One of the big criticisms today of landlords is the fact that many won’t let to benefit claimants.
Tenants organisations have organised demos and marches and angry articles have appeared in the press, all condemning landlords and their agents for selfishly refusing to let to people on benefit.
However, maybe they are protesting in the wrong places. Maybe they should move from protesting in front of letting agents offices (as letting agents, after all, have to do what landlords tell them) and move over to the banks.
Maybe they should start demonstrating in front of TSB, Virgin and the Natwest, all of whom have policies which prevent their buy to let borrowers renting to tenants on benefit.
Anti benefit claimant borrowing criteria
Most landlords own their properties on a mortgage. And most of those mortgages contain conditions which landlords need to follow when renting their properties.
If they don’t – the mortgage lender could, technically, call in the loan.
For example, NatWest’s buy-to-let eligibility criteria notes:
We will not consider multiple tenancies, Homes of Multiple Occupancy, bedsits, DSS tenants or ‘Related Person’ tenancies.
Helena McAleer’s case
Helena McAleer is a landlord in Northern Ireland and is featured in a recent Guardian article. She rents to a tenant who happens to be on benefit.
Helen wanted to raise some extra funding from her property and approached her mortgage lender, NatWest. She was horrified to learn that the bank would only agree to this if she evicted her tenant.
A tenant, mind you, who is not in arrears, has paid her rent on time and who is in all respects a good tenant. But who, despite this, would struggle to find anywhere else to live were she to be evicted as NatWest asked.
Helen, to her enormous credit, refused and went to another lender. And set up a petition asking the government to take action to force banks to stop this practice.
But how many other landlords have had to comply with these demands? Particularly as most mortgage lenders ban benefit tenants. Some landlords may not be able to find a lender who will permit them.
A harsh and senseless ban
There are some 4.2 million benefit claimants in Britain. They all have to live somewhere and for many of them the only option will be the private rented sector.
But many landlords, who will be bound by the terms of their buy to let mortgage, have no option but to refuse to accept them. Simply because of their mortgage conditions.
As Patrick Collinson in his Guardian article points out
It’s not even clear how NatWest’s approach makes any commercial sense.
As a lender, its contract is with the landlord, not the tenant. If the tenant doesn’t pay, the bank shouldn’t care – it’s the landlord who is legally liable.
If the landlord goes into arrears, the bank can repossess safe in the knowledge that all buy-to-let mortgages have a maximum 75% loan-to-value. And what if a tenant goes on to benefits some time after occupying a property? Should the landlord meekly tell NatWest and accept that they must now throw them out?
There are other reasons why landlords are unhappy about accepting tenants on benefits, which I looked at in this post. However many landlords would be willing to take a chance on a good applicant – if their mortgage lender would let them.
There has been a lot of talk about landlords discriminating unlawfully against tenants on benefits – but if they are forced to discriminate by their mortgage lender, there is nothing else they can do.
Maybe someone should bring a discrimination claim against the banks?
When money is the measure
For banks and most other mortgage lenders, money is the measure of all things.
They work to formulas. Compassion, empathy and humanity have no place in their world.
Their staff, individually, may be nice and compassionate people, but the organisation they work for is not. And they will generally have no discretion.
There is no good expecting the banks and financial organisations to voluntarily change their policies. Even if they did bow down to pressure, they would probably bring them in again by some backdoor measure.
The only way this can be stopped is by government action.
Which is why we all ought to sign Helena McAleer’s petition and send a message to the government that this sort of thing is unacceptable.
The RLA are also on the case here and they suggest that the bank’s practices breach a number of principles within the FCA’s ‘Treating Customers Fairly’ agenda.
In which case maybe a test case should be brought – perhaps against NatWest, a bank which is part of RBS and which is supposed to be partly owned by us, the people.
After all, if a state-controlled bank is doing this, it is hard to see how the others can be stopped. The RBS banks should set an example and change their policies.
You will find the petition here.
I can’t help but think that the REAL reason lies not with the landlords, nor the letting agents, nor even the banks, but can instead be found elsewhere.
The bank is making a cold-hearted and hard-headed assessment – but a commercially sound one. “If this all goes wrong, and with someone on benefits there are very real risks that it could go wrong at some point, how long will it be before something gets done about it – and is that a delay we are willing to take a gamble on?” It’s not terribly surprising that their answers are “too long” and “no”.
Social landlords might be able to operate where the delays to Universal Credit, Housing Benefit and other welfare payments take week and months to resolve, but private landlords (and their financial backers) aren’t so keen.
And where is the real problem? A benefits system so labyrinthine and slow that pauses (or complete cessations) in benefit payments are regular and to be expected. Backed up by a court process where, if everything is done properly and swiftly (using the “accelerated” possession procedure) it’s going to take 6 months to retake possession of the property (which coincidentally appears to be the time it takes for benefit problems to be resolved).
The common theme? An underfunded court service with unconscionable delays, and an ever-changing benefits system that appears to be engineered to make it as hard as possible to access money regularly – both run by a Government that is completely unwilling to spend any money on any public service (and we know that HMCTS isn’t the sort of public darling that the NHS, Police or education system – and they’re hardly any better looked after).
There is a lot in what you say.
I still think though that state-controlled banks at least should permit landlords to rent to benefit claimants.
Mortgage Express, owned by the taxpayer, also have a “no benefit claimants” rule.
