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Tenants on benefits: where landlords stand and minimising the risks

Over the past couple of years there’s been a major drive in the industry to end ‘DSS discrimination’ against private tenants – has anything changed?

Historically, private landlords have been unwilling to rent their properties to tenants who claim benefits, with “No DSS” a common sight in many rental listings. It was, and still is to a great extent, seen as high risk, with rent arrears a common issue as well as the stigma attached to this type of tenant.

However, industry bodies including Shelter and the Royal Landlords Association (RLA), have been campaigning to end this discrimination, as well as to make renting to benefits claimants – or “DSS” claimants – a viable option for landlords.

One of the main successes of this campaign has been getting major mortgage lenders on board. In the past, it was extremely difficult to obtain a buy-to-let mortgage when the tenants were on benefits, which understandably put many landlords off. NatWest made headlines for declaring one landlord could only take out further borrowing if they evicted their tenant, who was on benefits, and this emerged to be one of the major sparks for change in the industry.

Can I get a buy-to-let mortgage with DSS tenants?

After the backlash, NatWest became one of the first major banks to get on board with supporting lending to landlords with DSS tenants, followed by a large majority of other lenders across the UK.

At the time, Lloyd Cochrane, head of mortgages at NatWest, said: “By extending our existing buy-to-let mortgage policy to all landlords, and removing outdated restrictions for renting to benefits recipients, we were proud to do the right thing for our landlord customers and their tenants. Today all our buy-to-let mortgage customers – across all our UK brands – are able to provide good quality rented accommodation to tenants.

“We are grateful that Shelter supported our review and along with others, made sure we understood the challenges both renters and landlords face, as well as helping us to address those concerns.”

With it now being much easier to obtain borrowing for properties that are let to tenants on benefits, this obstacle has largely been cleared for many landlords.

Am I more likely to risk rent arrears?

Private landlords are now able to apply to have the housing element of Universal Credit payments to their tenants to be paid directly to themselves when a tenant has reached two months of rent arrears, known as an Alternative Payment Arrangement (APA).

According to research conducted by Southwark Council, which was one of the first areas to use the scheme, there has been a “noticeable” decrease in rent arrears since the scheme came into play. Tenants as well as landlords can apply for an APA.

David Smith, policy director for the RLA, said: “Our own research finds that over half of landlords with tenants on Universal Credit have seen them fall into rent arrears in the last year.

“The report demonstrates that arrears are lower under direct payments to landlords and supports our call for the government to give all tenants on Universal Credit the ability to choose to have the housing element paid directly to their landlord.”

“Many tenants feel more comfortable with managing their finances knowing that their rent is paid and it should be up to them to be free to make that decision.”

Increasing landlord confidence

One major issue for many landlords renting to benefits claimants is the fear that Universal Credit may not cover the full rent – another is that it can currently only be applied for once a tenant has fallen into arrears. The RLA is urging the government to make changes to the system if it wants to discourage discrimination in the private rented sector. It believes the government should be trying to prevent any arrears occurring in the first place, by:

  • Giving all tenants from the start of a claim for Universal Credit the ability to choose to have the housing element paid directly to their landlord.
  • Ending the five week waiting period to receive the first Universal Credit payment.
  • Ending the Local Housing Allowance freeze to ensure it reflects the realities of private sector rents.

David Smith, policy director for the RLA, said: “Today’s research shows the stark challenges the government still has in ensuring Universal Credit works for tenants and landlords.

“The system only provides extra support once tenants are in rent arrears. Instead, more should be done to prevent tenants falling behind with their rent in the first place. Only then will landlords have the confidence that they need that tenants being on Universal Credit does not pose a financial risk that they are unable to shoulder.”

He added: “Without such changes, benefit claimants will struggle to find the homes to rent they need.”

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