Thursday, 25 October 2012

Universal Credit The Residential Landlords Association Guide



RESIDENTIAL LANDLORDS ASSOCIATION
GUIDE TO UNIVERSAL CREDIT FOR PRIVATE LANDLORDS
BAD NEWS FOR LANDLORDS
Introduction

The Government have announced new procedures as to how payment will be made under the Universal Credit (UC) system when it is rolled out from 2013 onwards.  It could mean the end of direct payment to private rented sector (PRS) landlords for rent as we have known it.  The new procedures will apply across the board to local authority tenants, housing association tenants and tenants in the private rented sector.  To some extent it is “work in progress” because the Government are conducting pilot schemes in the social sector between now and June 2013.  At the heart of the new procedures is the idea of promoting tenant’s abilities to manage their own finances and to bring the benefit system in line with conditions that apply to working people.

The key is that there is no longer likely to be any back stop.  Landlords will no longer be able to insist on direct payment to the landlord if the tenant is 8 weeks or more in arrears. 

Landlords may only be able to request direct payment and it will then be down to the Department of Work and Pensions (DWP) according to their Guidance, which is not yet written.

What is Universal Credit?

UC is a new single benefit for working age claimants.  It incorporates various existing benefits such as Job Seekers Allowance and Employment Support Allowance, as well as various tax credits.  It will be administered by DWP on a national basis.  H M Customs and Revenue will drop out of the picture in the sense that they will no longer administer tax credits, although importantly they will collect real time information from employers to enable the correct amount of UC to be paid for those who are working.  Importantly, UC is an in work and out of work benefit for those of working age.

Although it is a single payment UC will be made up of a number of components including basic personal allowances, allowances for children and importantly for PRS landlords housing costs to pay towards the rent payable by tenants to private landlords.

UC is a means tested benefit.  It is calculated on a calendar monthly basis (not a weekly basis as at present for most benefits).   There is a taper and at the heart of UC is the idea that it pays to work.  Claimants should therefore be able to retain more of their earnings as they do under current benefits.

As it is rolled out UC will replace housing benefit and local housing allowance (LHA).

The intention is that UC should operate by way of an online service.  Claimants will have an online account which they can access using a password. This will be used for claims, notifying changes in circumstances etc.

The basic unit for a claim is the household.  Couples living together will therefore claim jointly.  Currently, there are about 12 million claimants but it is estimated that this will reduce to around 8 million household claimants once the new system is fully up and running.  Once you are on UC you may as well stay on for the remainder of your working life, e.g. if you are claiming UC to top up wages.

Unlike housing benefit and LHA therefore you will not make a new claim each time you move properties.  Instead, it will be treated as a change in circumstances.  As at present evidence will be required to support the existence of the tenancy. 

Beside the online facility there will be call centres which will service claimants.  Also there is an intention that claimants will be given more support and advice than under the present benefit system. 

Obviously, a key concern for landlords will be to make sure that they get the rent paid. 

An important element of UC is conditionality.  Various conditions will be imposed and where there are joint claimants both claimants will have to sign up to these conditions.  These will include requirements such as seeking work in appropriate circumstances for unemployed claimants.

Importantly, for the PRS the Government are pursuing a policy of using UC to improve financial responsibility and financial management skills on the part of Claimants.  Also they are trying where possible to model UC in the same way as applies to those in work.  This is why payment is normally to be made monthly because the Government consider this models the payment pattern for the majority of those in work (around 75%). 

How the new system will work

As such, the existing system of regulations will disappear.  Vitally, there may be no long stop date, i.e.  no equivalent at all to the current 8 week rule.  It may no longer be possible for the landlord to insist on direct payment once there are 8 weeks arrears or indeed any other amount of arrears owing.  Decisions as to payment will be made individually on a case by case basis according to the guidance.  All cases will be reviewed from time to time even if direct payment to landlords is being made.  The longest that direct payment may be made without review may well be 2 years.

Payments

The default position would be the same as under LHA in that the tenant will be paid UC direct as a single payment including the housing costs element for rent.  Any other arrangement will be treated as an “exception”.

