In an attempt to reduce the annual welfare bill, the government is
introducing a number of stringent reforms. One of these is a cap on
the amount of money benefits claimants are entitled to. This cap is
intended to ensure families and individuals are always better off
working as opposed to claiming benefits. The benefit cap is currently
being tested in four London boroughs and will go “live” in the rest
of the country towards the end of the year.

How will the benefit cap affect landlords?

Until the Universal Credit comes into effect in October, deductions
made as a result of the cap will be taken from the Local Housing
Allowance element of benefit payments. This will inevitably mean that
many tenants cannot afford to pay their monthly rent and unless they
find a way of making up the shortfall from the rest of their benefit
payment, rent arrears will soon be on the increase.

The NLA believes that landlords could end up out of pocket as a
result of the changes. Indeed, a recent survey carried out suggests
that increasing numbers of landlords are abandoning the social
housing sector because they are concerned about the prospect of rent
arrears.

Supply and demand

In some parts of London demand for rental housing is so high that
landlords do not need to let to tenants in receipt of benefits.
Unfortunately, the private rental market plays a big part in
providing housing to tenants on a low income, so if landlords do
start to pull out of the sector, a lot of families could end up
homeless.

In a case that has had implications for property investors everywhere, a landlord has finally withdrawn his appeal against a surveyor. In the original case, the buy to let property investor won his case and was awarded £72k by the High Court. But the Court of Appeal later overthrew the award and although it looked as if the landlord would take his case to the Supreme Court, he has now withdrawn it.

The background of Scullion Vs. Bank of Scotland

Mr Scullion, a property investor, originally applied for a mortgage to buy a property in Surrey with the express intention of letting it. A valuation was carried out and the surveyor reported that the property could expect to earn around £2k per month in rental income. Unfortunately, Mr Scullion was never able to get more than £1,100 per month and eventually he sold the property at a loss. In order to try and recoup some of his losses, he took the surveyor to court.

Judge’s decision

The original judge awarded in Mr Scullions favour. He concluded that the surveyor should have known that (even though there is no duty of care in transactions motivated by commercial gain) Mr Scullion would be relying on information contained within the valuation report to help him make a decision as to whether the property was a good investment.

A successful appeal

The Appeal Court subsequently overturned the decision. They concluded that there was no duty of care and that a property investor could reasonably be expected to seek out his own commercial advice. So if you think you have a potential claim against a surveyor for dodgy advice, think again.

Any landlord who has had to deal with letting agents at any point will know that not all of them play by the book. There have been numerous complaints over the years relating to hidden charges and dubious business practices, and often, when a letting agents goes out of business, landlords who are owed money have no way of seeking financial redress.

Unregulated letting agents

As things currently stand, anyone can set up in business as a letting agent, and unlike estate agents, letting agents are not subject to registration or compulsory licensing. Industry experts have been campaigning for years to have greater regulation of letting agents and although the last Housing Minister, Grant Schapps, failed to do anything about the issues, it seems that the current Housing Minister, Mark Prisk, is prepared to take the first steps towards regulating letting agents.

Letting agent registration

Housing Minister, Mark Prisk, has sanctioned an amendment to the Regulatory & Reform Bill. This means that letting agents will be forced to register with an approved scheme of redress. The redress scheme will help to protect landlords by giving them access to an independent dispute resolution process, irrespective of which letting agent they choose to do business with. It also means that compensation can be awarded if a letting agent unexpectedly goes out of business leaving landlords and tenants out of pocket.

Who will run the redress scheme?

It is likely that the existing ombudsman for estate agents will be called upon to administer a similar scheme for letting agents.

According to a leading landlord mortgage broker, the first quarter of
2013 has seen a surge in the number of landlords seeking new finance
deals in order to buy new properties. This increase reflects how
confident experienced buy to let landlords are that the current
market conditions are unlikely to change any time soon.

Remortgaging deals

Refinance mortgages only represented 43% of landlord finance deals at
the end of 2012. This figure has now risen to 69%, which is a very
large piece of the pie. Other figures show that refinancing deals on
Houses in Multiple Occupation (HMOs) are now becoming increasingly
common, as landlords seek to cash in on the demand for rental
accommodation.

