UK

Freeze to housing benefit threatens landlords too

Alexa Phillips
Mon, 26 June 2023 

Buy to Let

Landlords will be forced to sell up because of a freeze in housing benefits and worsen a burgeoning rental crisis, property investors have warned.

A combination of soaring rents since the pandemic and a freeze in housing welfare means tenants are finding it increasingly difficult to afford their housing costs, according to the Institute for Fiscal Studies.

Just one in 20 private rental properties can be paid for via “Local Housing Allowance” (LHA) rates – the lowest level on record, a report by the think tank found.

The rates, which are used to calculate the maximum amount people renting from a private landlord can claim in housing benefits or Universal Credit, have not been updated since March 2020, when they were raised to cover the rent for the cheapest 30pc of properties in each local authority.

Since the freeze, rents for new tenancies have surged by more than a fifth on average, according to the analysis of data from property website Zoopla.

The proportion of properties now covered by LHA rates has plummeted from 23pc to 5pc.

Housing benefits are a crucial income source for landlords as they are used by nearly two-fifths (38pc) of renters – or two million households.

It puts affected landlords between a rock and a hard place: leaving them with the choice of raising rents to pay for rising mortgage bills, knowing their tenants may be unable to pay and forced to vacate, or keep the rent as is and fund increases to their mortgages via other means.

Chris Norris, of the National Residential Landlords Association, warned the benefits freeze could push landlords to sell up, potentially reducing rented housing stock and pushing up rents further still.

He said: “We speak to landlords every day telling us their mortgage rates are going up – their rent isn’t even covering their mortgage costs but they know their tenants can’t sustain the increase they need to apply.

“They’re trying to assess whether this is another short-term blip and we will get back to a semblance of normality, or whether they have to sell that property because they don’t feel that rent is sustainable.

“It’s more acute when you have a tenant that has a fixed income because of the benefit freeze and they know the shortfall they’re asking them to take up is even more extreme.”

The rising cost of borrowing has squeezed landlords’ yields and comes on top of the removal of valuable tax breaks and the imposition of costly home efficiency requirements.

Tom Wernham, research economist at the Institute for Fiscal Studies and co-author of the report, said: “If these benefit freezes are maintained, private rents will become increasingly unaffordable for those on low incomes.”

He said the properties covered by benefit rates are of “lower quality” and are more expensive to heat than average.

Darren Baxter, principal policy adviser at the Joseph Rowntree Foundation, said private renters are seeing the number of homes they can afford “shrink dramatically”.

He said: “The Government’s freeze on local housing allowance is unsustainable.

“Even if renters can find somewhere affordable to live, it’s likely to be a home that’s unsafe or in disrepair. These homes are also harder to heat, leaving renters facing energy bills they just can’t afford.”

Properties that are covered by LHA rates have 19pc higher heating and hot water costs than average, the report said.

Around a quarter of private rented homes lived in by low-income people are hazardous, in disrepair, are difficult to adequately heat or lacking in modern facilities, compared with just 18pc of owner-occupied homes and 12pc of social rented homes.

Younger lower-income people are also much more likely to be renting privately compared with previous generations amid falling home ownership rates.

Wales has the worst affordability of any region across Britain, with only 2.5pc of rents covered by LHA rates.

The North East fares best but still only 6.9pc of homes are covered.