Universal credit will normally be paid calendar monthly in arrears.   The effective date of the claim will fix the first calendar month and the intention is that payment be made seven calendar days after the end of this initial period of one month (brought forward to a working date if it falls on a Bank Holiday/weekend).  Thus, if you have a claim made on the 7th July the first payment should be due on the 14th August and thereafter on the 14th of the month.  Assessments will also be made on a calendar monthly basis (rather than weekly, as at present). 

Advance payments (called advance short term loans) will be available where appropriate but they will then have to be paid back by and be deducted from subsequent monthly payments. 

It is proposed that for a minority of claimants they may be paid otherwise than monthly (e.g. fortnightly).  However, this sort of arrangement will be time limited.   Third parties will act for those who are incapable of looking after their own affairs e.g. due mental disorder and they will then receive payment.

The fundamental rule is that there will be one single payment to the claimant, including the housing element.  This will be paid into a nominated account.  This could be at a High Street Bank or a Credit Union.  Normally, one account will have to be nominated by joint claimants but, exceptionally, there may be split payments between two joint claimants. 

Claims

As regards claims the intention is that these should be made mainly on line or by telephone and where made by telephone the agent taking the call will complete the details.  Exceptionally, claims can be made face to face at an office or by home visit. 

Each claim period will be dated from the date of the original claim e.g. if the claim is made on the 7th of the month then each subsequent claim period will start on the 7th of the month and the amounts will not be varied because individual months are of a different length in terms of the number of days in them.

As indicated above, couples will have to make joint claims. 

Claims will normally be continuous so long as the claimant is eligible.  Therefore a new claim will no longer need to be made when a tenancy starts if the tenant is already claiming UC.  Instead it will be notified as a change in certain circumstances.

Support

The intention is that to help people budget there will be advice services available.  Financial products offering automatic payment facilities and operating direct debit will be available.  These will be basic bank accounts.    Credit Unions will expand and offer this kind of service as at present. 




Financial products

As well as making a substantial financial contribution towards expanding the existing network of credit unions and improving their services to help claimants the Government intend to introduce jam jar accounts.  These are separate from basic bank accounts.  Jam jar accounts should be offered by various providers.   The idea is that this will help claimants allocate their UC to various creditors and particularly landlords.  This will then avoid the need for direct payments in the case of people who need some help with budgeting.  The idea is, however, that in time they should be weaned off these accounts and move on to normal banking facilities. 

The Government will subsidise jam jar accounts for the first year of operation (at the rate of £5 per month).

Financial support and direct payment to landlords

As yet no one is clear about how this will work.  DWP may take the decision in a particular case that direct payment to the landlord is not needed because a claimant can manage their own payments either with the help of an external advice agency who will assist with the budgets or through use of a financial product such as a basic bank account or one of the proposed jam jar accounts.  Until the guidance is written and we see how it works out in practice we cannot be sure at the moment about how it will all operate.  Landlords will, of course, be anxious to ensure that they receive the money in full and on time.


When can direct payments to landlords be made

Eligibility for direct payment to landlords will be subject to combined financial and vulnerability risk factors.  There will be a screening process.  Measures short of direct payment to the landlord may be applied instead and in particular budget support or the use of financial products as referred to in the last paragraph.  This process will involve a number of stages:

1.                  Referral – this includes self referral, referrals by advisers such as the CAB and third parties such as landlords.  Information currently held under the present system may also be used to identify cases.
2.                  Screening – only those claimants who have reasonable grounds for exceptional payment arrangements will be considered and this will be done by decision makers; rather than automatically.  The intention is to target those claimants who will benefit most from such an approach.  There will be a triage process.   Claimants will be split into three types.  Those who do not need any help; those  who need some support; and those who are vulnerable and need treatment of an exception such as direct payment of rent to the landlord.  Therefore through this triage system claimants most likely to be able to manage their money but require suitable budgeting support as well as those with additional needs who may require more frequent than monthly payments will be identified.  Likewise, those where payments should be made directly to the landlords.  The approach is going to be tried out in the Housing Benefit Demonstration Projects being undertaken at the moment in the social sector.   Additionally there will be four Pathfinder projects to try out the scheme – see below.
3.                  Decisions - Final decisions on eligibility for payment exceptions will be taken by a member of staff.  They will be considered on a case by case basis with a range of vulnerability and financial risk criteria taken into account.  These criteria are being worked on at the moment.   One of the possible outcomes could be a decision to pay direct to the landlord.
4.                  Review – The Government’s intention is not to label any claimant as financially incapable and for that reason they say payment exceptions will be on a time limited basis.  DWP will look to put in place the appropriate support to ensure claimant’s circumstances can be reviewed, moving them over time to a point where they can manage under normal arrangements. 


