Landlords concern over Local Housing Allowance changes

Press release: 21 June 2005

Landlords concern over Local Housing Allowance changes

Mortgages for Business, a leading UK buy-to-let mortgage broker, is reporting increasing concern among buy-to-let landlords over the implementation of the new Local Housing Allowance (LHA).

In one of the biggest shake-ups to the housing benefit system since 1988, LHA will replace a system whereby the government pays individuals’ rents to one where tenants are given the choice and responsibility for their own financial welfare.  The aim of the shake-up is to ultimately reduce the barriers of getting tenants back to work and to make the benefits system easier to understand for both tenants and landlords.

Jonathan Moore, marketing manager at Mortgages for Business, comments: “Landlords concerns relate to the fact that housing benefit tenants will have their rent money paid directly to them.  The current system whereby tenants’ rents are paid directly to their landlord offers some assurance that rents will always be received.”

There is no firm national implementation date for LHA, but the Department for Work and Pensions (DWP) has a public sector agreement completion date of March 2008.   The scheme is already affecting many landlords with the scheme being piloted in Blackpool, Lewisham, Coventry, Leeds, Edinburgh, Teignbridge, Brighton and Hove, Conwy and North East Lincs.   In July further pilots will begin in Wandsworth, East Riding of Yorkshire, St Helens, Argyle and Bute, South Norfolk, Norwich, Pembrokeshire, Guildford and Salford.

“In the pilot areas it is estimated that 90% of housing benefit is paid directly to tenants and there is increasing concerns among landlords that this will lead to increased rental arrears and in the longer term, more evictions.  Many landlords have told us that they are considering either withdrawing from the DSS tenant market entirely or restricting lettings to those tenants who have established bank accounts,” says Moore.

“Given the current market conditions in which landlords margins are already slimming, this initiative has the potential to only escalate costs and risk exposure to landlords,” adds Moore.

Don Holmes, a buy-to-let investor with a portfolio of some 100 properties in Liverpool and a letting agent with more than 750 properties on his books, says that he and many of his landlord clients are likely to restrict letting to tenants who can show evidence of a bank account or alternatively sell their properties and move out of the market completely.

There is also a real danger that mortgage lenders may echo the same concerns as landlords making it increasingly difficult to secure lending on homes to be let to DSS tenants.  “There are currently a tiny number of lenders who accept DSS tenants and this is likely to shrink if landlords experience significant problems in rent collections following the implementation of the LHA.  If mortgages are hard to secure landlords will simply move away from this sector of the market” says Moore.

Some safeguards have been put in place in recognition of vulnerable tenants, particularly those where the relevant housing authority believes the tenant will have difficulties managing their own affairs or it is believed the tenant will be unlikely to pay their rent.  But these measures have done little to reassure landlords.

“Many of the tenants in the pilot areas will not have received direct payments on rent before and this is worrying a lot of landlords,” says Moore.  “Landlords are also worried by the fact that once payment arrears begin they tend to continue to mount as a single missed payment is likely to lead to multiple missed payments.”

“Landlords have also expressed concern that many tenants do not have bank accounts, creating the need to directly collect rents from tenants conjuring up images of the Dickensian rent collector barracking tenants for late rental payments,” concludes Moore.  “While in pilot areas tenants have been encouraged to open bank accounts, many do not have the required documentation and banks do not necessarily want them as customers. The pilot studies have shown that just six out of ten tenants pay their rents by automated standing order.”

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Notes for Editors
Mortgages for Business are independent experts in buy-to-let and commercial mortgages managing single and multi-let property portfolios for thousands of UK investors.  Its brokers have access to a large portfolio of fixed and variable interest rate mortgages from a panel of over 30 lenders and offer truly independent advice that is appropriate to investors.