Communities and Local Government CommitteeWritten evidence from the Residential Landlords Association

1. About the Residential Landlords Association

1.1 The Residential Landlords Association (RLA) represents over 16,000 small and medium-sized landlords in the private rented sector (PRS) who manage between them over 150,000 properties in England and Wales. It promotes and maintains high standards in the sector, provides training for its members, promotes and runs local landlord accreditation schemes and helps drive out those criminal landlords who bring the sector into disrepute.

2. Summary

2.1 The RLA supports efforts to reform the benefits system to better support the transition from welfare to work. That said, as demonstrated by a joint survey of members of the RLA and the Scottish Association of Landlords (SAL), there are clear concerns about the way that Universal Credit is currently designed.

2.2 Whilst the RLA recognises the need for changes to the system of housing benefits, in common with a number of other organisations, it is worried about the impact some of the measures proposed will have on all tenants dependent on benefit, but especially younger ones. There are worries that an unintended consequence will be to reduce the number of landlords able or willing to rent to benefit recipients so forcing local authorities to look after them.

2.3 The RLA is calling on Ministers to enshrine a tenant’s right to choose who the housing element of the new Universal Credit is paid to under regulations implementing the Welfare Reform Act.

2.4 The Government should reconsider its decision that the housing element of Universal Credit will be paid a month in arrears. Unless tenants have the financial resources to pay their rent upfront, which is unlikely, they will be starting off on the back foot, causing many landlords to become wary of letting to those on benefits and putting potential new landlords off investing in much needed new rented housing.

2.5 The Government needs to provide urgent assurance to the sector over the circumstances under which payments of the housing element will be made directly to the landlord. Whilst at present landlords can demand payments to be made to them when a tenant reaches eight weeks of arrears, Ministers have failed to provide a clear pledge to retain this right. A “backstop” right for the landlord to require direct payment is vital as it underpins landlord’s security of income.

2.6 Greater clarification is needed over the status of pre-existing decisions made by local authorities on vulnerability and arrears cases when the implementation of universal credit transfers from local authorities to the Department for Work and Pensions.

2.7 Ministers should review the use by local authorities of Article 4 Directions to restrict houses in multiple occupation (HMOs) given the contradiction between them and the Government’s welfare reforms which will see many more young people needing to access shared accommodation.

2.8 Regulations should be issued as to the information that landlords will be entitled to know and at what stage when a tenant makes an application for housing support under Universal Credit. This should cover ensuring the landlord is notified when a claim is being made; the final award made and details of the procedures and circumstances under which a landlord can make a claim for payments to be made directly to them.

3. Impact of PoliciesLandlords Survey Results

3.1 Between 22 October and 5 November 2012, 1,023 members of the RLA and SAL took part in a survey to measure landlord’s attitudes to Universal Credit.

3.2 The results showed that 65% of respondents do not support the Government’s plans compared to 20% who did support them and 16% who did not have a view.

3.3 Asked whether there are sufficient numbers of shared properties in their areas to cope with the extra demand as a result of the decision to increase from 25 to 35 the age at which housing benefit claimants can claim only for a room in a shared property, 55% said there was not, 6% said that there was and 39% did not know.

3.4 Following pronouncements made recently by Welfare Reform Minister, Lord Freud, that the Government’s temporary policy of allowing landlords in the private rented sector to have housing benefits paid directly to them in return for reduced rents had been a success, 62% of respondents said they would not lower rents in return for direct payments, compared to 24% who would and 14% who did not know.

3.5 Asked how they would respond if the “right to demand” direct payment once a tenant gets into eight weeks of arrears as is allowed at present, became only a “right to request”, 92% of landlords said it would make them less likely to rent to those on benefits only 2% said it would make them more likely to do so whilst 6% said it would make no difference.

4. Tenant Choice

4.1 The RLA, alongside a number of organisations including Shelter, Crisis, Citizens Advice Bureau and the Money Advice Trust, has consistently argued that, to help them budget, tenants should be given a choice as to who should receive the housing element of universal credit—themselves or their landlords. Whilst Ministers have argued that tenants should by default have the benefit paid directly to them to encourage financial responsibility, for many it would be a perfectly rational and financially responsible decision to have the assurance that their rent had been paid so that they could decide on how to spend the remainder of their income. Surely as part of its ambition to promote responsibility Ministers should trust tenants to make their own decisions based on their own circumstances, rather than seek to restrict this ability. This is especially important in helping budgeting now that Universal Credit is to be paid monthly.

4.2 Ministers in Westminster and Stormont agreed that the housing element of Universal Credit would be paid to landlords in Northern Ireland. If there, why not in the rest of the country?

