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Buy to Let No for Benefit Recipients

Cast your minds back to the consultation period for Universal Credit, with reference to advantages to the benefit dependent, before its’ introduction in 2013. 

Many proud boasts were made about the benefits there would be to this new system; it would give the benefit dependent tenants more independence, in that they would have to pay their own rent from the benefits and in this way, be prepared when they found the work that they would be encouraged to take. 

They would have a greater choice in the properties they could take, as landlords would not know that an applicant for a property was a benefit dependent; the tenant could shop around for a good property, their only requirement would be that they paid for it and it was for them to choose whether they accept a cheaper property or felt that with careful management, they could afford a better one.

How naive are our decision makers? No landlord will accept a tenant without making enquiries as to his or her employment status. Standard practice would be to ask for a reference from the employer, so how is a landlord expected to remain in ignorance about whether a tenant is working or non-working and benefit dependent? It was a laudable, if unlikely to be workable, idea.

It is possible that some landlords were happy to accept that asking a prospective tenant whether he was working went against the ethos that Universal Credit was sold on. Perhaps some did not ask applicants for employment status. If not, let’s hope that they have not regretted it. However, it appears that virtually all landlords in the future are going to have to make sure their tenants are working, because it appears 66% of buy to let mortgage lenders will not allow landlords to let their properties to benefit dependent tenants.

Research carried out by the RLA found that the 66% of lenders represented 90% of the buy to let market; it is almost inevitable that this figure will rise. If that happens, who will house the benefit dependents? Not social providers, as even the most ambitious promises on house-building will not meet the need for a very long time, if ever.

Before Universal Credit, there were moves to pay the rent to the tenants, though there seemed more flexibility from Housing Benefit sections in paying housing benefit direct to the landlord. When Universal Credit became a national scheme administered by the Department of Work and Pensions, this was tightened up and the numbers who could have the housing element paid direct to the landlord diminished. The majority of landlords would not receive the rent direct until the tenant had already accumulated 2 months’ rent arrears. 

After complaints and the realisation that direct payment to the landlord would not save tenants from eviction if the 2-months arrears remained, from December 2015 landlords could ask that the tenant’s remaining benefit have rent arrears deducted and forwarded to the landlord, so the arrears would reduce over time, which was welcomed by landlords but this will not get a benefit dependent tenant a tenancy.

Landlords must be guaranteed the rent for tenants on benefit if they are to find that the mortgage lenders will not object to them as tenants. The issues around tenants claiming housing benefit are serious enough, with claims going missing, letters dated the same day yet saying exactly opposite things and letters that do not clarify but mystify the recipients. 

The decision makers may believe that Universal Credit is the answer and for some, it may be, but something must be done to guarantee that claims for the benefit dependent are paid and made direct to the landlord. Then let the lenders say they are a poor risk.

For advice on buy to let issues – General Knowledge