I agree with both of you. I think the banks are being discriminatory with such policies and breaking the law in doing so but even if they were to remove such restrictions London tenants are still faced with the basic problem of rent levels v. benefit cap, which in London is way out of whack, many tenants on benefits cant even afford the rents in lots of areas.
UC isnt helping at all, as evidenced by the recent RLA article you highlighted Tessa, where rent arrears are growing at a staggering rate and the recent announcement that government are holding back on the national roll out, getting last minute cold feet/conscience – delete as applicable.
The Housing Benefit system also doesnt help, paying out in arrears when rents are normally calculated in advance plus their blanket refusal to even discuss the claim with the landlords.
All of which, banks and courts included, make it a hostile environment for benefit tenants.
I have a client at the moment who the homelessness unit have assured will assist with rent in advance and a deposit if she can source accommodation. She has been trying for 10 months with no success.
I have one tenant (+ family) who is on HB as a top-up to her earnings. She is normally late paying the rent and has always been in arrears (max 2 weeks rent). The amount of arears has fluctuated and is only as bad as it is because the council don’t tell us when her HB is changing so we can tell her to increase/decrease the rent payment. The tenant has given signed permission for the HB claim to be discussed with us but about 50% of the HB team won’t do so.
I was prepared to rent a room to another HB tenant (80% of my properties are HMOs), but just before we signed the agreement the council told her she couldn’t move in as the rent was too expensive. It was below market rate for a room (which is now too small to rent by 0.005m^2) but since the council have introduced their HMO additional licensing scheme, rents have risen by about 150% but the LHA has not changed. I do still accept HB tenants but before I do any work, I want written confirmation from the council for the amount of rent they will allow the tenant to pay.
One of the big problems for landlords and HB tenants is section 101 of the Housing Benefit Regulations and in particular paragraph 101(1)b. This says that to not be liable for repaying any HB that has been paid to me directly, I have to have written to the local authority or the secretary of state to notify them that I suspect that there has been an overpayment. How can I do this without knowing all the tenant’s affairs? https://www.legislation.gov.uk/uksi/2006/213/regulation/101. Given the landlord has no say on whether HB is paid direct to them (sections 95 & 96 of the regs), this means fraudulant HB can be recovered from the landlord and the tenant can move on leaving the landlord out of pocket. Until recovery of HB is always from the tenant, a lot of landlords are going to have a problem with HB.
My bank clarified this point by stating that they did not want benefit claimants that were ‘referred by social services’ such as refugees and homeless people. They said that they had no objection to people who had hit on hard times and were claiming benefits, but who were applying themselves. I don’t know if that is correct.
As it happens,however, I don’t have any tenants on benefits. The reason I don’t take benfit claimants because I can not wait for the length of time it takes the first payment to come through, and because my rents are payable in advance, not in arrears.
If the government gets their way and introduces 3 year tenancies, there is also a much greater risk that tenants who come in to a property when they are working may find themselves made redundant, and become benefit claimants. What do landlords do then? Introduce a clause that says that anyone claiming benefits must forfeit their tenancy? I could see that going down well.
The real reasons why landlords don’t let to benefit claimants are rent arrears, damage and ASB;
https://england.shelter.org.uk/__data/assets/pdf_file/0004/1236820/Landlord_survey_18_Feb_publish.pdf
Just 14% of landlords said the reason for not letting to benefit claimants is their mortgage and/ or insurance policies bar it.
Landlords refusing to take on benefit tenants has increased to two thirds from just under half in 2010.
Tenants behaviour hasn’t noticeably worsened over that period. But the financial and legal landscape has for landlords.
Chickens coming home to roost. It’s a pity those at the bottom are paying the price.
I have tenants who I am pretty certain are on benefits – two single mothers who probably get child benefit. Not all benefits are the same.
I have mortgages that say I can’t let to tenants on benefits, but that is not why I don’t let to people on housing benefit. I don’t because the risk of doing so is greater than to a tenant not relying on the whim of the council. Some landlords are set up to handle that. I am not.
What I do is try to buy properties that are a bit better than average so I can get my choice of tenants, at a higher rent than the LHA rate. My lowest rents are £495pm. The local LHA rate is just under £450pm for a 2 bed property.
“My lowest rents are £495pm. The local LHA rate is just under £450pm for a 2 bed property.”
How much is the DLA rate?
Doesn’t it vary according to need and isn’t being replaced by PIP.
That’s kinda the point I was making Peter. It’s not just about the LHA rate, a parent with a disabled child receiving the maximum DLA rate could easily afford your £495 pcm rental.
I’ve got a long term tenant in similar circumstances. It will be my unpleasant task to tell them that due to section 24, I will be selling that property in 3 years time. If the council imposes landlord licensing, I’ll be bringing it forward. These things hit tenants as well as landlords-Yet the bleedin’ heart brigade cheer these attacks on.
I plan to sell my property with the highest rent next year, partly due to S24 as I will likely be moving up the higher tax rate once I start taking my pensions.
I’m on HB and it’s paid directly to me. It falls short of my rent but I make sure the correct amount is paid on the first of the month.
I used to pay it to an agency many years ago but their incompetence meant that they would charge me every time the rent was short* They ended up with money in hand of course, and had to pay me back. That’s when I got it paid straight to me so I could be in control.
*Of course, because the montgly amount of HB was split into two bi-weekly payments, it would seem to the agency that they were short some months and over paid in others.