The effect of Universal Credit on the private rented sector

The private rented sector (PRS) is the second largest tenure in England after owner occupation. In 2015-16, 4.5 million households lived in the sector, accounting for 20% of all households. The number of families with children living in the PRS increased from 30% to 36% between 2005-06 and 2015-16.

In recent years the PRS has seen what it describes as "significant policy and regulative changes" as a result of "taxation reform, energy efficiency measures, increasing regulations, and welfare reform." Various aspects of welfare reform are viewed as representing a challenge for the PRS - it is not unusual for private landlords to advertise properties stating that they will not accept applications from Housing Benefit (HB) claimants.

There are concerns that the roll-out of Universal Credit will exacerbate private landlords' reluctance to let to people who are wholly or partially reliant on benefits to meet their housng costs.

Why do private landlords refuse to let to HB claimants?

Historically, landlords were reluctant to let to HB claimants because of delays in processing HB applications, but since April 2008 a key factor influencing landlords has been the introduction of the Local Housing Allowance and the requirement that this, except in certain specified circumstances, is paid to claimants rather than landlords. Restrictions on the level of LHA paid to claimants were introduced by the Coalition Government in April 2011 (the LHA is now based on the 30th percentile of market rents instead of the 50th percentile) – these changes led various housing bodies, including representative bodies of private landlords, to argue that HB claimants were being priced out of the market.

Further restrictions have been introduced; for example, increases in LHA rates were capped at a maximum of 1% in 2014-15 and 2015-16 and have been frozen since April 2016. The freeze on LHA rates will remain in place for four years to 2019-20. This measure is forecast to save £4 billion a year by 2019-20. The freeze has added to landlords’ concerns about the gap between LHA and market rent levels. Evidence of disparities between actual rent levels and LHA rates payable submitted to the Communities and Local Government Select Committee’s inquiry into homelessness (2016) led the Committee to recommend that “Local Housing Allowances levels should also be reviewed so that they more closely reflect market rents.”

Alongside restrictions to increases to LHA rates, the Government introduced Targeted Affordabilty Funding whereby a percentage of the saving realised is used to allow for higher LHA increases in areas experiencing the highest rent increases. The Autumn 2017 Budget announced an increase in this funding:

Targeted Affordability Funding ・ To support Housing Benefit and Universal Credit claimants living in areas where private rents have been rising fastest, the government will increase some Local Housing Allowance rates by increasing Targeted Affordability Funding by £40 million in 2018-19 and £85 million in 2019-20. This will increase the housing benefit awards of approximately 140,000 claimants in 2018-19, by an average of £280, in areas where affordability pressures are greatest.

Other factors cited as reasons for landlords’ reluctance to let to HB claimants include:

• uncertainly around the roll-out and implications of Universal Credit;
• the payment of Housing Benefit in arrears;
• restrictions in mortgage agreements and insurance requirements; and
• tax changes resulting in landlords focusing on “less risky” tenants.

More detailed information can be found in the Library Briefing Paper Can private landlords refuse to let to Housing Benefit claimants? (CBP07008). Since this paper was last updated in November 2016, more evidence of the impact of HB reforms on low-income households in the private rented sector has been published. For example, in October 2017 the Institute for Fiscal Studies (IFS) published an analysis funded by the Joseph Rowntree Foundation which found:

Around 1.9 million privately renting households (containing 4.8 million people) are entitled to less HB than they would have been without reforms introduced since 2011, by an average of £24 per household per week. Reforms have also cut the entitlements of 600,000 social-renting households (containing 1.3 million people) by an average of £19 per household per week.

The reforms have so far:

• Cut the HB entitlement of two-thirds of low-income private renters and one-sixth of low-income social renters.
• Increased the number of low-income renters facing a shortfall between rent and HB entitlement by 200,000 households in the private sector (containing 600,000 people, or 12% of low-income private renters) and by 300,000 households in social housing (containing 700,000 people, or 10% of low-income social renters).

HB entitlements are forecast to fall further behind rents in the coming years. For private tenants, this is because the locally varying caps on HB awards are no longer updated according to changes in local rent levels. These caps are to be frozen until April 2020 and then increased each year in line with national household inflation as measured by the CPI.

More information can be found in the full report: The cost of housing for low-income renters, 13 October 2017.

Homelessness and the ending of private sector tenancies

There has been a substantial increase in homelessness in England due to the endind of assured shorthold tenancies (ASTs). In 2010/11, this was given as a reason in 6,630 cases (15% of the total), rising to 18,270 cases (31% of the total) in 2016/17. In London, 31% of homeless acceptances between July and September 2017 were due to the ending of an AST. The December 2017 homelessness statistical release refers to affordability issues in the private rented sector:

This indicates that affordability is an issue, as more households facing the end of a private tenancy are unable to find an alternative without assistance. The increase in the end of tenancies is also related to the expansion of the private rented sector, which has doubled in size (since 2002) and now houses 4.5 million households (2015/16).

Homelessness Monitor: England 2017, an annual state-of-the-nation report looking at the impact of economic and policy developments on homelessness, attributes the rise in homelessness from the ending of ASTs to welfare benefit reforms and rising rent levels:

Despite a continued growth in the overall size of the private rental sector, which is now larger than the social rental sector in England, half of all local authorities, and virtually all in London, described it as “very difficult” to assist their applicants into private rental tenancies. These difficulties were attributed to the combined effects of rising rents and welfare benefit restrictions, particularly frozen Local Housing Allowance rates.

