Welfare Reform and Universal Credit: The impact on the private rented sector

by | Aug 12, 2017 | Reports, Welfare Reform & Homelessness

Over the past 2 years there has been significant political attention provided to the private rented sector. The sector is now incredibly important to providing homes for millions of households across the UK. Nevertheless, significant policy and regulative changes have occurred, including taxation reform, energy efficiency measures, increasing regulations, and welfare reform.

The recent Housing White Paper[1] has also proposed further changes such as encouraging the 3-year tenancy agreement. The research presented in this report is part of a longitudinal project to examine trends across the sector in relation to policy changes. This report focuses on the impact of welfare policy changes and collected data from a large sample of 2,974 landlords.

A concerning finding is around eviction. Nearly 1 in 3 landlords reported that they attempted to evict a tenant in the past 12 months, with the majority (60%) reporting this was due to rent arrears, with tenants owing on average £1000 (median). When extrapolated to the wider sector, this equates to approximately £589 million owed to landlords. This is a serious concern, and future changes to the sector could exacerbate this issue, especially the changes to mortgage interest relief.

Regarding the impact of welfare reform, the findings present a stark account of issues associated with the introduction of universal credit. Of those who let to tenants on universal credit or housing benefit:

  • 38% of landlords reported that they have experienced universal credit tenants going into rent arrears in the past 12 months
  • This is especially concerning with the finding that on average, landlords were owed £1600.88 in rent arrears
  • 53% of landlords successfully request an Alternative Payment Arrangement
  • 45% of landlords reported that the DWP were unhelpful when contacted
  • The issue of rent arrears for universal credit tenants, is also one of the leading reasons for a landlord attempting to regain possession of the property (64% of landlords)

These findings suggest that reform to universal credit is needed. The government needs to ensure that it is easier for landlords to claim alternative payment arrangements and ensure rent arrears are kept to a minimum. Without these reforms, landlords may continue to be unwilling to provide homes to those on universal credit.

Further policy changes, including the cap on Local Housing Allowance rate, 4-year freeze on Housing Benefit to working age claimants, and taxation changes were identified by a large proportion of landlords to make them less likely to rent to benefit tenants or homeless people.

Based on these findings, this report recommends that the freeze on LHA rates and HB rates are ended by the Government to remove these barriers for vulnerable tenants to the private rented sector. Furthermore, the government should consider the restriction of mortgage interest relief, this would provide buy-to-let landlords the financial security to provide accommodation to those most vulnerable in society. Without these, landlords may continue to be unwilling to let to tenants on benefits or homeless people.

From the analysis of the key trend data it is evident that landlord confidence in the sector has been shaken by the current political and economic climate. While more landlords were confident (38%) than not confident (28%), plans for landlord portfolios have changed over the past 6 months. The proportion of landlords who have added to their portfolio is down by 7%, and the proportion who have reduced the size of their portfolio is up by 2%.

Looking ahead, the proportion of landlords who plan to add to their portfolio is down from the previous 6 months, and the proportion who plan to reduce the size of their portfolio has increased. This finding could signify that landlords are preparing to reduce the size of their portfolios in reaction to this policy change.

Using the latest data from HMRC on the number of landlords[2] this could equate to a net loss of 76,000 less properties in the sector over the next 12 months. This is especially concerning when 1 in 3 landlords reported increasing tenant demand in the past 3 months.

The government must make positive changes and reverse previous decisions (for example the restriction of mortgage interest relief) to support the private rented sector and ensure all tenants have a safe and secure house to call home.

[1] DCLG. (2017) Fixing our broken housing market. Retrieved from: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/590464/Fixing_our_broken_housing_market_-_print_ready_version.pdf

[2] If all these landlords do reduce their portfolio by 1 property