What do I need to know about renting to unemployed people?

by Readers Question

9:41 AM, 24th August 2020
About a month ago

What do I need to know about renting to unemployed people?

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What do I need to know about renting to unemployed people?

As a landlord who has always rented to employed people, the prospect now is that I will have tenants who either become unemployed mid tenancy or who are unemployed already as they apply to a new tenancy. What are the actual pitfalls and watch points?

I know many landlords avoid tenants claiming benefits as a rule, but given the current situation with many decent tenants having their income slashed, we may not be able to. What are the actual issues with this source of a tenant’s income?

Also, does rental income protection insurance cover all of this, or is that a minefield of exclusions, just like my travel insurance has proven to be in the last few months?

Many thanks

Matthew


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Comments

david porter

10:10 AM, 24th August 2020
About a month ago

Will these tenants on benefits be able to afford the rent?
If you have to give a reduction will the lower rent cover the mortgage?
Or will you have to sell up?
If you sell up will the sale price cover the mortgage plus the Capital Gains Tax due?

Ann

10:20 AM, 24th August 2020
About a month ago

We've 3 tenants on Universal Credit, 2 single parents and a family who receive due to low income jobs. The main benefit as a Landlord is that 85% of the rent is paid directly to us. In the current climate it's been reassuring that we are guaranteed rental payments.
Difficult to say for certain with the Insurance, our are covered as that was the circumstance under which we took out the policy and all insurance differs.

Ian Narbeth

10:34 AM, 24th August 2020
About a month ago

Reply to the comment left by Ann at 24/08/2020 - 10:20
Ann, if you are able you need to keep a close eye on your tenants. Because the benefits are paid to you, they can be clawed back months or years later, even after the tenant has left, if it turns out the tenant was overpaid benefits. If the tenants' circumstances change, e.g. they start working part time, they need to notify the Council and the benefits may be reduced. If the tenant or the Council makes a mistake that results in overpayment you are the one who will lose out.

Do not assume the rental income received direct from the Council is yours to keep until 6 years (the statutory limitation period) have elapsed. Sorry to be the bearer of bad news but that's the law of the land.

Old Mrs Landlord

10:36 AM, 24th August 2020
About a month ago

Reply to the comment left by david porter at 24/08/2020 - 10:10
Landlords can't sell up as the eviction notice period had been extended to six months and will probably be further extended, with courts ordered not to deal with the backlog of eviction cases in date order but to prioritise certain groups and take into account each tenant's circumstances. Tough luck about the landlord's circumstances. Who's going to buy a house with a non-paying sitting tenant they can't evict? The government has turned us all into involuntary captive social housing providers by the back door. Our properties have effectively been requisitioned but they are still in our names so we bear the costs. Just to rub salt in the wound, if we are left with nothing to live on we can't claim the benefits our tenants are entitled to because we own "assets".

WP

11:05 AM, 24th August 2020
About a month ago

Reply to the comment left by Ann at 24/08/2020 - 10:20
don't assume either you will be continued to be paid direct!

All it takes is the tenant to 'wise up' and see that if they request direct payments themselves at any point or when a review of this payment method takes place, the DWP could at the touch of a button allow the rent to be paid direct to them. The DWP DO NOT TELL YOU, they do not tell you that the tenant has requested this - the only way you will find out is when you don't get the rent payment.

The DWP then pays the tenant direct and if they don't forward to you - tough. The DWP say you have to get it off the tenant yourself. The tenant is laughing as they know you cant issue them with either an eviction notice for three months and you wont get into court for another six months at the earliest.

They get the rent, you get nothing and you can't get them out either. My current position exactly!

Ann

11:15 AM, 24th August 2020
About a month ago

It works differently in Northern Ireland but thanks for the info anyway.

