Universal Credit delays hurt tenants and landlords
As the benefit scheme continues to be rolled out across the UK, Universal Credit claimants who rent are finding themselves in arrears, due to the near 6-week wait for initial set up to complete. This is in turn means landlords face rent shortfalls and tenants face eviction.
In 2010, the then Work and Pensions Secretary Ian Duncan Smith announced the plan to create Universal Credit (UC); an all-encompassing benefit payment as a means to cut the spiralling cost of the 6 main existing means tested benefits.
It was designed to replace Jobseeker's Allowance, Housing Benefit, Working Tax Credit, Child Tax Credit Employment and Support Allowance and Income Support, and help incentivise more people into work and away from claiming financial support. In 2013, UC began rolling out across Job Centres in the UK.
Previously, benefits were paid either weekly, bi-weekly or 4-weekly, however, UC changed this to become one bulk monthly payment, which affected many who were budgeting on a week by week schedule, or who had rental agreements of similar time frames.
As of January 2017, UC has 450,000 claimants on its books, with a total of 960,000 claims made for UC between January 2016 and January 2017.
Rent payment arrears
One of the biggest problems affecting claimant tenants is formal waiting time when applying for UC. There is a standard formal waiting time of up to 42 days from application to the first payment reaching a claimant. However, the Guardian reports that some claimants have said they were waiting close to 60 days before any money reached them, due to additional delays and processing times.
As many UC claimants are renters, both in the social and private sectors, having to wait nearly two calendar months for benefits to be paid has forced them into rent arrears, and this is where the problem for landlords lies.
A landlord whose tenant has not paid rent in two months is well within their rights to serve a notice and begin proceedings to evict the tenant.
The Guardian report linked to above highlighted that 8 out of 10 social housing tenants moved on to UC are falling into rent arrears or are increasing the level of pre-existing arrears. In some cases, they are turning to pay-day lenders and loan sharks in order to keep a roof over their heads.
While there are no current figures available for privately rented tenant arrears it would seem likely, given the issues highlighted, that those who have applied for UC are equally as likely to be facing arrears.
Recovering rent arrears
For landlords whose tenants fall into arrears, the government has stated landlords can contact the Universal Credit Service Centre to request a ‘third party deduction’ (contact details below) for rent arrears when the tenant reaches the equivalent of 2 months’ rent.
The government guidance states that “The maximum rate at which deductions for rent arrears can be made is 20%. The rate used will depend on the claimant’s circumstances.”
Contact the Universal Credit Service on 0345 600 0723
Details of call charges
A knock-on effect for buy-to-let
Landlords, who have already been battered with multiple financially draining legislative changes over the last 12 months, are now faced with the prospect of having some tenants unable to pay their rent for up to two months.
This then leads to the landlord having to make a tough decision, do they wait and hope that the tenant has enough money to pay their rent when it does reach them, or do they evict tenants for non-payment of rent, further exacerbating the already concerning homeless problem, and being in debt themselves?
Former welfare minister Lord Freud, who oversaw the development of UC for 6 years until he stepped down last year, said that while there was a problem with the UC rollout, it was being exaggerated:
“I was looking at figures that said there was a problem. There was a proportion of people – probably around a quarter – where universal credit was having an effect on arrears…There is an arrears issue, I’m not going to deny that, and things need to be done but it is not the dramatic story you are hearing from people.” (Guardian, 8th February 2017)
Growing landlord unease
With the plethora of recent punitive changes already placing pressure on the profitability of buy-to-let, landlords are understandably uneasy at the prospect of further financial exposure. For this reason, it is hardly surprising that landlords are becoming reluctant to take on tenants reliant on Universal Credit.
Similarly, where existing tenants are being switched to Universal Credit and the delays are causing arrears, the upshot is inevitably risk of eviction, because there is no adequate process in place to address the issue for either party.
There is no short-term end in sight either, the full rollout of Universal Credit has been delayed by the government. It was originally set to be completed by 2017 and is now set to be completed by 2022.
Even former supporters of Universal Credit are raising questions as to its application. UK think tank, The Resolution Foundation, have advised the government to consider whether the “current design is right for the new economic conditions Britain faces”.
This information should not be interpreted as financial advice. Mortgage and loan rates are subject to change.