Several major lenders have denied rumours they are planning to refuse to offer mortgages to buy-to-let landlords with tenants on universal credit.
The roll-out of the government’s new welfare system, which began in 2013, has led to a surge in the number of tenants in arrears, dealing another blow to a buy-to-let sector already struggling under the weight of recent tax and regulatory changes.
Universal credit consolidates six means-tested benefits, including housing benefit and jobseeker’s allowance, into one monthly payment, which is made as a lump sum into a claimant’s current account.
It is designed to make people better off accepting work by tapering the benefit, and to encourage people to take greater responsibility for their finances.
But a survey of almost 3,000 landlords with universal credit claimants as tenants by the Residential Landlords Association (RLA) in March and April 2017 showed 38 per cent experienced tenants going into rent arrears – up from 27 per cent in 2016.
The average amount owed in rent arrears by universal credit tenants to private sector landlords is now £1,150, the RLA stated.
Claimants face a six-week wait before receiving their first payment, meaning they are already two months in rent arrears by the time of the first payment, the RLA stated.
Paul Shamplina, founder of eviction service Landlord Action, told FTAdviser: “The landlords we speak to on a daily basis through our advice line are increasingly concerned because for many, rent arrears could mean they fail to meet their obligations to lenders.
“Some lenders are even stipulating buy-to-let loans will not be available where tenants are benefit dependent and so as a result, landlords are focusing on private tenants where they can achieve higher rents and the risk of arrears is less.”
Many lenders do not lend to landlords with tenants who are welfare recipients, but a number of those that do said they had no plans to change their policies as a result of the switch to universal credit.
A spokesperson for Lloyds said: “Lloyds Banking Group does not have clauses that prevents landlords letting to tenants on benefits and we have no current plans to change this policy.”
A spokesperson for Accord, the Yorkshire Building Society’s intermediary arm, said they had no plans to change their current policy of lending to landlords who offer tenancies to renters who receive state benefits.
They added: “We are committed to providing people with a home of their own, including those who rent a property as well as buying one, because we believe that to build a successful future everyone needs a safe place to call home.”
Leeds Building Society also has no plans to change its current position, which is to consider rental income generated from tenants in receipt of benefits.
A spokesperson for Nationwide, whose buy-to-let arm The Mortgage Works (TMW) briefly stopped lending to landlords with tenants on housing benefit in 2013, said: "TMW does not have any restrictions in its terms and conditions on landlords letting properties to benefits claimants."
But while lenders may not be turning their backs on welfare recipients, research shows landlords are increasingly choosing to turn such tenants away.
According to a survey of 780 landlords in the second quarter of 2017 by the National Landlords Association, just two in 10 are willing to let their property to housing benefit claimants – down from 34 per cent at the start of 2013.
Adam Hosker, director at Leeds-based Bespoke Finance, said: “Most lenders’ criteria already outline that they do not lend to landlords with tenants claiming housing benefit.
“I don’t have the research to hand, but the amount of lenders that are OK with the current system is minimal. That minority could well become smaller.”
A spokesperson for the Department of Work & Pensions said: “The best way to help people pay their rent is to help them into work, and under universal credit people are moving into work faster and staying in work longer than under the old system.
“Universal credit does not change the way rent is paid in the private rented sector. Private-rented tenants have paid their rent directly to their landlords for nearly 20 years.
“We continue to work closely with landlords, local authorities and other organisations to ensure claimants are supported. The majority of people are comfortable managing their money but budgeting advice, benefit advances and direct rent payments to landlords can be provided for those who need it.”
simon.allin@ft.com
