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.