Will this trend continue?

The signs are certainly looking good. The country is still in the
grip of a tough economic climate and the demand for rental
accommodation is far outstripping supply in many areas, particularly
London and the South East. With this in mind, it is hardly surprising
that landlords are hoping to cash in by trying to expand their
property portfolios. The more properties you have, the more you can
spread the risk of rent arrears and long void periods.

Mortgages and lenders

At one stage it was quite difficult to find lenders willing to offer
finance deals on buy to let properties, but with the increasing
demand for rental properties, more and more lenders are seeing the
light. There are fewer mortgage products on offer now, but this has
more to do with the fact that lenders are streamlining their products
rather than making it more difficult to borrow money.

There is little doubt that the government’s welfare reforms are going
to shake things up a great deal. Many tenants in receipt of Housing
Benefit will see their payments fall as the ‘bedroom tax’ takes
effect and others stand to lose a large amount from disability and
incapacity benefits. Unfortunately, some areas are likely to be
harder hit than others.

Research into the effect of government welfare reforms

Research carried out by Sheffield Hallam University indicates that
some areas of the UK will experience far greater financial loss than
others. Blackpool, the Las Vegas of the north, has the dubious
privilege of being identified as the place where the welfare reforms
will hit the hardest. Researchers estimate that every adult of
working age living in the town will be around £900 per year worse off
in their benefit income. Many deprived seaside towns and older
industrial heartlands will also soon be feeling the effects, as will
some of the poorer boroughs in London. Other parts of the UK should
come off relatively unscathed. These include the southeast and many
parts of London.

Wider effect on the economy

The researchers also claim that an estimated £19 billion per year
will be lost from the economy as a result of the welfare reforms,
thanks to a knock on effect as households can no longer afford to
spend as much in the shops and other local businesses.

Widening the gap

As a consequence of welfare reforms, the research team believe that
the gap between the prosperous southeast and many parts of northern
England is likely to widen since the more deprived the area, the more
the residents will be affected.

Rogue landlords tend to hit the headlines on a regular basis, but in
this instance the tenant was at fault. One poor landlord has been
left with an almighty cleanup job after his tenants finally moved out
following a lengthy battle to have them evicted from his property.

Two-year eviction fight

The tenants (a single mother and her four children) had been living
in the rented property in Burton-on-Trent for two years.
Unfortunately, the mother (who was in receipt of Housing Benefit) had
not bothered paying her rent for nearly a year. Unsurprisingly, the
landlord soon lost patience and started eviction proceedings against
the family in a bid to reclaim his property.

Huge amount of mess

When the landlord finally got the keys to his property and went round
to inspect it, he was horrified at the state it was in. Mountains of
rubbish were strewn all over the garden, the beds had been broken and
there were piles of food detritus and rubbish in most of the rooms.
He estimates it will take at least £2k to clean up the mess and
repair the damage, so on top of the rent arrears and his solicitors
costs, he is now seriously out of pocket.

The court ordered the woman to pay back the rent arrears, but the
landlord’s solicitor has advised him he has no chance of ever seeing
his money again. Sadly this is not an isolated occurrence. It can
often take ages to evict problem tenants when they stop paying the
rent, and if the tenant is feeling vindictive, they are quite likely
to leave a huge mess behind when they finally vacate a property.

Rogue landlords are not welcome at the best of times, mostly because
they bring the private rental market into disrepute and give good
landlords a bad name. But one council has gone a step further by
publicly supporting a leading housing charity’ and its ‘Evict Rogue
Landlords’ campaign.

Campaign to protect vulnerable tenants

Shelter’s campaign is targeting rogue landlords who prey on
vulnerable tenants and fail to provide a decent standard of housing
to those most in need. The housing charity believes that many
landlords in the private sector are not offering the right level of
accommodation to tenants. But whilst this is not good, there are also
a small minority are deliberately providing sub-standard homes to
people who are least likely to complain.

Shelter wants action

The charity wants councils to take a number of proactive approaches
to stamping out rogue landlords in their areas. These include a
regular system of inspections, the introduction of landlord
accreditation schemes, and enforcing the law where necessary.
Hastings council is very much in favour of this:

“All of these actions Shelter wishes good councils to take, we are
already taking.”

