Less Rent for Landlords Under LHA if they Agree to be Paid Direct

The forthcoming Local Housing Allowance (LHA) caps and reductions have brought with them a range of technical and practical issues, including also impacts on landlords who never let to LHA tenants.

Statutory instruments SI #2835 2010 (which came into force 1 April 2011) allow local authorities slightly more discretion about whether to pay LHA directly to landlords. It states that direct payment may be used when: “the relevant authority considers that it will assist the claimant in securing or retaining a tenancy.”

The National Landlords Association (NLA) says, “This obviously implies that a local authority may choose to offer direct payment as an incentive to encourage landlords to accept the new lower rates of LHA. The policy has ‘discretion’ very much at its core – it is not a blanket declaration that landlords can have direct payment if they accept lower rents.”

The NLA seems cautiously optimistic that this measure will help to prevent some landlords exiting the market because of the immediate impact of the cuts. However, they add that it’s too early to assess the impact of the various LHA changes, not least because most tenants will not be affected until the end of this year.

Impact Will Be Different in Different Areas

Of course, the impact of the cuts to LHA is likely to vary considerably from market to market. As we have noted before at this blog, there are some areas across the country where the effect of the cuts will be relatively minor.

However, in others, most notably for some properties in the more-expensive-to-rent-in parts of London, the capped rate levels may not represent viable rents for landlords irrespective of the option to go for direct payments.

The net effect of the changes to LHA will likely see some landlords exit the LHA market, where other non-LHA-reliant potential tenants exist. Others will be able to make small cuts and may feel more confident about accepting smaller margins if payments can be made direct. And others may even be compelled to leave the PRS altogether if the figures don’t add up.

Whilst it is still too early to assess how great the effect will be, there is now lots of evidence of activity by some more central London boroughs who are trying to find accommodation for LHA dependent tenants in cheaper neighbouring boroughs.

We have suggested that the effect of moves like this will be to increase rents slightly in these neighbouring boroughs.

British Property Federation and “Del Boy”

Whilst the NLA has taken a fairly pragmatic view of this latest move the British Property Federation (BPF), have taken a very much more robust view.

At their website, the BPF has questioned the move, which according to them “Would see council staff having to wheel and deal with local landlords to reduce their rent in return for the comfort of (landlords) getting paid directly.”

Ian Fletcher, Director at the British Property Federation, said: “This is Del-Boy benefit policy. Seeking to trade a landlord’s right to be paid with the Government’s desire to reduce its expenditure. Landlords should expect to get paid for the housing they provide. That shouldn’t be contingent on lowering rents, or having to wait eight weeks (for arrears to build up) under the current system.”

He adds, “The Government would not dare treat other small businesses in such a way, but seems to think it is acceptable to allow people to rack up huge debts and treat landlords so badly.”

We would be interested in hearing what landlords who are reading this think and to what extent they agree with the BPF’s harder line or the NLA’s more pragmatic and participative approach.

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LettingFocus.com is the home of Private Rented Sector Expertise and expertise and I’m David Lawrenson, a landlord and property investor myself for over 26 years and best known as the author of “Successful Property Letting” – the UK’s top selling commercially published property book for the last 3 years. 26,000 copies sold (up to Feb 2011).

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