Many, if not most, landlords shy away from letting their properties to tenants in receipt of state benefits. In fact, between the first and second quarter of 2013, the proportion of private landlords whose tenants receive LHS (local housing allowance) fell from 34% to 27% – a drop significantly out of line with the fall in unemployment, which was only 0.2%.
There are a number of reasons landlords might not wish to let their properties to tenants on benefits, which include:
- Mortgage and insurance terms and conditions – some buy to let mortgage lenders and landlord insurance providers insist that landlords do not let to tenants on benefits. Insurance providers may charge higher premiums to insure landlords whose tenants receive benefits.
- Welfare reform – the recent benefit cap and gradual roll-out of Universal Credit makes landlords doubtful that tenants on benefits will be able to pay the rent in full, or that the benefits will become payable directly to them in the case of severe arrears. Frequent reform of the welfare system also leaves many landlords (and tenants) struggling to keep up.
- Red tape – the procedure for applying for housing benefit involves a great deal of form-filling and correspondence and is frequently long-winded, particularly as many local authorities have a backlog of claims. This can have a knock-on effect on the timeliness of rental payments.
- Available finance – benefit payments are usually made in arrears. As rent is typically paid in advance, many tenants on benefits find it difficult to pay the deposit and up-front rent for a new tenancy.
- Attitudes – simply put, some people feel that being in receipt of benefits makes someone less likely to pay their rent on time or take care of their home.
Some landlords base these views on experience, others on mere suspicion, but a problem tenant can come from any background. This is why it is vital to vet tenants – to check that they are suitable occupants – and all tenants, including those on benefits, can and should be considered on a case-by-case basis. A benefit recipient is also not necessarily out of work – a large proportion of the population are on some kind of social security and many supplement low incomes with state benefits.
Why should I consider letting to tenants on benefits?
The term ‘no DSS tenants’ can be seen on many property advertisements (even though the term itself is now defunct – the UK’s Department of Social Security was dissolved in 2001). Whilst this is not considered discrimination, as the decision is largely based upon risk-assessment, landlords who refuse DSS tenants are closing themselves off from a very large demographic.
Landlords who have built a successful career letting to benefit recipients say that they never have an empty house for long. As with tenants with pets, tenants on benefits are often refused rented accommodation and the waiting lists for properties that accept them are typically very long. A landlord with a large pool of prospective tenants can pick and choose whom to let to.
Landlords of HMOs (houses in multiple occupation) also benefit from the fact that single claimants under the age of 35 are now only eligible for housing benefit at the ‘shared accommodation’ rate, meaning a surge in demand for single rooms in shared properties. Rental arrears in such properties are often less severe, due to one of two reasons:
- In a ‘joint and severally liable’ contract, each tenant is jointly responsible for the entire rent – so if one tenant defaults, the others need to make up the difference.
- For room-by-room lets, if only one tenant defaults, only a portion of the rent is unpaid.
Another option is letting your property directly to the local authority or a housing association; see Local authority and housing association lettings for more information.
Five tips for letting to tenants on benefits
Have a strategy
Landlords who let to housing benefit tenants are, more often than not, quite established. Their strategy tends to involve building large portfolios of cheaper houses that they can decorate to a reasonable standard and allow tenants to redecorate and refurbish as they please. This requires a hands-on approach and often a bit of courage.
Thoroughly vet your tenants
This goes without saying for all types of let, but with such a large potential pool of demand, you really can afford to go all-out in finding the very best tenant for your property. A thorough tenant checking procedure will give you details of previous arrears, credit troubles and CCJs (county court judgements), character references from (preferably more than one) previous landlords, an insight into their financial management and verification of their identity.
Horror stories about tenants on benefits generally concern the minority who deliberately damage property and withhold rent so that their landlord evicts them and they are given higher priority for council housing. Ironically, these tenants are misguided, as such actions often mean that they are considered ‘intentionally homeless’ and find that they aren’t eligible for council housing at all. Speak to your prospective tenant during the viewing – find out what their circumstances are and, if you feel it necessary, advise them that getting deliberately evicted will not help their situation.
You could also consider offering to help with the benefit claim; as a landlord, you likely have a lot of experience with the many forms and documents one needs to deal with local government! It is helpful do this as early as possible. This way, you can get the benefit application off sooner and get the wheels in motion, hopefully avoiding any issues with arrears.
Find a good insurance policy
As stated, problem tenants could come from any background, and we would recommend a good landlords insurance and rent guarantee insurance policy to any landlord. Whilst you may have to pay an inflated premium if you are letting to tenants on benefits, more and more insurers are recognising landlord’s wishes to be more flexible and accommodate the changing state of the private rental sector. Insurance policies to cover late or missed payments and property damage are available for landlords with housing benefit tenants.
Find a mortgage lender that will help
Not all buy to let mortgage lenders’ terms allow borrowers to let to tenants on benefits, and as such a good deal can be harder to find. The help of a specialist broker is invaluable in this regard.
As part of our fully advised service, we provide expert buy to let mortgage recommendations. For help with buy to let mortgages for any purpose – letting to tenants on benefits or otherwise, fill in our enquiry form or call us for free on the telephone number at the top of this page.