Landlords with social tenants are facing a £1,700-a-year shortfall on new lets

Landlords with social tenants are facing a £1,700-a-year shortfall on new lets

0:02 AM, 28th November 2023, About 6 months ago 14

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Landlords who rent to social tenants will face a £1,700 annual shortfall on new lets despite the Chancellor’s attempt to increase housing benefits in his Autumn Statement, the Daily Telegraph reports.

The local housing allowance (LHA) rates, which determine the amount of housing benefit claimants receive, will be raised in April 2024 to cover rent on the cheapest 30% of homes in each area, Jeremy Hunt, the Chancellor, announced last week.

But this increase will only cover a third of the rent growth since 2019, leaving landlords with a choice between accepting lower income or risking tenants falling into arrears.

Rates have been frozen since the pandemic began

LHA rates have been frozen since the pandemic began but record levels of rent growth since 2020 have meant that they are now out of kilter with what is available on the market.

Now, instead of covering the cheapest 30% of homes, housing allowances only cover rent on the cheapest 5% of newly listed properties, according to property website Zoopla.

Mr Hunt’s latest decision means the LHA increase will be based on average rent growth across all properties since September 2019, which is around 12.5%.

Andrew Wishart, who runs the housing service at Capital Economics, said the average increase in market rates on newly let properties was nearly three times this at 33%.

Monthly housing benefit payment

This means that even after the increase in LHA, the monthly housing benefit payment for a two-bedroom home will still be £143 less than the market rate for a newly let home, Mr Wishart said.

Over a year, this will amount to a shortfall of £1,716.

Capital Economics has forecast that rents will rise by a further 7.7% in 2025-26, but next year’s LHA uprating will be a one-off, with rates frozen again from 2025-26.

Mr Wishart told the Telegraph: “This will generate a fresh shortfall.”

Rent gap will put pressure on both landlords and tenants

The rent gap will put pressure on both landlords and tenants, especially in areas where demand for social housing is high and supply is low.

Landlords may be reluctant to let to social tenants, reducing their options and increasing their vulnerability to homelessness.

Tenants may struggle to pay the difference between their benefit and their rent, leading to debt and eviction.

The National Residential Landlords Association (NRLA) has called for LHA rates to be reviewed annually and to reflect the realities of the rental market.

A landlord with a tenant on benefits

Adam Kingswood, of Kingswood Residential Investment Management in Nottingham, says that a landlord with a tenant on benefits will struggle to charge more than LHA rates because the tenant cannot afford to make up the difference.

Mr Kingswood said: “We have landlords who want to increase rents because rents have increased by about 10% in the last year and their costs have increased.

“But the tenants are already using all of their housing benefit and say they will not be able to feed their children.”

Mick Roberts, a large portfolio landlord in Nottingham, told the Telegraph: “The average rent on a two-bed in Nottingham is £800. The local housing allowance is £550. If that goes up to £620 I’m still more than 20% short.”

Mr Roberts says the rents for his social rent properties will rise in line with the LHA increase but this will make up for part of the market rate shortfall.

A DWP spokesman said: “Our approach is not intended to cover all rents in all areas, and we expect those in receipt of housing support to have to make the same decisions about where they can afford to live as those who do not receive benefit system support.”


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Comments

Reluctant Landlord

9:27 AM, 28th November 2023, About 6 months ago

im still trying to acually work out what the new LHA rate works out to be from April 2024 for what I have in each area.
Have the new rates been published anywhere yet?

