Liked by 2 people

      1. I would say not. In the old days when I worked for them I recall you got unemployment benefit and you applied for housing benefit and rent separately, there was a claim pack for unemployment and included were 2 smaller booklets for Rent and rates (council tax) benefit then. Now this has been changed.

        The bottom line is that Landlords likely set a rate commercially.

        If it is set out of reach of UC payments levels, it ensures they only get working people who they see as ‘less trouble’ generally. That’s not a particular view, but the likely reality.

        Faced with a working couple or a family on benefits, they’re obviously going to choose the couple.

        Liked by 2 people

      2. so even if a landlord didn’t set the rate as a commercial one, a person still cant pay the rent at £300 a month and i very much doubt they would get anything even so low anyway.My own rent is £80+ a week thats £320+ a 4 week month…and this is social housing so they couldnt even afford that? its a bungalow so i dunno how much a month a house would be

        Liked by 1 person

      3. Likely they establish if a prospective renter is working or claiming before entering into an agreement.

        A house would be 8-1200+ a month I have seen.

        Like

      4. the one my daughter was renting just over a year ago was £400 a month.that was a private rented one. depends where you are. i live in west yorkshire so house prices both to buy or rent are significantly loqwer than down south. even so still above that £300

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  3. The problem stems from the old DSS days when I worked for them in 1996, the trainer on our course said that commercial landlords exploited the benefits system by claiming ‘commercial’ rates for tenants who got onto benefits.

    As a cost exposure reduction method, the DWP now only pays a minimal rent housing benefit which is no good if you are single and claiming and even if you are in a relationship and both claiming, it is unlikely in most areas of the UK that the benefit will cover a monthly rent at a ‘commercial’ level.

    Landlords know that a person in work or couple who rent will have a significantly higher level of income to pay a rent with than someone on UC and are likely to be more ‘reliable’ payers because they are not in danger of being sanctioned. I was facing this situation 2 years ago where my housing benefit was actually cut by the DWP who did NO checks on my living situation and I actually was eligible for receiving it. I am still trying to get this refunded which amounted to £3000, I am not giving up on this.

    The other problem is that Landlords likely see benefits people as ‘social housing people’ and don’t want the hassle of damaged properties, even though most people do care about where they live and are responsible in their properties.

    UC is a complete shambles, I am still trying to rectify things wrong with my claim almost 2 years after it ended. Miss McVey is to her credit starting to state there are problems and some are worse off under the system, her hands are probably tied because UC as a concept is a contract which is likely difficult to get out of with the commercial provider.

    The answer is to replace it with a Basic Income payment of £15,000 per annum payable to all British citizens 16+ resident in the UK, the payment is affordable as we have the GDP to support it, This will allow most citizens to pay a commercial rent and not live in poverty. The money will ‘go round’ people will spend or invest it back into the UK economy.

    We will need this payment as more jobs are lost to automation. The government needs to do something here. UC is a bloody shambles and must go, so far it is a disaster and the longer and wider it goes the worse a cock up it will be. The DWP’s own report into the UC project contains a 10 page examination of it and describes the problems with it, it was still out there on-line. I downloaded it a couple of years back.

    Like

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