Local Housing Allowance (lha) For Landlords And Property Investors In The Uk

There are many aspects of renting to Local Housing Allowance (LHA) tenants that make

landlords and property investors feel unsure as to the security of receiving rental income in this manner. This short article aims to clarify the main aspects of the process as well as some of the practical issues and criticisms surrounding the system as a whole (we provide a link below which will allow you access to to a full guide should you wish for more detailed information).

*** WHAT IS THE THE LOCAL HOUSING ALLOWANCE (LHA)? ***

Formally introduced on 7th April 2008, the LHA was aimed at being a so called 'revitalised' method of looking at Housing Benefit for tenants in the mainstream private sector (deregulated by the Housing Act 1988).

The scheme was introduced to operate as a fairer and more simple way of calculating benefit for people in lower income brackets and/or with little savings. The main notable difference for landlords is that the system is designed so that any payment is sent directly to the tenant and only to the landlord in exceptional circumstances. The LHA is determined by the Rent Service which sets the level of benefit based on the size of the property (these figures are usually published on local council websites). Although the tenants benefit will be worked out by accounting for the level of income, savings and the number of people in the household, it will not be more than the maximum amount of rent. Note that the same rules apply for tenants that were already receiving Housing Benefit prior to 7th April 2008.

The UK government's theory behind the policy was to give tenants a choice between the quality and the price of their accommodation so those with similar circumstances will be entitled to similar rates of LHA. According to the Department of Work and Pensions (DWP), the LHA also has an essential part to play in empowering people to budget for and to pay their rent themselves, rather than having it paid for them, which helps develop the skills unemployed tenants will need as they move back into work.

The LHA is one of the Governments key areas for reforming the welfare state and sets out to:

- Offer an increased level of overall fairness the new scheme pays the same amount to tenants in similar circumstances in the same area;

- Increase choice tenants have the ability to either remain and pay to live in a bigger property or keep the difference if they move to a smaller home;

- Offer wider transparency tenants (and landlords) can easily find out how much LHA will be covered;

- Give greater personal responsibility empowering tenants to learn how to budget their own money better;

- Promote financial inclusion encouraging tenants to understand the banking system (such as setting up an account, standing orders etc.);

- Remove barriers to employment the government are actively encouraging welfare to work programmes (with in-work' benefit schemes in operation);

- Be simpler to understand the aim is to remove the formerly complex rental determinations and restrictions that often led to delayed processing times;

*** CRITICISMS OF THE LHA ***

The new scheme has continued to attract condemnation and dissatisfaction from all sections of society - not only by landlords and property professionals. A Blackpool coroner in 2009, for example, suggested that the paying of benefits directly to tenants is fuelling the city's drug problem.

Others have criticised the government for failing to issue detailed and clear guidance to local authorities on the operation of the LHA leaving managers in doubt about how they should actually be running their public organisations.

A related criticism is that private landlords are getting treated differently to social landlords, housing associations and other organisations that are exempt from the new rules (who continue to have the benefit paid directly to them). This puts private landlords at a severe competitive disadvantage in their attempts to provide housing that meets the UK population's rising demand of rented accommodation. It is claimed that the competition authorities would be all over the issue if it was not for the fact that it is related to housing.

Other research has pointed the following:

- a falling amount of landlords wanting to house LHA tenants as they do not like the idea of not receiving their rent directly;

- councils are actively establishing if a tenant is vunerable' and have been having difficulty in obtaining evidence of proof;

- there is little evidence of the fact that the LHA is actually helping tenants get back into work;

- the excesses in benefit over contractual rent, in some circumstances, is acting as a disincentive to tenants looking for work;

- the system has become open to abuse.

*** CONCLUSION ***

The main issue putting off landlords is that of receiving rents from tenants directly (and therefore potentially putting the property income at risk). The National Landlords Association (NLA) went as as far as to state that homelessness would increase if reforms are not made (based on the fact that their research pointed to an increasing number of landlords becoming reluctant to let to LHA tenants). With the ongoing issue of a local housing shortage (and no new houses being built, particularly during the credit crunch); councils across the country are becoming increasingly reliant on private landlords to bridge the gap therefore such changes are clearly needed.

It is, however, important to remember that not all LHA tenants are the same and should be tarred with the same brush. The majority are genuine claimants and negative stories, more often than not, are individual cases that are often over-hyped by the media. PS Investor Services believe that if you undertake full due diligence on prospective tenants (as you would with any other type of tenant) then using LHA to manage your revenue can be an excellent way to run your property business. We would also recommend spreading your risk as much as possible (perhaps by having a mix of private and LHA tenants across your portfolio).

by: Ruban Selvanayagam

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