Ann Diamond

10:26 AM, 28th November 2023, About 6 months ago

My lady tenant in her early 60's has had to ask for help from the local council to cover her rent as she has been ill and cannot return to work until at least next March. She is very upset by this as she has never had to ask for help before.
The rent is a very reasonable £550 per month but of course the council will not pay all of it leaving the tenant having to resort to food banks and help from friends and relatives.
I have offered to reduce the rent until she is back on her feet but of course it irritates me that we have to prop up a system which is broken.
The icing on the cake is that I have two other properties which did form part of the councils housing stock but were sold to their tenants at a value well below the market rate.
During the past 40 years I have had quite a lot of contact with the housing department and have tried to get them to work together with myself and other small landlords I know - but to no avail.
Prospective tenants have missed out because they are expected to have a signed tenancy agreement before the council will tell them what help, if any, they are going to get.
A tenant who had trashed one of my properties, failed to pay rent and had had notice to quit from the court was told to stay put until the bailiffs arrived.
I will carry on taking tenants on benefits but then I can afford to as I don't have a mortgage to pay.
At the end of the day it is ordinary, decent people who are going through a rough patch who suffer.

Easy rider

14:56 PM, 28th November 2023, About 6 months ago

Reply to the comment left by Reluctant Landlord at 28/11/2023 - 09:27Lots of information online. Search the VOA website.
Essentially, the VOA continually gather data regarding net rents. Usually in January, they provide the information on a BRMA’s rental data to DWP (using data that is no more than 12 months old). The net rental costs list similar properties (room, 1, 2, 3 and 4/4+ bedrooms). For each property type they look for the property that is the 30th percentile i.e., they ignore the cheapest 29.9% of properties and they ignore the most expensive 69.9% of properties. These ‘30th percentile’ properties determine the LHA for the whole of the BRMA.

They need a sample size of around 20%.

In my area I believe rents haven’t risen by as much as inflation so I expect the revised LHAs to be, shall we say, disappointing.

Mick Roberts

16:25 PM, 28th November 2023, About 6 months ago

Reply to the comment left by Reluctant Landlord at 28/11/2023 - 09:27
They normall released end of Feb

Easy rider

18:00 PM, 28th November 2023, About 6 months ago

Setting LHA at the 30th percentile ensures that the poorest people in society live in the poorest housing. For many, that’s fair enough but some will be poor for reasons outside of their control.

Monty Bodkin

20:58 PM, 28th November 2023, About 6 months ago

Reply to the comment left by Easy rider at 28/11/2023 - 18:00
Setting LHA at the 30th percentile ensures that the poorest people in society live in the poorest housing.

Clearly it doesn't.

There's the 29th percentile, 28th percentile, 27th percentile ..... etc

Monty Bodkin

21:16 PM, 28th November 2023, About 6 months ago

Reply to the comment left by Monty Bodkin at 28/11/2023 - 20:58
This property is firmly in the minus percentile of poorest properties;

https://www.standard.co.uk/news/london/london-rent-landlord-banned-brent-council-letting-out-properties-b1100768.html

"Enforcement officers discovered one of the Napier Road tenants living in a lean-to shack made out of pallets and tarpaulin, with no lighting or heating."

(Which is not in any way suggesting that is where benefit tenants should live. Just that setting LHA at the 30th percentile *isn't* ensuring that the poorest people in society live in the poorest housing.)

Michael Booth

8:57 AM, 29th November 2023, About 6 months ago

Can't even get paid £80 a week for a 3 bedroom house in ts5 area nice house , things are going to change or eviction will happen.

Reluctant Landlord

9:22 AM, 29th November 2023, About 6 months ago

Reply to the comment left by Easy rider at 28/11/2023 - 14:56
cheers - looks like wait until Jan then is best.

Reluctant Landlord

9:29 AM, 29th November 2023, About 6 months ago

Reply to the comment left by Easy rider at 28/11/2023 - 18:00
I take a different view. Even if the LHA is low, it doesn't always equate that the housing is poor.

I am sure many LL's on here rent at either LHA rate or just above, and still provide good homes. I suggest these are LL's that have tended to had their propeties longer (mortgage paid) and the tenants have been there a while too. Both are happy with the status quo.

The issue is when these LL sell up/leave the market. Rent gets hiked to market rate and way above the LHA level. Thats when it all unravells....

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