Changes to Local Housing Allowance from April 2011. Is this another government Back to Work scheme?

 

Last night a number of Landlords and Letting Agents went along to Three Rivers District Council to listen to speakers from the council and the National Landlord’s Association, talk about the changes to the Local Housing Allowance and Housing Benefit payments, coming into force on 1st April 2011.

The basic changes are:

  1. The end of the maximum £15 weekly Housing Benefit excess that some customers can receive under the Local Housing Allowance arrangements (currently there are 188 people in receipt of this within the Watford & 3 Rivers BRMA)
  2. 5 bedroom properties are removed from the Local Housing Allowance so that the maximum level is a 4 bedroom property
  3. The introduction of absulute caps so that the Local Housing Allowance weekly rates in any area cannot exceed the following:  £250 pw for a 1 bedroom propert;  £290 pw for a 2 bedroom property;  £340 pw for a 3 bedroom property;  £400 pw for a 4 bedroom property
  4. Larger deductions in Housing Benefit for people with a non-dependent living in the property.The reduction of all Local Housing Allowance rates so that about 3 in 10 properties for rent in the area should be affordable to people on Housing Benefit rather than every 5 in 10 properties as is the current situation.

It was this final point which seemed to cause a stir, because, in such a bouyant market, asking private landlords to accept Housing Benefit tenants and lower than market rents, may be just a step too far and is more likely to mean that, yes Housing Benefit tenants can afford these rents, but there are hardly any properties left available to them!

Basically, if you are a private landlord with a tenant in receipt of Housing Benefit Local Housing Allowance, and they made their claim on or after 7th April 2008, you are more than likely going to be affected by the changes.  If your tenant made their claim prior to 7th April 2008 and they continue to live in the same property without any changes to their claim, then the new legislation will be unlikely to affect the Housing benefit received.

If your tenant  makes a new claim from 1st April 2011, they will undoubtably be affected.  If your tenant is currently in receipt of Housing Benefit and their claim was made after 7th April 2008, the new LHA rates will apply upon the anniversary of their claim and they may have protection for up to 9 months before the new rates take effect – called the transition period.

LHA (Local Housing Allowance) rates are published on

  • Three Rivers website http://www.threerivers.gov.uk/Default.aspx/Web/LocalHousingAllowance
  • Local Housing Allowance website https://lha-direct.voa.gov.uk

Hot off the press for April 2011 the figures for Watford & Three Rivers BRMA (Broad Rental Market Area) – which also covers some areas in the Chilterns & North West London, are:

  • 1 Bedroom Properties - currently get £150pw and will be reduced to £144.23pw
  • 2 Bedroom Properties - currently get £196.15pw and will be reduced to £183.46pw
  • 3 Bedroom Properties – currently get £252.69pw and will be reduced to £207.69pw
  • 4 Bedroom Properties – currently get £380.77pw and will be reduced to £323.08
  • 5 Bedroom Properties – currently get £576.92pw and will now be capped at 4 Bedroom limit of £323.08

So for a Landlord with a 3 bedroom property with tenants claiming full LHA, they would have received £13,139.88 per annum (approx. £1095 pcm) and for new or anniversary claims the LHA will now be £10,799.88 per annum (£900 pcm).

In a rental market where prices are increasing at a rate of knots, and there is such high demand for private rental property  [ I am only confirming this in the areas covered by Sewell & Gardner but having been to many Nationwide events recently, I can say that this trend seems to be across the entire rental sector at the moment] I cannot see what the incentive is to a Landlord to offer their property to a tenant in receipt of LHA.

For a 3 bedroom property in Three Rivers District Council, Sewell & Gardner are achieving the following rentals, based on tenancies carried out in March 2011…

 

Croxley Green:  3 bedroom semi-detached house £1200 pcm

Chorleywood: 3 bedroom maisonette £1100 pcm

For 2 bedroom property in Three Rivers District Council or Watford Borough Council, Sewell & Gardner are achieving the following rentals, based on tenancies carried out in March 2011…

 

Mill End, Rickmansworth: 2 bedroom semi-detached house £995 pcm

Cassio Metro, Watford:  2 bedroom apartment £1000 pcm

Central Watford: 2 bedroom apartment £1100 pcm

Somebody at the meeting asked “so what is the incentive to rent to a Housing Benefit tenant?” and the cursory response was “because letting agents charge exorbitant fees”… but we also achieve much higher rentals, in our case, offer full rent guarantee insurance policies for each tenancy and reference the tenants for 2.5 times the annual rent, check with previous landlords on conduct of previous tenancies and timely rent payments, plus we check that there is no bad credit associated to the tenant.  Even after the top letting fee of 10% + VAT, a private landlord would still achieve an annual rent of £816.12 MORE than if they were in receipt of LHA from their tenant – with the peace of mind that the rent is insured and not going to be ‘clawed back’ if the tenant has their claim reviewed or even stopped.

