In my years of working in property management and more recently in my own Lettings Agency, if I had a pound every time a potential tenant has asked me whether a particular property will accept people who are receiving DSS benefits I would be a very rich lady.
Why? That bit is easy it’s because there’s a large demand for properties that will accept benefit claimants – Cheshire East Council have ‘waiting lists’ running into hundreds that will continue to grow. It is a specialised area of the market, and one that you must not enter casually. However, for some local landlords it is a very lucrative market, and I know a few landlords who are thinking of buying to meet the tenant demand.
These tenancies can work well, but it is really important that the landlord understands in advance how these tenancies work, and what the pro’s and con’s are. So i’ll go through these below:
Should I, Shouldn’t I?
The main question Landlords should ask themselves is ‘do I need to accept Housing Benefit Tenants to rent my property’? For most Landlords, the answer to this question will be no – there will be a large enough supply of good quality private tenants happy to pay the rent you want. As such you’ll stick to the private market as it is, statistically, less hassle. Landlords will generally only need to consider a tenant on benefits:
- If their property is in an area where there’s low demand from private tenants, or
- If the local market is such that there’s a shortage of private tenants generally.
What are the advantages?
If your property isn’t in the best area, there are many!
- You can get a premium rent for your property – Cheshire East, in fact all councils have a set ‘scale’ they pay against, based on the size of the property, and not based on the area of the town. As such if you’ve got a property in one of the poorer areas of town, you’ll get more for it with a Housing Benefit tenancy than with a private one.
- In many cases Cheshire East council will provide a guarantee bond instead of a deposit. This does however depend on the applicants circumstances.
- Housing benefit tenancies statistically last longer – if you’re claiming benefit and you want somewhere nice to live, then tenants choices are limited of where they can live. As such when tenants get somewhere nice to live they tend to stay rather than move around.
- In certain areas of town, a housing benefit tenant may be a safer bet than a private tenant – a single parent with children is always going to be entitled to help with their rent, whereas a private tenant on low income and in and out of work may really struggle to pay the rent.
What are the disadvantages?
There are a few. It’s important that you understand these in advance.
- Rent is paid in arrears, not in advance
- All local authorities make 13 rental payments a year instead of 12. You still get the same amount of rent each year, only in smaller chunks i .e. every four weeks rather than monthly.
- Without wanting to generalise, tenants often struggle to deal with issues that arise (such as changes to their benefit entitlement) and deal with it by ignoring it, or burying their head rather than coming and telling you.
- If you receive a direct payment from the Housing Benefit department and the local authority find out that the tenant was not eligible for benefit then they may demand the money back from the person they paid it to which could be the landlord if it was paid directly to them. The local authority can demand money back even from ex tenants . So you may find yourself being asked to refund monies paid to you directly by the local authority for historical rent payments . This is not normally the case however you need to be aware that in some circumstances this may happen. This is a risk landlords should be aware of.
- Local authorities are often unable to communicate directly with landlords. The tenant is their customer and their Housing Benefit (HB) claim is confidential. I would therefore always advise landlords to obtain authority to discuss a tenants HB claim with the local authority as part of the sign up process. If the tenant’s entitlement to benefit changes, you won’t routinely be told by the local authority (unless the HB is being directly to you) the first you will know about it is when the money appears or doesn’t appear in your bank account as the case may be. As such Housing Benefit tenancies take a lot more management.
- If you want to get rid of your tenant you can rely on the fact that the local authority will be on the side of the tenant and will drag the process out as long as possible. You will almost certainly have to go to court to get possession.
- The secret to the success is understanding the advantages and pitfalls of taking on tenants who rely on benefits and manage that situation. If you get a reliable tenant, and a relaxed landlord, it can work really well and deliver a great yield for the landlord. If you get an unreliable tenant and an inflexible landlord problems will most definitely arise.
As such there can be problems with accepting tenants in receipt of housing benefit. It’s not a market that suits everyone and if you’re the sort of landlord that treats their rental properties as an extension of their own home, then its definitely not the market for you. That said, you can pick up a cheap property in one of the less upmarket areas of Crewe and rent it for good money. I know a number of landlords who operate successfully in this market.