Is the Risk of Letting to Tenants on Benefits Really so Big?

A question we are often asked by our private landlord clients is whether they should let to tenants on Universal Credit. Our advice is that you probably shouldn’t. Is our advice right? What do the arrears statistics really tell us?

Rental Arrears Have Fallen

The suspicion among private landlords is that tenants on Universal Credit are more likely to fall into rental arrears. Before we discuss this, it is worth noting that the proportion of tenants in arrears has fallen since 2010, when the proportion in arrears hit a high of 14.6% according to Your Move. Its May 2019 rental tracker report showed that 9.1% of all tenancies were behind with their rental payments in April 2019.

This continuing fall in rental arrears is great news for private landlords. A tenant in arrears is a strain on a landlord’s cash flow. However, providing the landlord keeps on top of the situation and works with the tenant to correct it, the landlord’s cash flow should be manageable across a property portfolio.

Private landlords with smaller portfolios will be affected more by rental arrears. The cash flow from tenants who pay on time in larger portfolios is likely to cushion the blow of those tenants in arrears. Private landlords with only one or two properties who suffer arrears don’t have the cashflow buffer of larger portfolio landlords.

Landlords Don’t Want to Let to Tenants on Benefits

The English Private Landlord Survey 2018, published by the Ministry of Housing, Communities & Local Government, found that private landlords are least willing to let to tenants on benefits. It found that:

  • 47% of private landlords won’t let to tenants who receive Universal Credit
  • 52% of private landlords won’t let to tenants who receive Housing Benefit
  • 60% of private landlords won’t let to single tenants under 21 who receive Universal Credit

This is a strong bias against tenants on benefits. Are private landlords right to be so anti-benefits tenants?

Why Won’t Private Landlords Let to Tenants on Universal Credit?

The English Private Landlord Survey 2018 found that letting agents were more likely to let to tenants on Universal Credit. For example, while 50% of private landlords were unwilling to let to single occupants under 35 receiving Universal Credit, only 34% of letting agents said the same. When we look at the reasons for not letting to tenants on benefits, we get a clue as to why this may be. For example:

  • 67% of private landlords shun letting to these tenants because of delays in payment, while almost 80% of letting agents say the same
  • Letting agents are also more attuned to the risk of not covering the rent, because the benefit is paid directly to tenants, and because of mortgage or insurance restrictions

This is indicative of letting agents’ greater understanding of the dynamics of the market, the financial risks of letting to tenants on benefits, and their more stringent tenant vetting processes.

More Than Half of Tenants Receiving Universal Credit Are in Arrears

This is the staggering fact that says private landlords are right to avoid letting to tenants on Universal Credit. While only around 9% of all tenants are in arrears, the Residential Landlords Association (RLA) reports that:

  • 54% of private landlords who have let to tenants on Universal Credit in the last 12 months have fallen into arrears
  • 82% of these started to fall into arrears after the tenant made a new claim for Universal Credit or were moved to Universal Credit from Housing Benefit

Payment of Universal Credit to the Landlord Reduces Arrears

David Smith, Policy Director for the RLA, says that “Arrears are lower under direct payments to landlords and supports our call for the government to give all tenants on Universal Credit the ability to choose to have the housing element paid directly to their landlord.” This is borne out by the evidence.

In Southwark, for example, the council was one of the first to roll out Universal Credit and has seen a big drop in those in arrears between 2016 and 2018. The main reason for this, according to the Smith Institute whom Southwark Council commissioned to study Universal Credit and renting in the borough, is “Earlier and increased use of alternative payment arrangements (APAs)”.

APAs allow landlords to apply to have the Universal Credit paid direct to them rather than to the tenant – but only when the tenant has reached two months’ arrears.

The RLA wants the government to give all tenants the right to opt for the housing element of Universal Credit payments to be paid directly to their landlords. We think this is the sensible course of action to take. Until this is put in place, though, we recommend that landlords should take exceptional care when considering renting to tenants on Universal Credit.

In our next article, we discuss whether you can discriminate against tenants on benefits when letting property. In the meantime, to benefit from comprehensive tenant vetting and effortless property management, contact Ezytrac today at +44 0 1522 503 717.

Live with passion

Brett Alegre-Wood