Letting agents body Propertymark is warning of additional “financial strain” for landlords as a result of benefit changes next month.
The Universal Credit Fair Repayment Rate will drop from 25% to 15% next month, reducing the amount available to service an individual’s monthly debts, including housing payments.
Furthermore, the Department for Work and Pensions is set to overhaul the system of the automatic deduction of arrears and ongoing rent payments directly from tenants’ Universal Credit or other benefits, following a court ruling which deemed the practice unlawful.
In January this year, a legal case challenged this system when a tenant discovered that £500 had been deducted from his benefits without consultation, despite an ongoing dispute with his landlord over property repairs. The court ruled the automatic deductions unlawful, highlighting the lack of tenant consultation and potential for increased financial strain.
Currently Alternative Payment Arrangement requests from landlords are processed automatically by DWP, potentially diverting up to a fifth of a claimant’s monthly benefits without a requirement to notify them or gain their consent.
This mechanism aims to prevent evictions by ensuring that landlords receive owed payments.
However, cutting the maximum deduction to 15% will on the one hand see 1.2m households benefit, increasing their disposable income by an average of £420 per year.
But on the other hand, it means that tenants repaying rent arrears through deductions will do so at a slower rate, potentially leading to longer recovery periods and what Propertymark describes as “financial strain for landlords.”
The agents’ body says this signifies a shift in the management of rent arrears for tenants receiving benefits. The loss of automatic deductions may lead to increased rent arrears, necessitating more proactive engagement with tenants to address payment issues.
It’s advising agents to prepare for potential changes in rent collection processes and consider implementing supportive measures to assist tenants facing financial difficulties.
