Southampton Landlords .. Should you take a tenant in receipt of benefits?

Most landlords who have been renting property for a while will have been asked this question, and my staff  get asked on a daily basis whether a given property will accept people who are receiving benefits.

Quite simply that’s because there’s huge demand for properties that will accept benefit claimants – Southampton City Council have ‘waiting lists’ running into the thousands which continue to grow. It is a specialised area of the market, and one that you must not enter casually. However for some of our landlords it is a very lucrative market, and they are now buying to meet the tenant demand.

These tenancies can work well, but it’s really important that the landlord understands in advance how these tenancies work, and what the pro’s and con’s are. I’ll go through these below.

The main question Landlords should ask is ‘do I need to accept Housing Benefit Tenants to rent my property’?, For the vast majority of Landlords, the answer to this question will be no – there will be a large enough supply of good quality private tenants happy to pay the rent you want. As such you’ll stick to the private market as it is, statistically, less hassle. Landlords generally need to consider a tenant on benefits :

• If their property is in an area where there’s low demand from private tenants, or
• if the local market is such that there’s a shortage of private tenants generally.

What are the advantages?

1.  You can get a premium rent for your property – Local Authorities have a set ‘scale’ they pay against, based on the size of the property, and not based on the area. As such if you’ve got a property in one of the poorer areas of town, you’ll get more for it with a Housing Benefit tenancy than with a private one.
2. In many cases the Council will provide a guarantee bond instead of a deposit. This is usually capped at 1 months rent, but in certain instances can go higher
3. Housing Benefit tenancies statistically last longer – if you’re claiming benefit and you want somewhere nice to live, the world is by no means your oyster! As such when tenants get somewhere nice, they tend to stay longer.
4. In certain areas of town, a housing benefit tenant may be a safer bet than a private tenant – a single parent with children is always going to be entitled to funds, whereas a private tenant on low income and in / out of work, may struggle more to pay.
5. More often than not, we can arrange to receive direct payment from the Local Authority, which mitigates the likelyhood of the tenant not paying.

What are the disadvantages?

There are a few here also. It's important you understand these in advance.

1. Rent is paid in arrears, not in advance.
2. Local Authorities make 13 rental payments a year instead of 12. You still get the same amount of rent annually, only in smaller chunks.
3. Without wishing to over generalise, tenant often struggle to deal with issues that arise (such as their benefit entitlement being changed) and deal with this by ignoring it, or burying their head, rather than coming and telling you.
4. If the Local Authority overpays housing benefit, they will take it back from whoever they paid it to. As such if we’re getting direct payment for your tenant, and the LA subsequently decides the tenant wasn’t entitled to that money, they will deal with it by simply taking the money back – that's democracy for you!
5. Local Authorities aren’t geared up to communicate with landlords, and very much see the tenant as their ‘customer’. If the tenant's entitlement to benefit changes, you can bet the local authority won’t tell you – the first you’ll know is when the money stops coming in. As such Housing Benefit tenancies can take a lot more management.
6. If you want to / need to get rid of your tenant, you can bet the Local Authority won’t help you – you’ll very much have to rely on the court process unless your tenant is happy to play ball!
7. As an agent we lose a little bit of flexibility on which tenant we let to – the Council doesn’t like to see us making arbitrary decisions.
8. The secret to success is hence understanding the above and managing it. If you get a reliable tenant, and a relaxed landlord, it can work really well and deliver a great yield for the landlord. If you get an unreliable tenant and an inflexible landlord, problems can ensue!

As such there can be problems with accepting tenants in receipt of housing benefit. It’s not a market that suits everyone and if you’re the sort of landlords that treats their rental properties as extensions of their own home, it’s not the market for you. That said, you can pick up a cheap property in one of the less upmarket areas of town and rent it for good money. 

We have a number of landlords who operate successfully in this market and I have a couple of places myself that I let out to tenants in receipt of benefit.

Nearly all of us get our fingers stung occasionally. However all of us come out ahead overall.