Tenants and Housing Benefit and the lender

by Readers Question

10:20 AM, 10th March 2016
About 3 years ago

Tenants and Housing Benefit and the lender

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Tenants and Housing Benefit and the lender

I have a client doing a re-mortgage on an existing let; lender is Skipton Building Society. They stipulate the tenants must not be in receipt of DSS. They’re not, but it raises the question:no dss

“What if a tenant goes on to claim benefits, including housing, after the tenancy has commenced?”

Logically thinking, this must cause an automatic breach for the landlord with the lender.

And the more we thought about it, the more we came to realise that we cannot say 100% hand on heart that we know all of the tenants under our care claiming housing. Our local council does not always contact the agent or landlord, particularly where the claim is only a partial rent amount.

The AST we use came from ARLA. We’ve added to it as new legislation has come into force, but no where in it does it say “thou shalt not claim benefit” nor be required to tell us if they did.

So, we thought of adding a clause requiring us to be told. But then we looked at the 17 grounds for possession, and found that only Ground 12 (allows possession where the tenant breaks one or more obligations under the tenancy agreement) could be relied on, but this is a discretionary ground.

So my question, does anyone use such a clause, or better, has anyone been in a situation where the lender has gone after a landlord where a tenant has later claimed assistance? And what was the outcome?

Mark



Comments

Neil Patterson

10:23 AM, 10th March 2016
About 3 years ago

Hi Mark,

I have always thought this was a curiously simplistic criteria set by some lenders as well.

Like you say you can confirm a tenant is not in receipt of benefits at the start of a tenancy, but may not know if something happens later and what if it is just one partner.

I think the intention of the criteria is that you don't deliberately let to DSS tenants, but it would be interesting to see if this has caused a problem for any readers in the past.

paul johnson

12:48 PM, 10th March 2016
About 3 years ago

It's even more interesting with insurance. When I renew my policy I'm asked who is on benefit and who's not. That will Then determine my premiums. What happens if I make a claim and I've stated the name is not on benefits and turns out he is and hasn't informed me ?

Kate Mellor

12:50 PM, 10th March 2016
About 3 years ago

I've recently had this exact situation in the past year. I applied for a number of remortgages and only once we received the offers did we realise that housing benefits tenants were not acceptable to the lender.

Our ASTs do state that tenants must inform us if they make a claim for housing benefits and our lenders solicitor made us remove any reference to housing benefits from our ASTs despite the fact that all the existing tenants affected were outside their minimum term and therefore could easily be evicted using an accelerated possession order if necessary.

We then had to amend these ASTs and have our tenants sign the changes.

In addition we had one very good, long-term tenant who was in receipt of housing benefits paid directly to us. That was a sticky situation!

As Neil states, the lender is attempting to reduce risk and their main concern is that they want to reduce the overall risk by stopping landlords taking on these tenants in the first instance.

You cannot as a landlord stop a tenant who loses his job from claiming support they are entitled to, which is in effect a good thing as it reduces their likelihood of defaulting, but those tenants who start off as claimants statistically have higher rates of arrears/defaults.

Lenders are all about statistics, but let's be realistic they are not omniscient.

Adrian Jones

13:07 PM, 10th March 2016
About 3 years ago

Hi Paul,

Virtually impossible to prove whether a tenant is receiving benefit. I always get confirmation from them in writing which proves I have taken reasonable steps to check the position.

Alison King

13:12 PM, 10th March 2016
About 3 years ago

I have encountered this problem a few times. The first time, the tenant and her husband split up leaving her destitute and with two small children. I didn't want to evict the family on moral grounds and legally it would have been difficult in any case. I think the correct answer is that you are expected to advise the building society of the tenant's change of circumstances and from what I have been told, they are generally OK about it. On that occasion I didn't advise them, and the tenant moved out nine months later of her own accord in any case.
I do have a mortgage with Skipton on a different property and a prospective tenant applied who works 16 hours a week but also gets some top-up benefits. I contacted Skipton and provided the tenant's circumstances and they said she was acceptable as she was not wholly dependent on benefits. However I do pay the DSS premium on the insurance because she's borderline by the insurance company's criteria and I didn't want to take any risks. She's an excellent tenant and I do find it annoying that we cannot exercise professional judgement and responsibility in these situations.
I think the best solution is to contact the building society and explain all the circumstances and get their guidance.

Sian Wyatt

13:53 PM, 10th March 2016
About 3 years ago

I have three flats in a bock of 16, and the management company asked me if any of my tenants were DSS. This was because the premium everyone would have to pay would be more if this was the case and then I would be in breach of my lease, because that says I can't do anything in my flats which will be detrimental to other residents.

I feel this is discriminatory as there are many reasons people are in receipt of benefits and not all of these reasons make them a higher risk. I also questioned whether they asked this of owner occupiers. In the end I refused to answer as I said I wouldn't necessarily know so could not be held responsible for the future financial position my tenants might find themselves in.

I know many landlords have had awful experiences letting to DSS, but I have found the 5 tenants I have at the moment (in freehold properties) are grateful for a decent home and are looking after things very well.

Is it legal to disciminate against someone with mental health issues or physical disabilities? If these things mean they are on benefits, surely it is not fair of insurance companies to discriminate against them because they are tenants not owner occupiers?

paul johnson

14:14 PM, 10th March 2016
About 3 years ago

Reply to the comment left by "Alison King" at "10/03/2016 - 13:12":

I run a fairly large portfolio and it's virtually impossible to make sure people are not claiming unless I'm paid direct. Most people who get HB only get a portion of their rent paid by HB. IF they don't let me know how can I know. I would spend my whole time checking on their employment status and even that wouldn't be certain the only way is to take a much more expensive policy where it doesn't matter if there on benefits or not

Mandy Thomson

15:42 PM, 10th March 2016
About 3 years ago

While lenders might be ok about tenants who later find themselves needing to claim LHA, my experience of insurers (in general, not for this particular issue) is they will do everything to get out of paying claims, so just about any breach will invalidate the insurance.

However, I would be interested to learn otherwise.

paul johnson

15:51 PM, 10th March 2016
About 3 years ago

Reply to the comment left by "Mandy Thomson" at "10/03/2016 - 15:42":

I agree Lenders don't really want to know they just want paying and I wouldn't worry about them. The only time the lenders would be concerned is if they thought it wasn't insured.
But the issue with insurers is different. I've decided to take out policies to protect my properties wether tenants their HB or not.
My portfolio is towards the cheaper end of the market and it's too difficult to check everyone every month.

I think it's also wrong that once again large companies in this case insurers penalising the less well off. Someone has to pay the premiums and it'll be the tenant in the end. We just heard this morning about utilities companies charging more for pre payment meters, another way of ripping off the less well off.

Mark Arme

16:39 PM, 10th March 2016
About 3 years ago

Wow. This seems to be a real issue, particularly on the insurance side.

Thanks to everyone for their input. Our client has gone for further discussion with the lender - and no doubt insurer too.

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