Why it pays to offer tenancies to housing-related benefit claimants
In the week it was announced Britain’s economic growth slowed more than expected in the final three months of last year, Assetgrove examines the financial advantages of letting your rental property to tenants in receipt of housing-related benefits.
A growing number of the UK’s 1.4 million private landlords are increasing their exposure to the risk of void periods by refusing to let their property to tenants claiming benefits.
The introduction of Local Housing Allowance in 2008 was the catalyst for the number of private landlords offering tenancies to people claiming income-related benefits shrinking to an estimated 100,000.
Unlike the previous arrangements, where money was paid from councils direct to landlords, LHA payments go to tenants. Many landlords withdrew from the market at this point, according to the National Landlords Association. And more recent limits on housing-related benefits and the introduction of Universal Credit have spooked other buy-to-let investors and accidental landlords to follow suit.
However, tenants in receipt of housing-related benefit are more profitable than many other types of tenants.
The average yield for this type of let is 6.6%, calculated as rental income against the price of the property and this is higher than for any other tenant group, except migrant workers. In comparison, the lowest yields come from the letting of properties to executives.
And the commercial opportunities this market offers to landlords is increasing with over 1.4 million housing-related benefit recipients living in privately rented accommodation.
But this does not mean the claimants are not working. London is the only part of Britain where working households claiming benefits for private rented housing eclipse those where no-one is working, according to a report by think-tank and lobbying organization London Councils that also found the number of people receiving help with their rent has fallen in inner London since May 2011, while in outer boroughs the number has increased.
Not only do landlords who rent to those claiming housing-related benefit have access to a large and growing sector of the rental market, local authorities will find accommodation for those on housing benefit by using registers – at no cost to the landlord – which can save a considerable amount on advertising and agency fees.
According to Aki Ellahi, director of Midlands-based property lettings and management company Rent Me Now: “Research shows that people on housing benefit regard the place they live as a permanent rather than a short-term let. Landlords and letting agents should put their prejudices aside and ask themselves the question: can I continue to ignore such a substantial part of the private rented sector?”
Assetgrove echoes those views, particularly as landlords can alleviate their concerns about non-payment of rent by signing up to our rent guarantee scheme that not only takes the stress out of managing your property can ensure you receive fixed monthly payments for up to five years.
And the advantages of renting your property to tenants claiming benefits do not end there. Not only can providing a home to members of the local community who may well have been refused accommodation elsewhere be a reward in itself, if the economy takes a turn for the worse refusing to let your property to tenants claiming housing-related benefit could spark a public outcry, a backlash against landlords and further regulation.