Robert Mellors

13:03 PM, 24th August 2020
About a month ago

What you need to know is:
1. that you risk not getting paid (tenant keeps the benefits intended for rent payments).
2. you have to wait until the tenants have 2 months rent arrears before you can even apply for direct payments from the DWP.
3. the DWP (Universal Credit) may ignore your request for direct payments, delay consideration of it, or refuse the request (without giving you adequate explanation of their reasons).
4. the DWP often make mistakes.
5. the tenant can request that payments revert back to them.
6. the DWP will not share information with you, and will not accept information from you.
7. if payments are made to you, but tenant was not entitled to those payments (fraudulent claim, not declared earnings, got sanctioned, moved in a partner, and loads of other possible scenarios), then the DWP may be able to recover the overpayments from you.
8. if tenants fail to pay you rent, and for whatever reasons you cannot get it from the DWP, then you have to give the tenant 6 months Notice before you can even apply to court for a possession hearing.
9. There are over 40,000 possession cases in the queue waiting to be heard so don't expect a possession hearing within 6 months of application.
10. If tenants raise a defence, pay off some of the debt (to below 2 months arrears), or if any of your paperwork or procedures has an error, then the case may be adjourned and/or thrown out, and you have to start again.
11. If tenants fail to move out at the date set by the court, then you have to apply to the court again, for bailiffs, and they also have a 6 month backlog of cases.
12. In 12 - 18 months from the start of any eviction process, when you eventually get the tenant out, you will be able to re-enter your property to see the damage done.
13. If the tenant is on benefits and have no assets, then you will be unable to recover any of the rent arrears or damage costs or legal costs, etc. (Unless you can recover from a Guarantor).
14. You may be held responsible for the actions of the tenant (neighbour disputes, removal of rubbish, pests, etc).
15. you will have to carry out repairs throughout the tenancy even if receiving no rent, and even if the damage has been done by the tenant.

If you can cover all costs for the next 2 years, plus the possibility of tens of thousands £'s of damage, without receiving any rental income, and having no effective legal means to recover any of it, then good luck with your new tenants.

Robert Mellors

13:12 PM, 24th August 2020
About a month ago

Reply to the comment left by Robert Mellors at 24/08/2020 - 13:03This is of course a worst case scenario, and you may be lucky and get very good tenants that will pay you the UC HE benefits they receive, and they may look after your property, and stay with you for decades.
Every tenancy is a gamble, it's just that with tenants on benefits the odds are stacked against you if they turn out to be bad tenants.

Yasin Leysan

21:19 PM, 24th August 2020
About a month ago

There is no harm renting out property to person on benefit as long you get your rent. Ask them to provide their rental support entitlement then no problems

Every tenant knows their tenancy is subject to a rental payment or they get evicted. Do not wait to act if arrears reaches more than two month.

Thanks

Bill irvine

7:57 AM, 25th August 2020
About a month ago

Reply to the comment left by Ann at 24/08/2020 - 11:15
Morning Ann

As you quite rightly say, the rules in NI are somewhat different, with payment of the "housing costs" normally being paid to the landlord, removing some of the risks mentioned in some of the other posts.

The threat of overpayments being recovered from you, the landlord, is also overstated. Yes, both councils and DWP often initially turn to the landlord for repayment, simply because they received payment, in the first instance. But when properly challenged, they usually back off, as the cause(s) of most overpayments is "claimant error", so culpability & recovery is restricted to the tenant, usually by reducing their ongoing HB or UC.

Over the past 10 years I've represented the interests of many landlords and agents, on a No win, No fee basis, and ordinarily get paid. On Friday of last week, one of the London Boroughs conceded a £44K case and another £76K. Most however involve awards of between £1 - 5,000

In the case of UC, the ability of DWP to recover the overpayment, by way of ongoing deductions from your tenant's benefit, is way down the hierachy list of debts, with rent arrears the first and most important form of "third party" debt. So here again, it's difficut for DWP to recover, where other debts exist and are higher in the pecking order.

Around 70% of all tenants reliant on HB or UC pay their rent on time and in full. It's the remaining 30% that are either late with payments or don't pay at all.

The APA scheme, as other posters have mentioned, has many flaws, most of which are created by an incompetent DWP administration. Payments promised to landlords often go astray, when delinquent tenants request redirection back to themselves and poorly trained DWP staff, simply agree to their request. That shouldn't happen. What DWP staff should do is, look at why payments were redirected to the landlord, in the first instance (e.g. Tier 1 factors of rent arrears, drug, alcohol addiction etc.) and if those circumstances have not changed, refuse the tenant's request. Where these problems are occurring on an all too regular basis, landlords should raise their concerns and complaints with DWP's hierachy (District or Practice Managers) as this can often remedy the problem.

Landlords should also find out more about the UC scheme, in particular, as there's much more to this scheme (both positive & negative) than simply "direct payments". Making the effort, has permitted many of my landlord clients to expand their business interests in this sector by being more aware of the opportunities and, yes, pitfalls, and being hands-on in their approach.

So, despite some of the problems that still do exist, contrary to some of the suggestions, it's not all doom and gloom in this niche area of the market.

Bill

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