Landlords can demand direct payment if the tenant falls into arrears of over 8 weeks. However landlords will generally prefer rent to be paid direct to them from the start so that the arrears never happen. Here are five ways that this can be done.

1. Credit Unions

Many credit unions provide a service where benefit payments are made to a special account and then passed on to the landlord. There are quite a few credit unions that will do this (I have a page with a list of all credit unions that I am aware of).

However credit unions can normally only take on local customers, and not all of them are able to deal with benefit payments, so you may not have one in your area able to offer this service.

2. Tasker Payment Services

There is also a new service, Tasker Payment Services, set up by Leanne Tasker. This is very similar to the credit union service. The Tasker service however is open to all tenants wherever they are located.

Fully registered with the FSA, this is a good choice for tenants who do not have a bank account, or who have a big overdraft. You can read more and find the forms online at the Tasker Payment Services website.

3. Using guarantors

This is the approach developed by Steve Perrons which he described in our podcast in March.

Essentially it involves signing up a relative of the tenant as a guarantor, and then arranging for the benefit payments to go to the guarantor rather than the tenant. The guarantor is then responsible for paying the benefit over to the landlord and ensuring that any shortfall is made up.

Steve has used this method for years and says it works very well. Find out more by listening to the podcast here.

4. Direct payment for vulnerable tenants

If the tenant is a person who finds it difficult to manage their financial affairs or who is unlikely to pay for some reason, an application can be made to the Local Authority for direct payment, to protect the tenant.

This may be appropriate if, for example the tenant has learning difficulties, or is illiterate or cannot speak English. An application needs to be made to the local authority supported by evidence which they will then assess. You can read more about this process in Chapters 5 and 6 of the LHA Guidance Manual here.

5. Direct payment for ‘affordable rents’

Finally, there is the new rule, which came into force in April 2011, which allows local authorities to pay direct to landlords to ‘safeguard affordable rents’. This was brought into force to ‘help exert a downward pressure on rents’ and will be available if a landlord is willing to drop his rent to make it ‘affordable’ to the tenant.

You can read about it in Chapter 7 of the LHA Guidance Manual.

As one is constantly reading about the massive rise in rents recently, this would suggest that landlords are more likely to want to get HB tenants out so they can rent to someone willing to pay more, rather than reduce their rents so HB can be paid direct. It would be interesting to know whether this new power has actually been used yet.

A caveat

Finally, it might be worth mentioning that there are advantages in not having rent paid direct to the landlord. If rent is paid direct the landlord is vulnerable to ‘clawback’ if it is later found that the payments should not have been made to the tenant.

This used to be a big problem when direct payment of benefit to landlords was the norm. The problem does not occur where payments are made via a credit union (or the new Tasker service) or via the guarantor approach pioneerd by Steve Perrons.

My guest this month is Steve Perrons of Perrons Davis, a Yorkshire letting agency which specialises in lettings to housing benefit tenants.

In this podcast Steve shares with me his secrets for profitable letting to benefit tenants and tenants on Local Housing Allowance (LHA).  For example:

• Why you should only rent in areas where the local authority has a fast track system
• How he uses guarantors to ensure rental payments to his landlords
• What sort of returns he gets
• The big benefits of renting to benefit tenants, and
• His views on the forthcoming changes to the housing benefit system.

This is a fascinating podcast and highly recommended to  all landlord  renting to, or considering renting to, housing benefit tenants.

Apologies for the sometimes poor quality of the recording – we did our best!

>> You can also listen to the podcast on the internet here

>> Or subscribe to Landlord Law Podcasts on itunes here

Or subscribe to The Landlord Law Blog Podcasts by RSS here

For more information about Steve and his firm see:

• their Landlord Law supplier page
• their website
• Steve Perrons on YouTube
• A post on the Perrons David blog on housing benefit changes

If you have any comments on the matters discussed in the podcast, please use the comment box below.

Here are a few points I have picked up from the report

Reduced rent levels and the discretionary housing benefit safety net

The government expect the housing benefit cuts to have a knock on effect and reduce rent levels in the private sector.

They appreciate that many people will have to move and are providing additional money for discretionary housing benefits for this. You may want to read their response to this point in full:

The Government acknowledges that the caps will result in some tenants moving from the more expensive areas. However there is already a substantial annual turnover rate of about 40% in the private rented sector, and some of those who will need to move would have done so in any case. In all but three of the most central areas of London at least 30% of properties will still be affordable within Local Housing Allowance rates.

