More Benefits Caps – Implications to LHA Landlords?

More Benefits Caps – Implications to LHA Landlords?

10:50 AM, 9th July 2015, About 8 years ago 33

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More Benefits Caps - Implications to LHA Landlords

I am a landlord in the North East, most of my tenants are benefits claimants.

When the new £20,000 benefit cap comes (£3,000 pa reduction) who will be hit hardest?

How many LHA tenants will this affect?

When direct LHA payments to landlords are replaced with Universal Credit, will landlords get knocked for this £3,000 a year? I suspect they will and there’s nothing we can do about it other than take the negative cashflow hit of rent arrears and the expense of evictions.

Am I the only person who’s considered this effect of yesterday’s budget?

All talk seems to be about the tax relief on interest rate announcement but I’ve been hit at least three ways; tax relief on interest reduced, increased insurance premium tax and worst of all the benefits cap.

It’s like I’m on death row. I can’t sell up because we maxed out on remortgages before the credit crunch. The properties are in negative equity but even if the values recover by the time the budget announcements hit my cashflow I still can’t get out due to the CGT implications. I built my portfolio based on a leveraged finance strategy. In other words, even if the sale price is equal to the mortgage debt, CGT will still be payable because I originally purchased most of the properties for less than I now own on mortgages. Most of the larger landlords in the North East are in the same position.

Talk about being stuck between a rock and a hard place!

I had hoped that writing this would clear my mind and make me feel better but it hasn’t.

It seems clear cut it’s curtains for me and many of my tenants will become homeless. Employment is so bad around here it is highly unlikely that my properties will be sold to homeowners regardless of the price. Many other landlords will be in the same situation so where are all these LHA tenants going to live and what’s going to happen to all of these properties?

Does the Government have the funds to buy up all the properties that will become vacant and re-home all of the people who will become homeless back into them?

I will be sending this to my MP.

Steve – Landlord, North East


Alan Loughlin

11:29 AM, 9th July 2015, About 8 years ago

despite what has been said I cheer a reduction in the cap, I would make it 12k, simply because anyone on benefit should be worse off than someone working, and despite the oft quoted average pay of 25k in the real world, outside the capital, 13k if nearer the norm.


12:21 PM, 9th July 2015, About 8 years ago

Very good points, the benefit cap is for the whole package so I can't see the whole £3000 difference being applied to LHA. However some of it might, so that is what you need to find out. Also the knock-on effect might be that money for rent gets spent on other things. I believe (but may be wrong) that there are still circumstances where the rent can be paid direct to the LL under UC.

Jay James

16:17 PM, 9th July 2015, About 8 years ago

Regarding Steve's last question.

Given the whole range of changes announced yesterday, has anyone considered that is exactly what certain factions want? We may yet end up with corporate / government ownership of what is now part of the PRS. Yes, this may sound cynical and far fetched but things are just starting to move in that direction.

paul johnson

16:19 PM, 9th July 2015, About 8 years ago

Hi Steve
My portfolio which i built 16 years ago is in Teeside and i 'm in nearly the same position as you, the only exception being that i bought in the last 3 years as well so i'm not totally in negative equity.

I don't think the benefit cap will hit me that hard, although there will be a few situations with large families that will suffer, the average rent on my 2 bed terrace is £475, all my rents are between 320- 600, If i'm missing something let me know but i see the problem will be hitting more relatively"expensive" areas , Insurance is a blow but not a knock out, and in my case we are three family members running our portfolio so we share the tax burden so it is probably ok.

Maybe this might cheer you up a bit,,I live just outside London but my portfolio is in Teeside, [wife tried the Parmo's and refuses to go live there even though i would love to] in 1999 i heard the same stories about how London is different and prices will never take off in the UK, then you heard the prices go up in Birmingham and Bristol and southampton still people said they are not the same as the North east and it won't happen here then it got expensive in Leeds and Oldham etc etc until the fastest rising property prices in 2007 were Hartlepool,
So hold on things will change I have people constantly asking me to give them info about buying in Redcar where i am because the returns are good. I can only tell you my thoughts because of experience and returns investors are getting here,

Anyway good luck

paul johnson

16:20 PM, 9th July 2015, About 8 years ago

does the u21 HB cap apply to tenants with kids

Alan Loughlin

17:28 PM, 9th July 2015, About 8 years ago

I do believe a lot of the problems stem from campaigning by charities, I am sure shelter are not the only ones, but maybe the most vociferate, but I do firmly believe they have shot themselves in the foot here, their landlord bashing will have the effect of putting up costs, and inevitably rents. I think the people there are all a bit thick, they are so bigoted they fail to analyse the consequenses. In general I believe charities do as much harm as good and therefore have stopped donating to any, take for example the charity that feeds the people in the jungle at the port of Calais, although well intentioned they actually make matters worse, just as it does to give to beggars in the city. These people do not think through the consequenses, often for the bigoted views they hold, but the government unfortunately listens to them, a case of the silent majority against the vociferate few.

Mark Alexander - Founder of Property118

18:40 PM, 9th July 2015, About 8 years ago

Below is extract of a discussion I've been having with an another anti-landlord person on another forum. We were discussing Steve's situation.

He said ..

"I read that article and I thought wow what an idiot. He basically leverged up to the eyeballs then took a speculative gamble on property. He wanted to win big but instead lost big which of course is the downside to leverage. It magnifies losses as well as any gains.

What it means of course is he will be bankrupted and all those like him too, just as they should be. The properties will then be put back on the market at lower prices. If he is correct that there is little employment then the price will fall to the point where either those who do what little work is available are able to buy, or other potential landlords will buy at vastly lower prices and rent those properties out at much lower rents, thus costing the taxpayer much less in housing benefit.

Either way society is a net winner and the landlord who foolishly tried to make a huge gain via taxpayer pounds is a net loser. You see that's what happens when a parasite is snuffed out, the host always always benefits. The only loser is the parasite."

I replied ....

"The tenants who are renting these properties now are generally the same people who previously rented them from the Council. They purchased them under Right to Buy when all the Council stock was sold, got into a mess, got repossessed and went back to renting, but this time from a private landlord because there were no Council Houses left for them. If it had not have been for landlords like Steve buying and renting them out where would those people be living? There's certainly no Council Houses available for them! And if/when he does go bust the reality is the circle will start again, as you say, landlords will buy them cheap but they will not rent them for any less than the market value, certainly not now they have a bigger than ever tax burden, of that you can be certain too."

Jay James

18:48 PM, 9th July 2015, About 8 years ago

Reply to the comment left by "Mark Alexander" at "09/07/2015 - 18:40":

May I say what I really think about this person?

Mark Alexander - Founder of Property118

18:54 PM, 9th July 2015, About 8 years ago

Reply to the comment left by "Jay James" at "09/07/2015 - 18:48":

Yes, providing you can say it without expletives and constructively. You wouldn't want to stoop to his level would you?

Jay James

19:04 PM, 9th July 2015, About 8 years ago

There is no anlysis of the situation, just dogma stated as if it is a description of facts. The personal comments suggest this person is taking the situation personally and too much to heart. He is wishing ill on a housing provider which is very unprofessional. My initial reaction contains bleep a few times because this person is wishing suffering on people just because they borrowed a lot of money. He is also showing no consideration for debtors that will not get paid as a result of the bankruptcy that he states should happen.

These points together make this person wholly unqualified to help those needing housing because he is so personally invested in wishing ill on housing providers.

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