Government pledges money to tackle rogue landlords

The government is also keen to eradicate rogue landlords and ‘beds in
sheds’, which has become a problem in many parts of the UK in recent
times. It intends to set up a dedicated taskforce with a budget £1.8
million. There has also been talk of removing limits on fines handed
out to rogue landlords in an attempt to discourage the practice.

Figures released at the end of last year showed a decline in the
numbers of tenants more than two months behind on their rent
payments. This was good news for landlords as the same period in 2012
had been 50% higher than 2011. Unfortunately the situation has since
worsened and the average number of tenants in debt is up nearly 5%,
which means 2.3% of tenants living in England and Wales are very
behind on their rent.

Why are tenants falling into debt?

It is not uncommon for tenants to slide into debt over the Christmas
period. Rent is often seen as being unimportant when kids are
clamouring for expensive games consoles and extra food is needed.
Unfortunately, other factors are also at play.

Rise in the cost of living

As most of us cannot fail to have noticed, living in the UK is not
cheap these days. Food, fuel and energy all costs a fortune and with
wage increases well behind the rate of inflation, it is not easy to
make ends meet, particularly if you are living on the breadline
already. All it takes is one household emergency—a broken washing
machine or a large bill—and disaster strikes.

Benefit cuts

The government’s attempt to shrink the annual welfare bill is another
factor. Many tenants face seeing their Housing Benefit payments cut,
which will of course have a big effect on their weekly income.

Look on the bright side

It isn’t all bad news for landlords. Mortgage rates are exceptionally
low at the moment, so if you are ready to expand your property
portfolio and you have lots of equity, it should be easy to find
funding.

Two of the biggest lenders on the high street have done an about turn and decided that landlords with tenants on benefits are an acceptable risk. Nationwide went first and lifted its restrictions on benefits tenants, shortly followed by the Lloyds banking group. So if you are looking to expand your property portfolio into the social housing market, Nationwide and Lloyds will welcome you with open arms. Well, not quite, but at least they won’t slam the door in your face.

Are social tenants a high-risk tenant?

Unless you have been living under a rock, you can’t fail to be aware of the cold winds of change heralding strict new welfare reforms. In the bad old days, benefits tenants could enjoy a cushy life living on the state with rent payments going straight to the landlord. But in an attempt to reduce the welfare budget, the coalition government is switching to a new Universal Credit where all benefits are lumped into the same payment. In theory it is supposed to encourage claimants to manage their money better, but in practice critics are concerned that rent arrears and debt will spiral.

Bedroom tax

And let’s not forget the controversial bedroom tax. Tenants with a spare room will soon have their housing benefit portion cut to reflect any over occupancy they have. This could amount to a fairly hefty reduction in money for some people, so landlords should be prepared for the possibility that their tenants will struggle to pay the rent.

With the much-criticised ‘bedroom tax’ almost upon us, a senior Labour MP, Frank Field, has called upon landlords in the social housing sector to brick up doors to spare rooms or even knock down walls to beat the government’s spare room subsidy.

Tax on spare rooms

Many believe that the so-called bedroom tax is deeply unfair, but the government believes that such a tax on extra bedrooms is necessary to help free up under populated homes and cut waste. From April 1st, social housing tenants will have their housing benefit cut if they live in a property with more bedrooms than they need. One spare bedroom means a 14% cut and two or more spare rooms equals a 25% reduction. So if your property has three bedrooms and there is only one tenant living in it, they are going to lose a quarter of their housing benefit, which will impact heavily on their ability to pay the rent.

Mr Field, MP for Birkenhead in Merseyside, believes the government housing benefit reforms will unfairly penalise constituents living in the North West.

“I’ve been in the House over three decades. I’ve witnessed many so-called welfare reform measures. I have not ever witnessed a measure which is so grossly unfair as this measure is. This is about a supply-side issue, but we are trying to control the demand of people on low income to fit on with the regimented holes in which the government would like to fit them.”

Housing Benefit costs around £21 billion per year, but as well as saving money, the government also wants to bring the social housing tenants more in line with the private rented sector.