The maximum weekly rates of Local Housing Allowance provide a generous level of support. The maximum rate payable will be £400 a week which equates to annual support for housing costs at over £20,000 a year. A family paying an average proportion of their income in rent would require an income of at least £80,000 a year to be able to afford to pay this level of housing costs.

Still researching

The question which follows this points out that a few highly publicised cases have rather distorted the public perception of the situation and seems to be  ‘driving policy changes which affect a much wider range of people’.   The committee also express concern that there will be a disproportionate effect on ethnic minority groups and disabled people.

The Government’s response to this is, more or less, that they are still doing research on it. Not a very satisfactory answer in the circumstances.

Concerns about the effect on retired people are answered by saying that the Discretionary Housing payments fund is being increased.

Increased evictions and homelessness

There is quite a long answer on the concerns raised about the possibilities of increased evictions and homelessness which the committee think may be greater than the government think. The government answer this by saying:

• They don’t agree

• They are putting in place extra measures and funding

• If landlords would only reduce their rent by £10 per week everything would be a lot better

• Local authorities will be able to pay rent direct to landlords (something they have been asking for, for a long time) if they agree to reduce rent to an ‘affordable level’

• The Localism Bill will allow Local Authorities to put people in priority need in accommodation in the private sector, even if they don’t agree to this (or rather if they refuse to agree, the Local Authority will not be obliged to find them somewhere else)

Comments expressing concern about the availability of accommodation in the private sector to meet the demand in the context of a shortage of social housing and high demand for rental accommodation are met, more or less, with the answer that they are working on it.

Conclusion

Those are the main points which jumped out at me. You may pick up on other points (you can read the response in full here).

It is clear however that great reliance is going to be put on the discretionary housing benefit. In this context you may want to look at the good practice guide which has now been issued and which you can see here.

Their other strategies appear to be:

• A belief that rents will go down to match the lower benefit rates
• Landlords will also reduce rent in return for getting paid benefit direct
• Hope

I am not entirely convinced that landlords will be willing to reduce rents in a time of housing scarcity, but I could be wrong. What do you think?

Note that I will be talking to my March podcast guest Steve Perrons shortly about renting to housing benefit tenants. If you have any questions you would like me to ask him, please use the form on this page.

Budgetary Changes being made to Housing Benefit

(NB: Except where stated, existing HB recipients will be affected from their tenancy anniversary, or possibly sooner if a change to the household means a new maximum Local Housing Allowance rent has to be determined)

From 1st April 2011:

• Removal of the 5 bed rate under LHA. Properties of 5 beds or more will now only get the 4 bed LHA rate
• LHA will be set at the 30th percentile of rents in each Broad Rental Market Area, rather than the median (e.g. using Sept 2010 figures, a 2-bed in Borehamwood will drop from £847 to £791pcm). From April 2011 for new tenancies: existing tenancies not affected until 9 months after their annual review date (i.e. at least January 2012).
• A new, nationwide, weekly upper limit will be introduced for each property size (1 bed, £250; 2 bed £290; 3 bed £340; 4 bed, £400)
• £15/wk excess provision currently payable to tenants within the LHA rules will be removed (as previously planned)
• Size-criteria adjusted to provide an additional room for a non-resident carer where a disabled person has an established need for overnight care. (LHA and LRR cases) (this change applies to all cases, new and ongoing, from 1st April 2011)
• Staged increase in non-dependant deductions (so that by 2014 rates will be at the level they would have been if uprated since 2001)
• Discretionary Housing Payment (top-up) fund increased from £20m to £30m for 2011/12

From April 2012:

• The single room rate will rise to apply to anyone up to 35 years old, instead of 25
• DHP fund increased from £30m to £60m for 2012/13 onwards

From April 2013:

• LHA rates will increase in line with the Consumer Price Index, not market rents
• Size criteria limits will be applied in the SOCIAL sector for working age tenants.
• Tenants on JSA for 12 months will have their housing benefit entitlement reduced by 10%

Undated but stated to be ‘starting in 2013 and finishing in the next parliament’:

• Universal Credit to be introduced. Full details yet to be confirmed by DWP, especially with regard to direct payment to landlords, and the proposed overall benefits cap (£26k/yr) regarding larger properties in more expensive areas

*****

Many thanks to Alan for that helpful summary.  Further information can be obtained from the DWP website, the LHA Direct website, and on the Directgov website.

Special offer for Landlords

Incidentally, if you have housing benefit / LHA tenants, you may be interested in a new Housing Allowance Calculator, which has been developed by the Settled Housing Solutions Consultancy.  You can read all about it  and get a password to try it out >> here and also get a £25 discount if you decide to buy it.

Housing benefit and LHA – what are they thinking?

