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Tuesday, June 29, 2010

LHA budget 'bombshell'

Landlords who are reeling from the caps on Local Housing Allowance (LHA) levels proposed by the emergency budget have another 'bombshell' to cope with.

Hidden in the small print of the budget details is an even more worrying proposal for landlords letting to tenants on benefit. This change will not only impact on landlords letting in high value areas but will affect every landlord letting to a tenant on benefit. This is because they government are proposing a significant reduction in the general level of LHA benefit by changing the way the benefit is being calculated.

Previously LHA payments were calculated by taking the median level of rent in a Broad Rental Market Area (BRMA). From October 2011 rents will be set at the 30 percentile level of local rents. This may not sound like a dramatic change but the way it works in simple terms is this.

Imagine for example calculating the rent for a 1 bed flat. A list of a hundred rents would be compiled ranked in order with the lowest rent being ranked no.1 and highest numbered 100 for a defined local area. The VOA who calculate the LHA currently use the BRMA. Under the current system the VOA when calculating the median would use the rent which comes in the middle or in this case 50th in the list to come to a figure for the benefit level to be paid to a landlord. However, under the new system to be introduced from October 2011 they will use the 30th rent on the list.

This may not sound that dramatic, but where there is a large disparity in rents in a local area it could lead to a significant reduction in the LHA paid to the tenant and therefore received by a landlord letting to a tenant on benefits.

Here's a useful chart providing indicative figures showing how the planned changes announced by the Chancellor of the Exchequer on 22 June could affect Local Housing Allowance rates.

See full geographic chart here at the Valuation Office Agency (VOA) site.

Is this rent reduction fair? Will it effect your rental business. Tell us by posting your view.

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Anonymous said...

not exactly hidden, it was discussed on the mains news on the night and was also featured on Money Box on the show following the budget.
but before complaining too loudly landlords might like to cast their minds back to the first months of LHA when they were putting up rents to catch up with the local rate!

Anonymous said...

Totally agree with 7:42 Anon.

I rubbed my hands with glee when I saw the LHA rates announced. At last! A way for me to get my tax back from Labours grand give-a-ways!

The situation was not sustanable nor just. We are now returning to santity levels and are affordable in the long term.

Everyone does well under Labour. To start with... Finally the party ends, nobody is left with anymore juice to be rung out of them and we all have to sober up and face the hangover.

Anonymous said...

Total agree with comments so far! Just to add also I am fed up with funding those with no work ethic and single mothers who treat having a child as a disability AND are rewarded with a brand new three bedroom flat (I have examples!). I come from a one parent mother never claimed a bean it was never so easy back then. I have children, always worked FULL TIME and am no better off than those who don't I cannot afford to rent a house ideally big enough for my family. Basically sick of financing the bone idle!

Anonymous said...

It had to happen sooner or later, the grandee spending plan on the idle and feckless could not continue.

I see people at my grandchilds school, full LHA rent, 4x4, mobile phone glued to the ear and designer clothes, not a care in the world and no job either.

As a landlord, I will never rent again to benefits takers, too much hassle and the likelyhood of a runner as well, as they don't care after they have just stripped the house. The police have just successfully convicted my latest but received no compensation, the insurance and I was left with that mess to clear up, including damage to the house.

Anonymous said...

Wait for the knife....The current coalition will expect landords to contribute to prop up their budget cuts fiasco. Anyone renting to benefits applicants will probably find that market dries up because of massive Thaterism cuts to public spending, and the benefit system collapsing, further impacting on private tenants losing his/her job.

Dorchscot said...

I am a professional landlord of 10 years experience who has had hundreds of tenants including a large number on benefits. The 4 x4 driving, mobile phone toting, designer clothes wearing benefit claimant is an urban myth generated by the Daily Mail readers. Of course if you dig through all the detritus you will find one or two but the vast millions are just poor and disadvantaged.

The LHA budget changes are a shortsighted , short term decision that will save the government very little money. Landlords like me who cater for the lower end of the rental market will just refuse to take HB tenants. This will result in the local authorities having to house the homeless in B&B and other situations at much higher cost. In the end it will be you and I , the taxpayers who have to foot the bill.
The ridiculous job cuts that are being proposed by the Tories will just increase the number of homeless.

The private rented sector like myself can provide accommodation at much lower cost than anything the local or national government can do. However, I will refuse to let to HB claimants unless I can be allowed to charge a realistic market rent AND I can be guaranteed to get the money.

I am currently turning away significant numbers of benefit claimants because the demand from people with jobs has been rising during the past 12 months. The savageness of the budget cuts threatens this recovery.

The Tories may think that they are cutting costs but all they are doing is making it easier for me to say NO to benefit claimants

Anonymous said...

Looking at the article and Table no mention of Wales...again. I think that the articles need to be representative of the whole Country. I rent to DSS, yes some have left a mess, but I would say more than 70% of my tenants are solid and reliable. It really depends on the process of vetting, which I do myself. Agents don't care. Not many 4x4 driving ipod carrying chaves around my area.

The Editor said...

Some very insightful points here. The Coalitions objective of cutting the cost of benefit is Lordable. However, as one contributor highlighted, cut rents too much then landlords will simply turn away from these type of tenants. What the Coalition needs to reconsider is changing the approach of the LHA will insists that rents have to be paid direct to the tenant. If rents are paid direct to a landlord as they used to be under the housing benefit system. Landlords may overlook reducing rents in return for the certainty of a guaranteed rent and cashflow in these uncertain times.

Anonymous said...

"Landlords like me who cater for the lower end of the rental market will just refuse to take HB tenants."

Guess what? There's not enough working tenants to go round all rental properties, and working tenants at the lower end of the market frequently can't afford HB-sized rents. If you refuse to take the HB cuts you will just end up with empty houses.