Over the last couple of years we have tried to keep
our landlords up to date with the on-going changes
to housing benefits.
In
late 2010 we started to publish articles about the
pending reductions in LHA that were to take effect
from April 2011 and in late 2011 we published further
articles about additional changes that affected
under 35’s from January 2012 onwards. As a
company we try to attend as many local council/private
landlord association meetings as possible in order
to stay ahead of pending changes and pass our knowledge
onto our clients.
Last
week I attended a meeting for private landlords
at the Gateshead Civic Centre and in this article
I will pass on information we discussed including
further pending changes to the benefits system and
the forthcoming introduction of Universal Credit.
All of these changes are still being finalised and
so we will continue to keep you informed as more
information is provided by governmental sources.
Pending
changes: What does the government have in store?
Since
the current government were re-elected in 2010 they
have set out on a programme of welfare reform with
specific goals centred on getting people back into
work, making people more responsible for their own
budgets and most importantly reducing the overall
welfare state. The next wave of changes are aimed
at these end goals.
Benefits
Cap
A general undertone of the reforms is that nobody
on benefits should have a higher income than someone
who works (based on the current UK average salary
of £26,000). As a result, from April 2013
overall benefits will be capped at £350 per
week for a single person and £500 per week
for a couple or single mother. These reductions
will be taken from housing benefit and will only
affect working age tenants claiming income based
benefits (Not DLA claimants or the elderly).
Although
this change will not affect a large proportion of
people claiming benefits (Approximately 40 families
in the Gateshead Borough Council Area – Typically
5+ children) it may pose a risk to a small number
of landlords who currently house these tenants,
especially once Universal Credit is introduced and
families that are used to a higher income suddenly
struggle to budget appropriately.
Apparently
there will be a short term increase in discretionary
housing payments (DHP) to help ease the transition
however budgets are limited.
Non
Dependent Deductions
At present tenants claiming housing benefits see
a set reduction in their entitlement for non-dependents
(any adult in or out of work living within the house-hold)
based on the income that the non-dependent receives.
From April 2013 these deductions are set to increase
but as yet we do not know the framework for these
increases or how they will impact upon tenants.
Bedroom
Cap (Council Tenants)
Again, from April 2013, social housing tenants of
working age will be hit by a reduction of up to
14 per cent of their housing credit if they have
one spare room and up to 25 per cent for two spare
rooms. The aim of the policy is to reduce housing
benefit expenditure and encourage tenants to either
seek work or move, freeing up social homes. However,
in reality this is likely to lead to an increase
in council tenants moving to the private rented
sector which may not choose to accommodate them
due to the potential risk and uncertainty from Universal
Credit.
Compared
to the ‘befits cap’ this change affects
a much higher proportion of people (Approximately
3,000 people in the Gateshead Borough Council Area).
Job
Centre plus – Social Fund
At present benefit tenants can apply for a crisis
loan or rent in advance to help cover the cost of
moving through their local Job Centre plus. Additional
funding is also available to people in care who
are trying to move back into the community. This
service/facility through the Job Centre plus is
to be abolished at some point in the near future
(probably at a date which ties in with the introduction
of Universal Credit). From this point the responsibility
will be passed to local councils, however, the funding
will be significantly reduced and councils will
have to decide individually who they will and will
not help. Overall, this will lead to much less people
being helped.
Council
Tax Benefits
Changes to council tax benefits will run in line
with the introduction of Universal Credit. In short
the benefit will be scrapped completely and councils
will have to individually design their own replacement
schemes. At present local councils claim back funds
from central government for all lost revenue as
a result of awarding council tax benefit. Under
the new rules this pot will be capped (approximately
10% less) meaning that the same level of support
simply cannot be offered.
A
major concern for landlords is that local councils
are looking to remove the “empty and un-furnished”
discount so that landlords will have to pay council
tax when properties become empty.
| LHA
rates
In the past LHA rates have been calculated
based on percentiles of localised average
rents. In April 2011 we saw a significant
reduction in these rates as the new rates
were based on the 30th percentile rather than
the 50th that was used prior to this date.
Subsequently we saw slight fluctuations following
the change but recently the rates have remained
stagnant. From April 2013 LHA rates will no
longer be calculated in this way and will
instead be based on the consumer price index
or 30th percentile, whichever one is lowest.
This will apply further downward pressure
on market rents. |
|
Universal
Credit – What, when, why?
What?
Universal Credit will combine several means-tested
benefits, tax credits and housing benefit into one
monthly payment paid direct to tenants, which will
be administered by a giant IT system using real-time
tax information to automatically update claimants’
entitlements.
The
change will cost £4 billion to implement but
is expected to save £2 billion a year in administrative
costs. The measure will simplify benefits and ensure
claimants see more clearly what they receive compared
to working. According to the government, a single,
direct payment will encourage people to take responsibility
for their finances, but in reality as I’m
sure many will agree, it is likely to result in
increased rental arrears to private sector landlords
as some tenants fail to manage their budgets.
The
obvious problem with Universal Credit is that a
section of a tenants benefit will no longer be paid
to them to specifically cover their rent. Their
benefits will come as one lump sum which is designed
to cover their overall living costs and it is then
up to them to to budget and pay for their outgoings
accordingly. My fear is that in many cases the temptation
of having a large sum of money coming in once a
month will increase irresponsibility and rental
arrears which could result in big problems for landlords.
Similarly
to some of the other pending changes, Universal
Credit will not affect Disability Living Allowance
(DLA) claimants; however everyone else of working
age will be affected (i.e. claimants of Income Support,
Employment Support Allowance, and Housing Benefit
etc). Universal Credit will be paid monthly in arrears
on a no pro-rata basis (i.e. if a claim is made
of the 16th of the month the tenant will always
be paid on the 16th of the month).
When?
Universal credit will be phased in gradually from
October 2013. The first wave of applicants to be
affected by the change will be those making a new
claim for benefits or those that have a change of
circumstances resulting in a reassessment of their
benefits. Although it has not been explained fully
at this point it is expected that a blanket switch
will then occur later (between April 2014 - 2017)
on a geographical basis (Either based regionally
or on council boroughs). At present the government
is running 10 pilot schemes in various locations
with different demographics. It has been suggested
in some recent articles in the press that the infrastructure
required to get this change off the ground within
the proposed time frames will not be in place by
October 2013, however, the government remain adamant
that Universal Credit will roll out as expected
and by 2017 will have been rolled out across the
board.
Loss
of safeguards to ensure direct payment?
At present the government has not disclosed if or
how they plan to deal with the big question of ‘direct
payment’ to landlords, however, the fundamental
undertone to the changes is that they want to make
people more responsible for their own income/budget
meaning that they are aiming to pay tenants directly
regardless of the circumstances. We have been informed
at this point that there may be a provision based
on debt or bad money management as there is at present
but until the government reaches a final decision
on this we really don’t know what will happen.
Hopefully some safeguards will remain in one form
or another but there is a chance that they may not
transfer across at all which needless to say would
be a disaster for landlords.
The
lack of clarity on how the government will deal
with this issue is clearly the most pressing matter
to all private landlords that currently house or
intend to keep housing benefits tenants. Although
the current portrayal of Universal Credit and its
unknown aspects are generally negative, one thing
I would say is that as a whole the private sector
has always been able to adapt to changes in the
past. At NGU Homelettings we have always been able
to evolve our processes to stay ahead and although
at present there is a lot still to be unearthed
about the pending changes I am confident that this
period will be no different.
Over
the coming months we will continue to push for the
answers we and many others are looking for so we
can ensure we are prepared. As soon as we have further
news we will pass it on to you.
