Logo in blue writing with white background about universal credit insinuating a tenant on benefits.

Universal Credit And How It Will Affect Landlords

February 28, 2014 Mary Latham 10 Comments

All the local authorities who I work with are well aware that landlords are afraid of rent arrears and of Universal Credit.

Universal Credit

The feed back from the pilot areas has increased this concern.  They too are afraid as are RSLs and I am working with them to find solutions for ALL of us because in 2017, when UC is the only system we will all be in the same boat and that boat must float.

“I don’t take tenants on benefits”.  Anyone can have a change of circumstance which forces them to rely on benefit, a P45, illness, a relationship breakdown, failing mid-term exams….. A large percentage of people who claim benefits are in work but they are not earning enough to pay their bills and they are given some support, though they may not tell their landlord. It is unrealistic to believe that any of us can avoid tenants on benefits.
What are we all so afraid of? In a nutshell rent arrears!

“Universal Credit aims to make the welfare system simpler by replacing six benefits and credits with a single monthly payment if you are on a low income or out of work.”

How will I be paid? In most cases your Universal Credit will be paid monthly into your chosen account. If you are claiming with a partner, a single payment will be made to cover you both. You will need to agree which account to have this paid into. You might like to consider opening a joint bank account that both of you can have access to.

Your first Universal Credit payment may feel like a lot of money, because it provides a month’s support for your household and may include an amount for your housing costs. 

If you have been used to managing your money fortnightly or having your rent paid directly to your landlord, you may need to find new ways to manage your money.”

Source:  https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/263971/uc-faqs.pdf

Universal Credit is part of Welfare Reform and the aim is to encourage people back into work and reduce the cost of social support.  Fundamentally it is a good idea but the devil is in the detail.

Many people who are in receipt of benefits are used to their rent being paid directly to their landlord – under UC this will only happen for those who are considered “vulnerable”.  They are also used to receiving their benefit payments every two weeks – under UC they will be paid monthly in arrears.

At the moment different benefits are paid to different members of the household – under UC the whole payment will be made to one nominated person into a bank/building society/credit union account.

Under Welfare Reform the total a claimant can receive in benefits is now capped

  • £500 a week for couples (with or without children living with them)
  • £500 a week for single parents whose children live with them
  • £350 a week for single adults who don’t have children, or whose children don’t live with them

When a person or family reach the maximum their benefits will be reduced.  Housing benefit is the first item on the list to be reduced and it can be reduced to as little as 50p. a week.  If a tenants benefit is reduced to this level it may indicate that other benefits have also been reduced this will put them under financial pressure.

“I am not worried because I get direct payments for my tenants”

I hear this often and my reply is “Would you be happy to be paid 50p. a week directly?”

Direct payments have been very helpful under the present system but they will not help under UC if your tenant is in receipt of other benefits which push them over the cap and those “vulnerable tenants” for whom you have being getting direct payment are far more likely to be getting other benefits than the ones who do not attract direct payment.

The fact that the payment is going to be made monthly in arrears will be a challenge to people who are used to budgeting fortnightly and Government have provided funding to local authorities who can support those in need during the first month through Discretionary Payments.  A claimant must make an application to their local Housing Benefit Department for this payment but it is thought that in some areas they will run out of funding early in the financial year. It is important that landlords support our tenants and make them aware of this fund.

The fact that the whole payment is going to be made to a nominated person in a family may also give cause for concern. If the nominated person is not financially responsible they may have other priorities than paying their rent and bills. In my opinion this is going to put women back 50 years. It may also result in children suffering because of the priorities of the nominated person.  Many landlords have concerns that rent will not be top of the priority list for some tenants.

On the plus side there will be less delays in payments because it will no longer be the responsibility of a claimant to notify any changes in circumstances, this information will be collected from the many information sharing systems that are being put into place to reduce benefit fraud.

What can landlords do to avoid rent arrears?

The simple answer is that we must collect our rent the moment a UC payment is made to a tenant. High street banks will not ring fence rent from the UC payment but Credit Unions will do this to support those who have poor financial skills.  Through what are called Jam Jar Accounts Credit Unions can ring fence regular commitments and pay them when the UC arrives into the members account.

They can provide a plastic card to enable the member to pay for daily expenses or withdraw cash just as they would through a High Street Bank account. They also provide support and guidance for those who have chaotic financial arrangements and through their guidance people can begin to save, even a little each month, to enable them to gain access to affordable loans. This avoids people becoming victims of Loan Sharks.

I love Credit Unions and I have a deep respect for those who work for them, often as unpaid volunteers. They deal with the most difficult people, who often demand their money before bills are paid, and support them until they get their spending under control. Credit Unions, in my opinion, will be the saviour of Universal Credit, but unfortunately many of them are struggling to survive.

Landlords should make it our business to find our local Credit Unions and go and speak to them about what they are prepared to offer to our tenants.  Many of them use Jam Jar accounts and are willing to ring fence rent. Most of them make a charge to the landlord of between £1-5 for each payment but most of us are willing to pay that fee, which is tax deductable, in order to guarantee that we get the rent in full and on time.