4.3 Enabling tenant choice would also help tacklethe high rates of Housing Benefit fraud. As outlined by the National Fraud Authority’s Annual Fraud Indicator (March 2012), “Housing Benefit remains the largest area of fraud loss within the benefit system, increasing from £250 million in 2009–10 to £300 million in 2010–11.” Under Universal Credit, there remains a very real danger that families with multiple financial pressures will find it difficult to prioritise payments, and find the housing element of the credit being used for other purposes.

4.4 Evidence shows that particularly those tenants struggling to manage their finances would prefer to have the right to choose to have their Local Housing Allowance (LHA) paid directly to their landlord. In October 2009, data from a survey of LHA claimants by Shelter found that of the claimants who would choose payments to be made directly to their landlord, 95% are struggling to manage their finances. Almost half of the claimants who have had experience of both forms of payment believe that landlord payment better helps them in managing their rent and household budget.

4.5 Given the multiple pressures claimants will face under Universal Credit, especially for those who will be affected when the benefit cap is introduced, it is all the more important that claimants are able to seek the security of knowing their rent has been covered.

4.6 Support for tenant choice has also been given by the Money Advice Trust who run the national debt line. Their Chief Executive, Joanna Elson has said of the proposal “We feel that this would enable many tenants to avoid housing benefit arrears and thus tackle their debts and manage their money wisely”.

4.7 In an article published last year outlining a rise in the number of tenants in the private rented sector who have been made homeless, “Inside Housing” reported: “Homelessness charities and landlords suggested the rise may be linked to a legal change which saw local housing allowance paid directly to tenants from April 2008.”

4.8 An inevitable consequence of the current arrangement is that many landlords are now reluctant to rent to tenants on benefits for fear that they will not receive the rent. This makes life more difficult for tenants seeking accommodation and may force them to accept lower standard housing. In a survey of RLA members, of those who would not rent to tenants receiving housing benefits, 45% reported that it was due to a lack of guarantee of receiving the rent.

5. Arrears and Vulnerability

5.1 The most recent Tenants Arrear Tracker for the Chartered Surveyors, Templeton LPA, has shown that the second quarter of 2012 saw an 8% increase in the number of tenants in severe financial difficulties, with over 7,000 more finding themselves in two months of arrears than the first quarter of 2012.

5.2 This brought to 100,400 the number of tenants in England and Wales in severe arrears, a 24% increase over the year and the highest on Templeton’s records.

5.3 Sadly, for tenants, the consequences of incurring severe arrears are eviction. In the second quarter of 2012, 26,060 tenants faced eviction notices—6% more than in the previous quarter, and 5% more than in the same period of 2011.

5.4 For landlords, decisions about investing in vitally needed new properties hinge on the security of knowing that they will not be faced with a position whereby a tenant mounts crippling arrears followed by what can often be a lengthy and costly legal process for eviction with no prospects of recovering the arrears. Likewise, tenants ending up in arrears are having a serious impact on landlords’ ability to pay back their buy-to-let mortgages with figures released recently by the Council of Mortgage Lenders showing that in the first three quarters of 2012, 0.13% of buy-to-let sector properties were repossesed, over double the 0.06% in the owner occupied sector.

5.5 At present, up to 30% of LHA claimants have their benefits paid direct to their landlord either because of vulnerability or arrears.

5.6 The RLA does not believe that the current DWP approach to identifying vulnerable claimants, is sufficiently robust. Further, if there are arrears there needs to be an immediate switch back facility so that payment is made direct to the landlord straight away, rather than waiting for two months arrears to build up as at present.

5.7 It has been suggested that existing LHA vulnerability policies should be carried over as the criteria for determining who is vulnerable. Whilst they provide a good starting point they do not go far enough since they need to place the interests of keeping a roof over the heads of claimants and the need for landlords to receive the rent at the heart of the guidelines.

5.8 Matters are made more uncertain because of the Government’s proposals to introduce financial products (or jam jar accounts) to help tenants budget. Whilst we do not disagree with the concept of promoting tenant’s financial responsibility, there is a risk that tenants are pushed into these arrangements. Funds in these accounts may not be used for the intended purpose of paying the rent. A lump sum is a big temptation for a tenant facing other financial pressures such as repaying loans. If constraints are put in place on how these accounts can be used then this will make a mockery of promoting financial inclusion. If the vulnerable tenants are steered into financial products of this kind, rather than direct payment of housing costs to the landlords, landlords will see this as a serious threat to the security of their incomes. In consequence, they will be less willing to rent their properties to vulnerable tenants, especially as it will be uncertain at the outset whether the housing costs will be paid direct to the landlord or not.

