LHA - train crash

I was contacted several weeks ago by one of our longstanding users.
Kevin wrote to highlight the very real impact that the Local Housing Allowance (LHA) changes
 are having on his younger tenants:

“This week I have had to speak to 2 of my under 35 tenants about the changes in January.  One has been with me since she was 19 for 9 years now, the other for 2 years and he is now 28. I had to tell them that as of January they will only be entitled to £66 pw and not the £105 they currently get.

 Both are excellent tenants and it's a real shame to be losing them through no faults of their own, but clearly they will not be able to afford the difference and so will be asked to leave as of course I'm not a charity either.”

This highlights the real dilemma experienced by landlords letting to young tenants claiming Local Housing Alowance.  For more details of how these proposals could affect your younger tenants have a look at this Shelter article.

What can landlords do?

Well the options seem pretty stark.  Landlords can try and maintain the existing rent but that would require the tenant to make up the new shortfall, which in my experience of tenants claiming benefit will be a slikely as finding a snowflake in June. This is particularly the case for younger tenants where the magnitude of the rental shortfall will be  so great.  For example in Kevin’s case the proposed reduction in rental support is in the order of 40% - a massive change.

Another alternative is to give the tenants notice and move them on and replace them with other tenants probably ones older than 35 to avoid this aspect of the LHA cap.  However, we all know how tough it is for the young at the moment.  No job, no money and now potentially no home. 

Commenting on the changes Kevin stated:

“I feel really bad about it of course but not half as bad as they do.  I could understand that the rule being applied in a forward fashion but to apply it in a retrospective way is going to do so much harm.”

Kevin’s view reflects many landlords predicament.  Many were prepared for a reduction but the savagery of the changes has caught many off guard.

Is it really going to save money?

Whilst I support the reduction in the profligate state spending that the previous government burdened us all with, I feel you have to question how much money will be saved by these changes. 

Kevin highlights in a recent letter to his MP the financial facts of his case:

“ as a result I have had to tell 2 of my tenants one of 9 years and another of 1 year that unless they can raise the difference they will be asked to leave, or I will have to evict them.  If I evict them they will then be deemed in need and TDC Housing Dept. will have a duty to house them which will mean B&B in a local hotel at a financial cost of around £368 per week. If, that is they can find any space.”

The good news

The good news for landlords is that because of the buoyancy of the rental market; replacing tenants now is not difficult.  However, whilst open market rents continue to move up those landlords reliant on public sector support will see a significant downward pressure on their rental income.  This is inevitably going to give these landlords a large financial incentive to move out of the subsidized sector.  Not all properties will be suitable for conversion or not all landlords will have the financial resources available to enable this to happen.  Landlords who have made investment decisions to buy and let property to tenants on LHA will now be faced with owning a property significantly under performing their original rental and investment expectations.  This could result in a significant hardship for both landlords and tenant.

Playing by the rules


In the case of Kevin he did what the local council was asking local landlords to do.

“Our local area Environmental Health Dept. had a push about 7-8 years ago to get as many Houses in Multiple Occupation turned into self contained flats which is what we did and many other local landlords did too.  The result is now there is a massive shortage of single shared rooms or bedsits to go to which is all that's going to be an option for the under 35's.”

Despite doing this Kevin is now faced with a dilemma of how to replace his younger tenants.

HMO youth ghettos

The logical conclusion for renters under 35 on LHA is that they need to move to cheaper accommodation in the form of a shared house.  To me this is not so terrible.  I spent many years as a student and then in my early working years renting a room.  Being part of a shared house can be an enjoyable and life enhancing experience.  However maybe the experience of sharing a fridge would not seem so great if I'd had to do it through to my thirties.The difference that I had from the current crop of ‘twenty somethings’ is I had a job, the affordability of housing and the availability of finance. It meant I could afford to buy my own property in my early twenties.  I wouldn’t fancy not having any prospect of having my own place until I was in my mid thirties.