I have been working with one Credit Union – 6 Towns, based in West Bromwich, West Midlands, for the last two years. Last year they changed their systems and went over to a banking system. All Credit Unions are restricted to taking clients from a given area, known as their Common Bond. In order to open an account a person must live, work or have family or business connections in their area. The area in which National Landlords Association has the Midlands office is inside the area of 6 Towns and this means that all members of NLA and our tenants can use this Credit Union.  Applications for accounts can be made on line or through the post and this gives landlords the opportunity to help tenants, who have no access to a bank account to open an account and put a standing order in place to ring fence and pay their rent. This is not direct payment and it avoids issues of payments being reclaimed from the landlord, it also avoids receiving reduced rent when the benefit caps are applied.

If you are interested in finding out more about how credit unions work with landlords you are invited to attend the following meeting where we are running a workshop on this subject, everyone is welcome and there is no charge for attending.

VENUE: Sutton Coldfield Rugby Club, 160 Walmley Rd. Sutton Coldfield B76 2QA
DATE AND TIME:  6 pm on Tuesday 13th March 2014

If you cannot attend you should go along to your local credit union and speak to them – you will find them very helpful and understanding because they know better than we do how some people struggle to manage their money. You should also go to any meetings offered by your local authorities where Universal Credit is being discussed because, despite all the delays and predictions of failure, Universal Credit in some form is going to happen and already has in some parts of the country.

About Mary Latham

Mary has been a landlord since 1972, letting all types of property to most client groups and carrying out much of her own refurbishment.

She was founder and Chair of the Association of Midlands Landlords where she ran a help line for landlords for 9 years, until AML joined The National Landlords Association in 2007 and she became the West Midlands Regional Representative for NLA.


    March 3, 2014 REPLY

    Mary, Alan & Geoff – thanks for your comments. Looking at our current stock of
    available properties in the UK, around 11% of landlords advertising with
    us would consider tenants on benefits. Perhaps the other 89% share
    Geoff’s sentiments? In terms of enquiries we receive, a high number of
    callers claim benefits and we have recognised a disproportionate level
    of demand vs supply. A handful of landlords we work with are in fact
    using this to their advantage and are gearing themselves up to deal
    within this sector which opens up their pool of prospective tenants and
    in turn (hopefully) reduces their voids.

      March 3, 2014 REPLY

      Jonathan, there are many landlords who specialise in tenants on benefits and have systems in place to overcome any potential issues. It’s sad when a whole group of people are judged on the behaviour of others but since 2007 when direct payments were stopped landlords have seen an increase in rent arrears and they are afraid of losing the properties that they have worked so hard for. Many people forget that landlord have mortgages to pay too and they need to protect themselves from potential rent arrears. Personal I judge each potential tenant on their merrits and is I can get a good lifestyle reference, through LandlordReferencing.co.uk, will and do take tenants on benefits. Those tenants who are struggling to find a new home should ask their present landlords to give them a good lifestyle reference on LRS and this will increase their chances. Of course as good Credit Reference or Guarantor will also help.

    March 2, 2014 REPLY

    Today’s “poor” are different from those of our
    generation. I won’t have ’em at any price. It’s not the poverty, it’s their
    social behaviour. The state needs to take responsibility – not the PRS. They
    have created the social landscape in which these people have grown up in.

    March 2, 2014 REPLY

    the other option is to get RGI and make the tenant pay for this, the same applies if the tenant cannot afford a deposit, an insurance, which costs around a week`s rent, can be got, this again is paid for by the tenant, in reality this is better than a deposit, with the present system a deposit is really useless to the landlord, getting it paid is all but impossible, and entails a lot of hassle, we opt generally for a fee in lieu of a deposit at around half the cost most tenants like this and of course this is kept by the landlord and not paid back, we use this to pay the cleaners and for any small jobs, decorating etc. in high turnover properties like one bed apartments this can be quite lucrative, and there is no fight over the money, it is already in the bank.

      March 2, 2014 REPLY

      RGI is a really good idea for most tenants but there are not too many Insurers who want to give cover for those on LHA.

        March 3, 2014 REPLY

        That’s right Mary and in our case, when one of our landlords does accept a tenant on HB where we offer a rent collection service, we would usually require an employed guarantor to sign a guarantor agreement and we take out the rent guarantee insurance on the guarantor with our insurers.

    March 1, 2014 REPLY

    good question that, not sure what we could do then, but generally speaking those who had a job and were forced to have a period on HB would be the type to go and get a job at the earliest opportunity, by excluding initially HB prospective tenants those of a certain type are avoided, at least theoretically, not too sure this will ever be 100%.

    March 1, 2014 REPLY

    When we look back all our problems were from tenants on HB, so the answer is simple, do not take any, we now specifically exclude this group, who is to blame? well it certainly is not me.

      March 1, 2014 REPLY

      Many landlords agree with you Alan and its going to be a big problem for local authorities who need the PRS to help with homelessness. What do you do if a tenant has a change of circumstances and needs to claim benefits?

    February 28, 2014 REPLY

    Universal Credit: Government’s welfare reform ‘may be scrapped after next election http://www.independent.co.uk/news/uk/politics/universal-credit-governments-welfare-reform-may-be-scrapped-after-next-election-9139458.html. I can’t see them giving up now that so much investment has been made but perhaps there is room for improvement and hope for the PRS?

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