5.8 The Government should reconsider its decision that the housing element of Universal Credit will be paid a month in arrears. Unless tenants have the financial resources to pay their rent upfront, which is unlikely, they will be starting off on the back foot, causing many landlords to become wary of letting to those on benefits and putting potential new landlords off investing in much needed new housing. The reality is that unlike many who work claimants do not have any savings to fall back on. There are proposals to make advance payments but as these are clawed back there will be a short fall each month to meet the ongoing rent, risking arrears.

5.9 The Government needs to provide urgent assurance to the sector over the circumstances under which payments of the housing element will be made directly to the landlord. Whilst at present landlords can demand payments to be made to them once arrears reach a certain level, Ministers have failed to provide both a clear pledge to retain this right and clarity as to vulnerability and rent arrears will be dealt with under Universal Credit.

5.10 Swiftly publishing in draft form guidance outlining the circumstances under which automatic payments will be made to landlords covering arrears and vulnerability will provide greater assurance to landlords that they will be protected should tenants have problems with payment and therefore make them more inclined to rent to those on benefits and invest in new properties.

5.11 Linked to this is a need for much greater clarification over the status of pre-existing decisions made by local authorities on vulnerability and arrears cases when the implementation of universal credit sees responsibility transfer from local authorities to the Department for Work and Pensions.

5.12 Where sanctions are imposed then claimants should be treated as vulnerable straight away.

5.13 We are particularly concerned at the loss of appeal rights regarding decisions about recipients of payments.

6. Shared Housing

6.1 The RLA remains concerned by the continued contradiction of welfare reforms which increase the number of people needing to access shared housing whilst a number of local authorities are using planning powers provided to them by central Government to restrict the growth of such accommodation, despite their obligations to see that such demand is met.

6.2 In January, the age limit at which a housing benefit claimant could claim only for a room in a shared property increased from 25 to 35, a policy which has the potential to affect many of the 1.3 million 25–34 year olds renting in the private rented sector.

6.3 At the same time as introducing a change which will see more rooms in shared properties needed, a number of local authorities are using powers to restrict their growth.

6.4 A new use class has been created for planning purposes, Class C4, for small shared houses and flats in multiple occupation lived in by between three and six unrelated individuals. Automatic planning permission to change a single dwelling to such a use, or vice versa, is granted, except where a local authority has imposed a power known as an Article 4 direction to override these permitted development rights so that an application for planning permission has to be made where there is a material change of use.

6.5 In reality, given this measure is designed to restrict the number of HMOs in areas where there already high numbers, planning permission to convert properties from single or one family occupancy to multi-occupancy is very likely to be denied.

6.6 Ministers should review the Article 4 direction powers in light of the changes to the shared accommodation allowance.

7. Landlord Information

7.1 It is essential that landlords receive ongoing information about the progress of any claim for housing costs; otherwise they will be reluctant to rent properties to claimants. At present, when an existing housing benefit claimant moves, notifying the local authority constitutes a new claim for a new property. This will no longer be the case under Universal Credit which will treat it as a change of circumstances. It is vital for the landlord to know that either a change of circumstance has been notified or a new claim made. At present landlords ensure that a claim is lodged for LHA and they want to see that proof of this has been done. There is no facility built into the Universal Credit processes for this to happen.

7.2 It is also essential that landlords are made aware once payments of housing costs are being made, even where they are paid to the tenant as they may be prepared to wait for payment. At present some local authorities pay the first month’s rent by way of a payment order in favour of the landlord but sent to the tenant. As payments are now being made to bank accounts removal of this facility, which is a means of combating fraud, is most concerning. If Universal Credit is paid a month in arrears, the RLA is urging the Government to maintain this practice.

7.3 We are concerned that the DWP has not yet considered the impact of data protection laws regarding what information about progress including payments can be made to the landlord.

7.4 Data protection requirements can be met where there is statutory provision overriding them which allows appropriate information to be provided to landlords about the progress of a tenant’s claim, information which is vital to a landlord being willing to let their property to a claimant.

7.5 For vulnerability and arrears policies to work effectively, it is also important that appropriate facilities are established to allow landlords to make contact if arrears occur; so as to enable direct payment to the landlord to be made immediately even while the situation is being investigated.

7.6 Regulations should be issued as to the information that landlords will be entitled to know and at what stage. This should cover ensuring the landlord is notified when a claim is being made; the final award made and details of the procedures and circumstances under which a landlord can make a claim for payments to be made directly to them.

7.7 Linked to this is the need to ensure a smooth process for the transition of information to the DWP. Further, existing decisions made by local authorities regarding direct payments should be carried into Universal Credit from the outset.

November 2011

Prepared 28th March 2013