Train crash unwinds

Landlords have known about these changes for some time but many landlords and tenants have been in denial that these massive cuts were really going to happen.  Now the train crash is unwinding before our eyes; I suspect many landlords are at a loss as to how not to get caught up in the wreckage.

Email your comments and views.

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My standard text I have on this subject:
 
When taking someone under 35
 
This age limit used to be 25. And I had to tell loads of 23 year old lads 'I can't give u a flat yet, because u won't get enough rent. U will have to ask me again when u r 25. Now there are going to be lots of 33 year old grown men having to move back in with Mum or homeless, because the Govt won't pay for them till they are 34-I think it is actually 35. Absolutely bonkers. Where does the Govt think they are going to live?
 
 
Limiting LHA to £150 per week
When the Government started to pay sensible rent for large families, us landlords could go out & buy the house for these large families because we knew there would be enough rent coming in to cover the mortgage on these bigger more expensive houses. Because there are many people with 5/6/7 kids that are living in 2-3 bed houses. And the Council ain’t got anywhere for ‘em, so if the Government pay the correct rent, us Landlords will house them.
So I & many Landlords went out & bought some 4-5 bed houses for these families. The rent was £200ish, mortgage £170, bit of maintenance, bit of profit at the end of the year.
So now the Government want to cap the rent at £150pw (in Nottingham), where they gonna’ live Mr Thick Government? Der….. It’s going to be going back to the overcrowding that we hoped we could finally get them out of.
And what about us Landlords that have bought houses just for these families? We sell them, that then takes them out the market for these families, not available again for them to rent.
The Govt really are on another planet, they need to get on ground level where I am & the tenants are & see how they  are living & what is available. If there’s not enough rent to pay the mortgage, der…, where they gonna’ live?
You tell us one year, you’re paying this, we take a chance, buy them a house, next year, you say we’re now only paying this. You are treating vulnerable tenants like crap.
Don’t give ‘em Brucie Bonus on a plate, but at least pay enough rent, so they aren’t overcrowding & living in poverty.
 
Mick

Hi, After readng the very informative article, I realised that some councils are either doing different things with the new rules on the LHA or witholding information altogether! I am an agent for various landlords and a landlord myself. I read up on all the information our local council provided (Lewisham council) and they informed me all housing benefit cuts will apply none months after the change which happened in April this year and that there was to be a capping on all property types starting with rooms in shared houses to a maximum of a four bedroom house. There was no mention of age coming into it!!!!!!  I know that usualy a fully able mind and bodied young person under 25 would usualy get less allowance, but that was the only restriction on age as they would only pay for a room for under 25s.

I have had to inform some tenants I have that are claiming benefits that the change will affect them after December 2011 and they need to consider if they will be able to make up the difference in rent at that time or look for alternative accommodation.

Anyway im babling on a bit now, which im sure is boring! but, I thought I would mention the above as the article I read didnt seem to mention the LHA capping affects everyone on housing benefit, not just the under 25s. Or is it just Lewisham Council that is capping everyones benefit?

I  enjoy reading Property Hawk articles and have found some very interesting and needed information from the newsletter. Im just a bit confused with theis particular one. Keep up the good work!!

Many Regards
Carolyn

There is no way I would take on a LHA sharer.
I would rent out my spare room for £150pw plus food.
This means £150 x 52 weeks=£7800.00
Subtract £325.00 for spd council tax loss=
£7475.00 divided by 52 weeks= £143.75 per week
divided by 7 days= £20.53
divided by 24 hrs = £0.85 phr!
Would you let your spare room for any less?
I am not even taking into account additional consumption of household items nor additional cost of  elect and gas usage.
Plus giving up your privacy.
Do the council seriously expect anyone to take in a LHA lodger for any less.
Even if you use the RFR amount of £4250.00 per year it works out at £10.78 per day or £0.45 phr
No one in their right mind would let someone have use of their sapre room and common areas for  £10.78 per day.
And yet the LHA shared room rate will be even less.
LHA lodgers are not the type of people most would want in their house.
I sugest the govt needs to start building some hostels for all these LHA single claimants under 35.