There is no provision for the first payment of benefit to the landlord.

Deductions from Universal Benefit for arrears

As with the existing system Universal Credit will permit deductions to be made from benefit entitlement including for rent arrears.  This is intended to be as a last resort.  Deductions are prioritised and rent arrears along with mortgage arrears are in the first priority category.   To qualify for deduction for arrears of rent the following conditions will have to be met:-
(a)                The claimant must be receiving Universal Credit including an element of housing cost.
(b)               The claimant must be in debt for rent payments (or service charges included in the claimant’s rent).
(c)                The claimant must still occupy the accommodation to which the debt relates.
(d)               The claimant’s earnings must be below the relevant minimum earnings disregard.

Where these conditions apply DWP may decide to deduct a monthly amount from the Universal Credit.  This can then be paid to the landlord.  The deduction must be no more than 5% of the standard allowance applicable to the claimant. 

The circumstances and cases where this deduction can be made will be set out in guidance.  Deductions must stop if the claimants earned income reaches the applicable earnings disregard for three months.  Overall for the total of all kinds of deductions there is a 40% maximum of the standard allowance although in exceptional circumstances deductions and direct payment to landlords can be made as a last resort to allow someone to remain in their home or to receive fuel and water supplies on an ongoing basis.  The standard allowance is the basic element of Universal Credit to cover living costs.

The roll out

UC will start to roll out from 1st April 2013.  There will be four Pathfinder projects in Oldham, Warrington, Wigan and Thameside.  These will only apply to new claims.  The main roll out which will again be for new claims will start in October 2013 across the country.  From October 2014 migration of existing claims from existing benefits to UC will start but as yet we cannot have details of how this will operate. 



Transitional provisions

The Government have given assurances that existing claimants will be protected and there will be transitional provisions to make sure that no one is worse off.  However, if an existing claimant ceases to claim for any reason and then reclaims these transitional provisions will no longer apply on a reclaim.

The disabled

There is to be a separate system known as personal independent payments for the disabled which will operate alongside UC. 

How are housing costs calculated for private landlords

Effectively, the same calculation will be made as is currently made for LHA.  As part of the roll out for UC the Government are not currently proposing any changes to the existing LHA regime.  Housing costs will be limited to a maximum of four bedrooms as is now applied to LHA.  Rents will be determined annually according to broad  market rental areas but as with LHA increases will be indexed according to the consumer prices index (CPI).  It is therefore no change on this front. 

The benefit cap

The overall benefit cap will apply to UC.  Thus, benefits will be capped at around £500 per week including housing costs for couples who are claimants and at around £350 per week for single claimants.  This includes housing costs for rent.


What does this all mean for private rented sector landlords?

The introduction of the Local Housing Allowance and the resulting switch to paying benefit to the tenant instead of direct to the landlord has already had profound implications and landlords have reported increasing problems with arrears.  This can only get worse.  We do not know how efficient the administration of Universal Credit will turn out to be.  At the moment, although far from satisfactory, at least landlords do have an entitlement to direct payment once rent arrears reach 8 weeks.  This may no longer be the case.  The current system of regulations accompanied by guidance which are reasonably clear cut, although implementation can be variable, will be replaced by a far more flexible system of “guidance” applied on a case by case basis. 

It will all depend on how efficient DWP administers the new system  Landlords may have to wait longer for payment with increased risk of default.  If systems work correctly it may be that the first payment could be received quicker under the new system but only time will tell.  The greater interval between payments, however, poses risks.   It is not at all clear  how advance payments will work in carrying on the criteria in the dark.

A huge risk is that the scheme is heavily dependent on as yet untried computer systems.

