Member Article

Welfare reform impacts on landlords

Landlords need to be aware of the Governments plans to change the way benefits are paid and understand how those changes affect them, says lettings expert Ajay Jagota.

Mr Jagota, who is managing director of KIS Lettings based in north east England, was referring to a proposal under the Welfare Reform Act to group multiple benefits into one single payment for individuals.

He said: “Local housing allowance (LHA) used to be paid direct to landlords and when the system changed and it was paid direct to tenants, problems did arise and landlords noticed an increase in missed rent payments.

“Under the proposed new system LHA would continue to be paid direct to tenants and would be grouped along with other benefits under one umbrella payment.”

Should Parliament pass the Bill, the new Universal Credit system could start to come into force from 2013, but it may take up to 2017 for the switchover to complete.

Universal Credit aims to simplify the benefits system, making it easier for people to understand and smooth transactions into and out of work. Under the new system the major benefits would be grouped into one payment and would not be broken down. So the allocated amount for each purpose, eg. LHA, would not be known by the recipient.

Mr Jagota commented: “It’s clear that whether it is deliberate or not, some tenants receiving LHA are finding it difficult to manage their money. The Government’s proposal to now group the housing benefit into a larger payment alongside other benefits is only going to complicate matters further.

“The amount allocated for LHA will be merged with other funds and those already struggling to manage their finances will likely find it more difficult. It also means that unlike the current procedure, landlords will not be able to chase-up with the local authority to find out when and how much LHA has been paid, as the system will be centralised.

“What’s more,the Work and Pensions Secretary, Iain Duncan Smith, has described the new system as ‘incentivising work and making work pay’. The majority will agree that this sounds like benefits will be lowered to ensure recipients seek employment – this is another issue for tenants, and therefore landlords, who may struggle to fulfil their rent payments.”

KIS Lettings has already moved to protect landlords by introducing a robust guarantor scheme which is backed by Prestige Insurance. Under the scheme all tenancies require the backing of a homeowner guarantor to ensure landlords have peace of mind with a rent guarantee, while tenants do not have to pay a deposit.

This was posted in Bdaily's Members' News section by Ajay Jagota .