Universal Credit overhaul will affect rent payments from April

Landlords are being warned that there are big alterations to Universal Credit coming which will transform how rent payments are managed across the UK.

Propertymark says that from April, the Fair Repayment Rate will drop from 25% to 15%.

That’s the amount of Universal Credit that can be deducted from a household’s standard allowance payment for debt repayments, such as rent arrears.

Also, the Department for Work and Pensions (DWP) plans to revamp the existing framework for automatically deducting of arrears and regular rent from tenants’ benefits following a court decision branding the practice illegal.

Alternative Payment Arrangement requests

Currently, the DWP’s system handles Alternative Payment Arrangement requests from landlords without manual oversight, siphoning off as much as a fifth of a claimant’s monthly entitlement.

This process, designed to avert evictions by securing funds for landlords, operates without the need to inform or seek approval from tenants.

The reduction to a 15% ceiling is expected to benefit 1.2 million households, boosting their yearly disposable income by approximately £420 on average.

However, this adjustment slows the pace at which tenants clear rent debts, potentially extending repayment timelines and placing additional pressure on landlords’ finances.

Ruled the automatic deductions unlawful

Propertymark said: “In January 2025, a legal case challenged this system when a tenant discovered that £500 had been deducted from his benefits without consultation, despite an ongoing dispute with his landlord over property repairs.

“The court ruled the automatic deductions unlawful, highlighting the lack of tenant consultation and potential for increased financial strain.”

Work and Pensions Secretary Liz Kendall responded by launching a review of the deduction mechanism, which also applies to recovering court penalties, council tax and utility debts.

She says that reform of the benefits structure to shield claimants from spiralling into unmanageable debt.

Ms Kendall added that the DWP will now investigate new ways to ensure landlords are paid rent while prioritising tenants’ economic stability.

Managing rent shortfalls

Propertymark says these changes signal a turning point for managing rent shortfalls among benefit recipients.

Without automatic deductions, landlords may face a rise in unpaid rent, requiring more direct communication with tenants to resolve payment challenges.

Letting agents are also being advised to adapt collection strategies and introduce support systems for renters grappling with budgeting difficulties.

UC rise

From April, working-age benefits, including Universal Credit, will rise by 1.7%, in line with the September 2024 Consumer Price Index.

This uplift will deliver an additional £150 annually to around 5.7 million families.

Propertymark says the rise will help those struggling with rising rents as data highlights that fewer than one in 10 PRS are affordable for claimants dependent on Local Housing Allowance (LHA) rates.