I notice today that after climbing down over prison sentences for knife crime the government is also getting,……well not exactly cold, but definitely chilly feet about housing benefit plans. Or are they just seeing sense and listening to people in the know?

Housing Benefit / LHA – the lowdown

In case you’re not aware, in order to cut £1.765 Million from the housing benefit budget the government, amongst other measures, are raising the age limit for receipt of Single Room Rate (SRR) from 25 to 35. The SRR is a regulation that says if you are under 25 and on housing benefit you will only get the amount of rent required to occupy a bedsit. If you want your own self contained 1 bedroom flat you will have to make up the difference in rent yourself

Obviously if you are on basic Job Seeker’s Allowance (JSA) @ £65 a week where are you going to get that extra cash?

Now I don’t means to diss (By which I mean London slang speak for ‘Disrespect’……not the town in Norfolk) landlord’s of bedsits but HMOs (House in Multiple Occupation) are generally regarded as poor quality accommodation with more than their fair share of social problems. For many the only way out of that is when they get old enough to get out from under the rent cap.

Under the new rules, due to come into force in April 2011, a person on benefits is stuck in that type of accommodation until almost middle age.

Panic stations at Local Authorities

When the government announced these plans a few weeks ago many London authorities went into a panic and block booked bed and breakfast accommodation down to the south coast and north to Luton to deal with the anticipated deluge of homelessness cases coming from hundreds of thousands of people who would be priced out of their accommodation. One MP likened the effect to be on par with the Highland Clearances of the 18th Century.

The government seems to have actually listened to cries of protest and have slightly amended the plan. Now, people on benefits already wont be hit by the new proposals until January 2012. however, any new claimants from April 2011 will be affected.

Not being cynical, but …

The idea behind this is to allow existing benefit claimants time to downsize from their self contained flat to a room in a shared house. Now I hate to sound cynical but do you really think that many of the countless thousands of benefit claimants who are going to be affected by this will rush, pro-actively, to move from their flat to a bedsit? I know In wouldn’t!

Don’t you think that it is likely that by January 2012 most of them will still be in their self-contained homes? This just means that the effects of the new model ‘Highland Clearance’ are just going to be delayed for a further 9 months.

What about the landlords?

And how will this hit landlords? Obviously landlords of HMOs will benefit from the increased numbers of tenants looking for available rooms but what about the landlords who will have tenants who can no longer afford the rent because of the cuts?

As is so often the case with all government plans, the savings that are trumpeted in one area just pushes the real cost somewhere else. Extending the SRR may save millions in HB but it is the landlords of benefit claimants who will have to pick up a large part of the tab in rent arrears that they cant recover and costly evictions, perhaps going Dutch with Homelessness units who will have to split the bill and spend out on rehousing some of them.

They have another plan too, which is to temporarily lift the LHA restriction, for landlords who are willing to reduce the rent levels to keep people in their homes. Once again, the landlord is footing the bill for housing benefit cuts. (LHA is the ludicrous and nationally unpopular system whereby direct payments of housing benefit to landlords is prohibited, even if the tenant actually wants it).

I wanted to write this because all of the protests about SRR are in support of the tenants, who I also support, but nobody talks about the landlord side of things here.

Part of government thinking in raising the SRR age limit is to get people off of benefits and into work but the jobs have to be out there for them to have and the recession’s eclipse is wide and dark.

Nobody is saying that cuts in public spending aren’t necessary but Mr Shapps You have to think more than one step ahead before you come up with a plan like this.

What about better HMOs??

Alternatively is it possible to raise the general standards of HMOs in order that they aren’t seen as poverty accommodation? Licensing has been much in the news but I am thinking beyond standard physical conditions and more into the lifestyle quality of them

Until the 1960s there was a long and acceptable tradition of gentlemen’s lodgings, that weren’t considered low quality options. I am not saying that we should wind the clock back and live like Alec Guinness and Stanley Holloway in the Lavender Hill Mob, but surely we can have HMOs that are an inviting and humane environment.

I know an HMO landlord who has internet installed, the accommodation is all clean, well decorated and there is even a sense of community amongst the tenants. Too many of the ones I visit are like something out of Charles Dickens.

Ben Reeve-Lewis

About Ben Reeve-Lewis: Ben has worked in housing in one form or another since 1987. He has variously been a Homelessness caseworker, Head of Homelessness for a local authority, a TRO and Housing law trainer. He now divides his time between doing contract Tenancy Relations work and as a Freelance housing law training consultant for the CIH, Shelter, Sitra and many more. Read more about Ben here.

Photo by Shandchem