Universal Credit and the private rented sector

In addtition to the factors listed above, private landlords are now increasingly citing concerns about the roll-out of Universal Credit (UC) as an issue that will influence whether or not they will let to UC claimants.

Research from the National Landlords Association's Quarterly Landlord Panel (780 respondents, second quarter of 2017) found that "just two in 10 landlords say they are willing to let to tenants in receipt of housing benefit or universal credit." The NLA research also found that the proportion of landlords who said they were willing to let property to housing benefit claimants had fallen to just 20%, down from 34% at the start of 2013.

The Residential Landlords Association (RLA) submitted updated written evidence to the Work and Pensions Select Committee inquiry on Universal Credit in September 2017. This evidence contains the headline results of a survey of RLA members conducted in August 2017 - the survey findings are reproduced below:

• In the past 12 months 38% of landlords have experienced UC tenants going into rent arrears.
• The median amount owed in rent arrears by UC tenants was £1,150.
• In the past 12 months 29% of landlords had evicted a tenant who was in receipt of housing benefits or UC and the main reason for regaining possession of the property was rent arrears (64% of landlords).
• Only 13% of landlords were willing to let properties to tenants on UC.
• 63% of landlords reported the lack of direct benefits or UC to the landlord and made them less likely to rent to tenants on UC.
• For those landlords who had requested a landlord managed payment 44% of them found the application process difficult.
• Of those landlords who had contacted the DWP for assistance with their UC tenant 45% had found them either unhelpful or very unhelpful.

What do private landlords want?

The RLA's Septemer 2017 submission to the Committee called for:

• Introduce Tenant Choice – the right for a tenant to elect to have UC paid direct to their landlord.
• Permit arrears to follow a tenant so that if a tenant receiving UC leaves a property owing rent arrears then these can be recouped from subsequent benefit payments.
• Improve data sharing between DWP and landlords where the tenant consents or without the need for consent where it is in the claimant’s interests. This includes information about the progress of applications for direct payment to the landlord. Standing consents should be permitted for the duration of a claim for housing costs for a particular property; not just for “a particular piece of business”.
• DWP should send landlords proper written notifications of their decisions which affect the landlord.
• Improve the arrangements when a claimant’s housing benefits is switched to UC.
• Provide a standardised script for Job Centre interviews around rental payment issues, and improve work coaches’ knowledge and training relating to housing costs issues.
• Improve the availability of advance payments of UC.
• Change the rules so that a history of rent arrears becomes a Tier 1 reason for direct payment of housing costs to landlords.
• Improve the arrangements for dealing with landlords’ applications for alternative payment arrangements, i.e. for housing costs to be paid direct to the landlord where there are arrears (APAs). This includes improving and streamlining procedures for landlords when they submit applications.
• Suspend paying UC housing costs pending investigations of claims by landlords for direct payment to them when there are arrears. This should be done automatically as soon as the application form itself is received, even though DWP may be waiting for further information.
• Make sure that landlords are always told if direct payment to the landlord is to cease for any reason.
• Introduce a trusted person scheme for private landlords.
• Improve ways in which landlords can communicate direct with DWP.
• Continue to allow the landlords to pursue complaints about DWP service under the DWP Complaints Procedure. Compensation should be payable where landlords suffer financial losses as a result of mal-administration by DWP. DWP should not hide behind the argument that this is a simple contract dispute; nor expect landlords to waste money pursuing fruitless claims against tenants for rent arrears in this situation.
• Set up a specific UC complaints procedure, including appropriate provisions for landlords to complain. Set up a specific UC complaints procedure, including appropriate provisions for landlords to complain.
• Vitally, there is a need to ensure that DWP’s staff follow the correct procedures and that sufficient resources are in place to process APA claims in particular.

More information can be found in the RLA's report, Welfare Reform and Universal Credit - The impact on the private rented sector, August 2017.

Changes announced during the Autumn 2017 Budget

The key changes announced in the Autumn Budget 2017 on 23 November are listed below - some of these changes relate to issues raised by private landlords:

• The 7 day waiting period will be abolished from February 2018. Entitlement will begin on the first day of the application. This will reduce the overall waiting time before a payment is made from 6 to 5 weeks.
• The period over which advance payments are recovered will be extended from 6 to 12 months from January 2018.
• Interest-free advances of up to 100% of one month's entitlement will be available from January 2018. Payments will be made within 5 days. The Guidance on Advance Payments has been updated.
• Online applications for advances will be available from spring 2018.
• From April 2018 those already on Housing Benefit will continue to receive their award for the first two weeks of their Universal Credit claim.
• It will be easier for claimants to have the housing element of their award paid direct to their private landlords. Work coaches in job centres will check whether the claimant received Housing Benefit which was paid to the landlord directly. If so, the work coach will check the reason for this. If the reason links to the Alternative Payment Arrangement (APA) criteria it will prompt the work coach of the need for an APA from the start of the Universal Credit claim.
• From April 2018 stays in all temporary accommodation will continue to be paid through Housing Benefit until a longer term system is devised. If someone is claiming Universal Credit and in temporary accommodation, then the housing costs claim will be transferred to Housing Benefit. Any new tenants will claim Housing Benefit. This change requires secondary legislation.
• £8 million over four years has been allocated "to conduct a number of tests and trials to support development of the evidence about what works to help people progress in work."
• The roll-out schedule of UC will be amended to support the changes outlined above: Revised Universal Credit roll-out schedule following the Secretary of State for Work and Pension's annoucement on 23 November 2017
• The total package is worth £1.5 billion.

Additional information can be found in the Library briefing paper: Housing costs in Universal Credit (CBP06547, updated on 31 December 2017).