Buy-to-let landlords in expensive areas could see their income affected by the new Government’s welfare reform.
Parts of outer London and the South Coast will feel the force of the £23,000 annual benefit cap, which the Government pledges to introduce in this session of Parliament.
These are relatively affordable areas for the capital’s commuters, but many households receive housing benefit because of their low incomes. One in four private sector tenants in England now claim housing benefit, an increase of almost 90% in the last six years.
The Government has rolled housing benefit and other payments into one, called Universal Credit, which is being introduced in stages around the country. This will be capped for out-of-work households, so that people in work are always better off. However, reducing the maximum benefit will make it more difficult for some tenants to afford their rent.
Paul Shamplina, founder of Landlord Action – which helps landlords with rent arrears and other tenancy issues – says he has seen “a lot of landlords in London and the South East exiting the
Benefit Cuts Could Affect Landlords’ Income
market” in the past 18 months, as benefit cuts, including a cap introduced in the last government, make it harder to find tenants who can afford the rent.
Landlords are also seeing growing problems with tenants subletting rooms in their rental properties to benefit claimants who cannot afford their own home, Shamplina has found.
“Especially in London, because rents are so high, tenants are being evicted and [moving to] places like Birmingham and Slough,” he explains. “It is only going to get tougher for landlords.”1
Chief Executive of the National Landlords Association (NLA), Richard Lambert, says that fewer landlords will rent to people on benefits due to the reductions. As a consequence, Lambert is worried about “the practicalities for people who live chaotic lives”, who are becoming less able to afford rental accommodation.
“This puts the most vulnerable in society in a very difficult position,”1 he says. This leaves them exposed to rogue landlords.
Chief Executive of homelessness charity Shelter, Campbell Robb, notes that business could be affected, as the changes might make urban centres “no-go zones for anyone on average or below-average wages.”
“If we want to safeguard the [economic] recovery, we need to make sure that the people who keep our economy going will be able to find a genuinely affordable place to live,”1 he says.
The changes will also impact housing associations. The National Housing Federation (NHF) discovered that 91% of housing associations expect the launch of Universal Credit to make rent collection more difficult. Almost two-thirds believe that their legal costs will rise as they chase unpaid rent.
The NHF warns that on average, housing associations expect up to 35% of rent to go unpaid.
However, some buy-to-let lenders have not considered the effects of welfare reform on their business. One senior banker comments: “I haven’t really thought about it. But I will now.”1
The Council of Mortgage Lenders (CML) cautions that banks could review their buy-to-let policies if the benefit changes affect landlords’ cash flow.
Head of External Relations at the CML, Sue Anderson, explains: “If benefits are reduced, then to the extent that those benefits impact on cash flow of the borrower and therefore risk to the lender, the changes could result in a greater build up of arrears.”1
Managing Director of buy-to-let lender Paragon Mortgages, John Heron, thinks the changes will only impact a small amount of tenants.
And Alex Hammond, of specialist buy-to-let lender Kensington, advises landlords with housing benefit tenants to prepare: “It puts more emphasis on carrying out financial checks before the tenancy begins.”1