As some of you may know, I write for Property Investor News. I was leafing through one of their back issues recently (April 2013) when I came across a really excellent article from landlord Paul Galbraith on Universal Credit.
Hopefully he will not mind if I share some of the ideas with you. But first – a bit of explanation.
What is Universal Credit?
As most of you should know by now, our benefit system is changing and a new amalgamated system called Universal Credit is being gradually introduced.
There are two main points about Universal Credit that you need to know
- It combines several types of benefit (including Housing Benefit) into one single payment, and
- This one single payment will be paid direct to the tenant
The new system has already been introduced in some areas, and is due to be rolled out nationally from October. According to a government information page , the process is expected to be complete by 2017.
There is also a helpful BBC information page here which has links to other helpful information pages, if you want to read more about it.
There have been problems reported with the new system but so far as I am aware it is still going ahead.
Credit Unions and jampot accounts
Probably the best way to prepare for the rollout of Universal Credit is to require any tenants on benefit to use one of the ‘jampot’ accounts being set up by many credit unions.
With these accounts, tenants arrange for their Universal Credit to be paid in regularly. Payments will then be made out to cover regular bills, including rent to landlords.
This means that tenants are not at risk of losing their home through poor budgeting skills (endemic among benefit claimants!).
What landlords should do now
Ideally landlords should arrange for their tenants to move as soon as possible to using one of these accounts.
Mr Galbraith says in his article that it is now a mandatory part of his tenant application procedure that tenants on benefit do this and that existing tenants who refuse to set up one of these accounts will not have their tenancies renewed and will be asked to leave.
He has noticed several benefits from the mandatory signup procedure:
- Most tenants are happy to comply as it means they know how much money they have and they don’t have their landlord chasing them for rent
- The standard of his tenants has improved – probably because only tenants who are motivated to be good tenants are willing to take the trouble to deal with the procedure
- Credit Unions will notify him if any of his tenants cancel the instructions to pay the landlord – which alerts him to potential problems.
Generally the notification period is 60 days. During this time the landlord can contact the local authority notifying them that the tenant is a perceived financial risk. This may be sufficient to get payment made direct.
Its in your own hands
Mr Galbraith states in his article that landlords will only have themselves to blame if they fail to set up proper procedures in advance of changes coming in, and predicts that the amount of landlords in the private sector will reduce once Universal Credit is introduced.
He cites two examples from the social housing sector. One where the CEO simply seems to be holding his hands up and saying that the changes will make their business unsustainable. The other is Genesis Housing in London who have been busy implementing a proper system.
He refers to an easy to understand video on the Genesis website which you can see here. Larger landlords might want to consider doing something similar.
Next week I am going to be looking in a bit more detail at credit unions and other organisations providing similar services.
Property Investor News subscribers can read Mr Galbraith’s article in full online here
I do not normally contribute with personal views but felt it necessary to do so. As a graduate in the early 1980s I had several periods on welfare benefits whilst unemployed or under-employed and had to attempt to budget the precarious the then DSS payments. A few hours teaching (ironically, sometimes WEA courses on welfare benefits)or bar work could result in my benefits being disrupted and therefore my ability to pay bills and eat was beyond my control. I was never in rent arrears for reason of poor budgetting although I was behind with the rent from time to time and let the landlord know what had happened. For many current working benefit claimants the present Working Tax Credit system was a disaster in its implementation as the DWP often made large payments to claimants and then decided that they had got their sums wrong and reclaimed it out of on-going benefit, thus making it difficult for people to pay their bills.
Besides having employment involving housing law I have also been a debt adviser often dealing with mortgage possession matters. Many employed, clients who were not in receipt of benefits had very little ability or notion of budgetting their money and often put their homes at risk having purchased a new car, holiday, a new kitchen or just spent without anything to show for it. They were not necessarily deciding whether to eat or to pay their essential bills. Defending possession in those circumstances was quite often impossible.
Making tenants who rely on benefits compulsorily join a credit union (although in itself perhaps a good idea)in order to secure or even continue a tenancy, robs them of a dignity that other members of society possess. As more and more people have to rely on private sector renting whilst often having insecure and temporary employment it creates a sigmatised sub-culture who are treated differently from the rest of the population.
Before the present government changed the rules, a private tenant could choose to have their rent sent direct to their landlord and many often did. The government and perhaps most MPs do not have any understanding of what life is like on benefits or a minumum wage. Central government has now created a problem for local government and made direct rent payments for Council and RSL tenants a thing of the past.
For those on fixed limited incomes, it is often not a lack of budgetting skills, but a lack of budget that creates difficulties for them, that may then unfortunately be passed on to a landlord. Allowing a person a choice of how they manage themselves is very important in a free society.
Thank you Colin for your thoughtful (as always) comments.
Its very difficult to generalise as people are so different. However this article is written from the landlord point of view, and in that perspective, having tenants with these jam jar accounts means you are less likely to suffer arrears.
As the government has removed the option of having payment direct to landlords.
While the world and his wife is waiting for Universal Credit the cuts are actually starting in July with the benefit cap.
Last week I spoke to a woman who will lose £240 a week. Families over 3 kids will be the baseline for the worst hit. The more kids you’ve got the worse it will be. Landlords with tenants on benefit, with families of three or more kids need to start thinking about what they are going to do