Appeal rights


There will be no appeal rights regarding payments even for claimants let alone for landlords.  At the moment if a local authority fails to implement a request properly made where there are 8 weeks arrears then potentially the landlord has remedies against the local authority but this is unlikely under the new system. 

At the moment, we are still somewhat in the dark because we do not know what criteria will apply and how the new system will operate. 

What can landlords do?

Private rented sector landlords who rent to benefit claimants have learned to adapt and are going to have to adapt even more.  Clearly, many will consider giving up renting to claimants altogether.  The Universal Credit will be received by more people because it is intended to be both out of work benefit and an in work benefit to replace the existing system of tax credits.   Different considerations for the landlord may depend on whether the tenant is out of work and solely dependant on state benefits; in work receiving benefits as a top up; or retired/a pensioner.   You have to remember that people will be able to switch in and out of receiving benefits more readily under the new system; or at least that is the Government’s intention.  Even a landlord who only takes on tenants who are in work may become involved because their tenant may become unemployed.

More and more landlords may well decide on a policy of not taking on out of work claimants or even UC claimants altogether.  This, however, very much depends on local conditions and whether there is a sufficient supply of working tenants.  In a lot of areas this is simply not practicable. 

The one thing that comes out is that landlords will have to tighten up their procedures and monitor payments more closely than they do at present.  The norm for the tenancy agreement is likely to become that the rent is paid calendar monthly now rather than weekly.  The tenancy should state that it is to be paid in advance as at present.  Landlords are going to have to decide what they do about payments at the beginning of the tenancy.  At the moment many landlords are prepared to wait until benefit is paid. Even in those cases where payment is to be made to the tenant some authorities make the first payment direct to the landlord.  There is no provision for this under the new Scheme. 

Landlords will have to consider other ways of protecting themselves if they take claimants e.g. taking a guarantee from a householder.  Landlords would also normally consider taking a tenancy deposit but whether this is practicable for a claimant is another matter.

RLA concerns

Our concerns about the new arrangements are as follows:-

1.                  No back stop provision under which a landlord can demand payment direct.
2.                  Lack of clarity/much greater individual discretion in operating these rules because “guidance” replaces regulations.
3.                  No means of redress for landlords if things go wrong/no rights of appeal.
4.                  No proposal that the guidance should reflect the landlords interests to make sure that rent is paid and that a roof is kept over the head of the claimant.
5.                  The whole concept of trying to improve tenant’s responsibility at the cost of much greater risk to landlords with strong likelihood of significantly higher arrears. 
6.                  Much less likelihood of landlords being willing to take on benefit claimants.  This could even translate into less likelihood of a willingness to taken on claimants who are in work especially part time work because the same rules will apply to them.
7.                  No provision for first payment of benefit direct to the landlord, unless an exception is made under which direct payment to the landlord operates.
8.                  No provision for landlords to check that a claim has been made.
9.                  No notification system so tat landlords know that a claim for housing costs for rent is actually being paid.
10.              We have argued with DWP that there should be a right for landlords to be paid direct payments once there are six weeks arrears and also that the whole system of vulnerability should be assessed according to the tenant’s interest of keeping a roof over their head and the landlord’s interest to receive the money, as well as the public interest of making sure that the benefit is used for its intended purpose.  

We strongly believe that the Government’s whole approach is flawed and although the objective of helping tenants manage their financial affairs is in isolation a laudable one, the Government has wholly failed to appreciate the consequences of this.  There will be a much higher level of arrears, an unwillingness of landlords to house benefit claimants (at a time when there is huge pressure on social housing), increased unwillingness by banks to lend for this kind of property (or increased interest rate to reflect the risk), much higher levels of evictions and much greater homelessness.

An evolving system – IMPORTANT

The finalised regulations have not yet been published and, in particular, we do not know what the guidance regarding payments to landlords will say.  The whole system is evolving as it develops.  A considerable number of policy decisions will have to be made by DWP.   Therefore, anything outlined in this note could well change. 

October 2012

Prepared by Richard Jones, Policy Director Residential Landlords Association

Important Note:  This Guidance is based on currently available information but without seeing any detailed guidance or the final regulations.    As indicated above the rules are being developed and policy decisions are still to be made.  Things may well change.   Do not rely on this note without checking for changes.
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