Universal Credit and Landlords - some solutions for persistent roll-out problems

This is the key finding from the recent survey of Private Rented Sector (PRS) landlords in the regular quarterly survey published by the NRLA.  Nick Clay summarises research into the impact the policy of Universal Credit has had on landlords and tenants thus far.

Our survey

The 2019 Quarter 1 survey has just been published.  For this edition the RLA has used the expertise of Edge Hill University, led by Dr Axel Kaehne, to supplement the regular look at key trends across the private rented sector. 

This report has a more detailed examination of the effect of welfare reforms on the private rented sector.  It has a focus on the views of private landlords on how the roll-out of universal credit has affected their businesses.  Over 2,200 individuals, predominately landlords as well as letting agents and others supporting the PRS supply-side, took part in the research conducted between March and May 2019.

A reluctance to let to Universal Credit claimants tenants

Landlords remain reluctant to let to would-be tenants who claimed Universal Credit: Over 70% of landlords reported that they did not knowingly let to tenants who claimed Universal Credit.

The majority of landlords reported that they did not have mortgage conditions that prevented them from letting to tenants who claim benefits, but over a third of landlords (36%) reported that they did have such conditions.

The most common reasons why landlords do not currently let to Universal Credit tenants are firstly, around concerns and perceptions of financial risk. Secondly, perceptions of Universal Credit tenants being a higher risk for rent arrears. More landlords refuse to let to tenants on Universal Credit because of perceived risk than there are landlords refusing to let to tenants because of actual previous experience.

Policy also meant landlords have become less likely to let to people who claim benefits (be that Universal Credit or other benefit). The two main policy/regulatory changes that have made landlords less likely to let to people who claim benefits were the cap and 4-year freeze to Local Housing Allowance (LHA) rates and the general increased regulation the private rented sector.

The overwhelming majority of landlords who did let to Universal Credit claimants reported that there was a gap between the Local Housing Allowance rates and what they could charge in rents, with many landlords reporting this gap as being over £50 per month.

The experience of those who do let to Universal Credit tenants

The findings indicate the private rented sector is still struggling with the roll-out of Universal Credit. Over half of landlords (54%) with Universal Credit claiming tenants reported their Universal Credit tenants going into rent arrears in the past 12 months. Most of these landlords (82%) reported that the rent arrears began either after a new claim for Universal Credit or if the tenant had moved to Universal Credit from housing benefit.  This somewhat contradicts government claims that rent arrears typically pre-date the switch to Universal Credit!

In addition, the research found that where landlords had applied for Alternative Payment Arrangements (to allow the housing benefit element under Universal Credit to be paid directly to the landlord), there were delays here too.  On average, landlords reported it took nearly 8 and a half weeks for direct payment under the APA to be arranged.

In our survey, the evidence suggests delays and the need to regain possession for reasons of rent arrears under the previous Housing Benefit regime was much less than the Universal Credit system. Not surprisingly, most landlords who presently let to Housing Benefit claimants are concerned about the transitioning of their tenants to Universal Credit.

The survey also found landlords’ roles and practice when letting to Universal Credit tenants was changing. Landlords were finding themselves as, essentially, “support workers”, offering a diverse range of expertise and signposting – for example providing tenants help with online forms through providing access to technology or helping them to understand the forms. This is clearly a role which landlords are not fully equipped to do.

Policy Interventions

The researchers suggested the following policy changes to assist landlords and tenants with the roll-out of the programme:

Most landlords reported a Payment Voucher Guarantee Scheme, where the Local Authority guarantees the rent paid by the benefit claimant, would make them more willing to let to tenants who claim benefits.

The two main policy/regulatory changes that would make landlords not presently renting to Universal Credit claimants more willing to let to tenants who claim Universal Credit were:

1. Higher Local Housing Allowance (LHA) rates – the majority of landlords reported that they would not be willing to let to tenants where they know there is a shortfall between the amount covered by benefits and the rent.
2. Reversal of recent tax changes – the linkage here would seem to be that because of tax changes, landlord businesses have been squeezed and the need to have a more secure income have led many landlords to increase tenant screening as a method of risk aversion.

The offer of direct payment to the landlord in the first instance would also mean landlords would be more prepared to rent to those who claim Universal Credit.

There is a substantial portion of landlords whose conditions on their Buy-to-Let mortgage means they are unable to let to benefit claimants. Further work is needed to encourage lenders to remove these conditions, which would be a further step in removing structural barriers for those that claim benefits from finding a home in the PRS.

Finally, landlords are supporting tenants apply for and secure Universal Credit benefits. This is a role for which they are ill equipped to provide: The development of support, signposting and referral networks may be beneficial in enabling improved joined-up working between landlords, local authorities, health and social care services, and voluntary organisations to ensure vulnerable tenants receive the support they need.