 

So what is the aim of this government legislation?  Is it to force Landlords to serve notice on the Housing Benefit tenants in favour of tenants in full time employment?  After all, there are just not enough properties to go around and maybe this is the government’s way of ensuring employed tenants get the bulk of the properties available and possibly weedle out any tenants claiming LHA “just because they can” and perhaps they don’t really want to go out to work for a living?  Controversial move, but the council members at the meeting did not seem able to offer any explanation for these benefit cuts, which appear rather severe and are, without doubt, going to force a good number of Landlords to re-think offering their rental properties to tenants in receipt of LHA.

The only glimmer of hope given by the Council was the incentive that if Landlords do agree to drop the rent to the new Local Housing Allowance levels, for a non-specified period of time, the Landlord can opt to have the rent paid directly to themselves rather than going to the tenant.

 

So if you are a Landlord with a tenant in receipt of Local Housing Allowance (LHA) or if you are considering this option, please ask yourself the following questions:

  1. Will the tenant/s be able to cover the shortfall in the rent from the decrease in their LHA?
  2. Will the tenant/s fall into continual or erratic rent arrears?
  3. Do you have a business plan to cover your on-going costs for maintaining the property, mortgage payments etc to enable you to take a lower rent than if you let your property to a tenant in employment?
  4. If you already have tenants claiming LHA, are they going to need to move to a smaller property due to the decrease in their benefits?
  5. If so, are you willing or able to continue to rent to LHA tenants?

James Frazer from the National Landlords Association stated that it was a difficult situation all round and that they had tried to influence parliament away from these changes, but it had been futile as with only 20,000 Landlord members out of over 800,000 private landlords in the UK, they did not give enough ‘clout’ as an association to fight such government action.

His advice was as follows:

Accept the changes and understand that the effect of these cuts will be quite severe and the biggest effect will be to large families, especially those currently in the 5 bedroom bracket.  This legislation is definitely building a divide between tenants in receipt of LHA and private market rents and his hope is that the Councils are able to engage more fully with Landlords and offer a better service.  He did mention that there are ‘discretionary payments’ available to tenants who find themselves in difficulty, although Jane Walker the Benefits Manager for Three Rivers DC did state that this money (£31,000 Three Rivers & £26,000 Watford Borough) would not last for long and once it was gone there would be no more monetary help available within the coming financial year.

At Sewell & Gardner we have ALWAYS tried to assist applicants who have registered stating they are going to be in receipt of Housing Benefit.  It has never been an issue to offer assistance to these tenants and treat them in exactly the same manner as any other tenant is treated.  Of course, there is always the issue that benefits are paid in ARREARS and 4 weekly, rather than the traditional month in advance, usual to our work practice – and I cannot tell you how much additional work this entails – but over the last 10 years we have assisted countless tenants in finding private rental properties, when they have been unsuccessful elsewhere.  It is a shame that the Government has decided to expect Landlords to just accept less rent or face the prospect of having to ask their Housing Benefit tenants to vacate or not even consider the option of a tenant on benefits in the first place.  This new legislation is undoubtably going to severely effect the stock available to tenants in receipt of benefits and will cause no end of grief all around.

As a Letting Agents we have to work on behalf of our clients, the Landlords, and it is a struggle to understand how to now promote LHA tenants to private Landlords in a favourable light when the monetary cost is going to be so far apart from the rent they can achieve from a tenant in full time employment and not claiming benefits.

If you are a tenant claiming benefits, the effect of these changes will not apply until the anniversary of your claim, which is usually the start of your initial tenancy agreement, however, if there are any changes to your household (such as someone leaving or coming to live with you, or if you move home, then the changes will probably apply sooner.

It is imperative to think about these changes and what they are going to mean to you or to your landlord.  If you think that you will not be able to cover any shortfall in benefits, please speak to us or your landlord, see if the rent can be reduced or maybe you will need to consider smaller accommodation.  You may also wish to speak to the Housing Options Team at the Council or the Citizen’s Advice Bureau, but please do not leave it too late.

WATFORD BOROUGH COUNCIL:  Direct Dial 01923 278501

or email:  revenuesandbenefits@watford.gov.uk

THREE RIVERS DISCTRICT COUNCIL:  Direct Dial 01923 773138

or email:  benefits@threerivers.gov.uk

 

 

 

 

 

 

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