How Universal Credit hurts landlords

Universal Credit (UC), a monthly sum paid to people who are unemployed or in low-income jobs, is set to change the way that landlords are paid rent by tenants who receive benefits and not necessarily for the better, at least from the landlord's point of view.

UC is designed to simplify the benefits system. It combines several different types of benefit into one payment and puts those receiving benefits in full control of their finances. (Previously, all housing benefit was paid direct to landlords.) The new system has been trialled by a number of local authorities over the past two years, and will be rolled out into more areas later this year.

However, critics suggest that many tenants receiving benefits have problems budgeting for rental payments. Citizens' Advice, for example, said that claimants transferred to UC are "more likely to struggle" with priority debts than those on the previous system. Another issue is that new UC claimants have a minimum 42-day wait for a first payment (and in practice this is often up to 60 days, because of processing delays). As a result, many low-income claimants, who typically lack savings, can be left without cash for six weeks. That in turn means that tenants can be as much as two months in rent arrears by the time they receive their first UC payment. Under the Housing Act 1988, landlords can start eviction proceedings once a tenant is eight weeks in arrears. With landlords' incomes already stretched by changes to the way their profits are taxed, some feel that they have little choice but to evict tenants who fall behind.

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In some circumstances, tenants who are struggling to budget for rent payments can ask the Job Centre for an "alternative payment arrangement" to be put in place. Under this, the Department for Work and Pensions can pay a tenant's rent direct to their landlord, at least until they have their finances under control. However, landlords have complained about the time and effort that it takes to secure direct payment, and difficulties with communicating and interacting with the UC administration system in general.

Issues surrounding UC have led some to call on the government to pause the national roll-out of the project and to lift the current freeze on housing benefit rates. "Underlying all the problems with UC is the freeze on housing-benefit rates, which means that the housing element [of the payment] is simply insufficient for many tenants to be able to cover their rent," says the National Landlords Association (NLA).

In short, several aspects of the UC's design do nothing to encourage landlords to let their property to tenants claiming benefits. That's a pity, given that landlords are already reluctant to do so. Just two in ten landlords are willing to let to tenants in receipt of housing benefit or UC, according to the NLA, down from 34% of landlords at the start of 2013. That said, even those landlords considering it may find it impossible due to their mortgage terms and conditions. About two-thirds of the largest buy-to-let lenders forbid landlords from letting to tenants receiving benefits.

If you are a landlord with tenants in receipt of benefits, it's worth checking to see when the UC system will be rolled out in your area. It's also a good idea to familiarise yourself with the help available for those who are struggling, as this may help you to avoid problems with arrears in the future.

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