Written evidence from the Residential Landlords Association (NDS0007)

1.0                ABOUT THE RLA

1.1               The Residential Landlords Association (RLA) represents the interests of landlords in the private rented sector (PRS) across England and Wales. The RLA has over 35,000 subscribing members and an additional 20,000 registered guests who engage regularly with the Association.

1.2               The RLA provides support and advice to members and seeks to raise standards in the PRS through its code of conduct, training, accreditation and the provision of guidance and updates on legislation affecting the sector. Many of the RLA’s resources are available free to non-member landlords and tenants.

1.3               The Association campaigns to improve the PRS for both landlords and tenants, engaging with policymakers at all levels of Government to support its mission of making renting better.

2.0                EXECUTIVE SUMMARY

2.1               20% of private sector tenants are in receipt of housing benefit and 45% of households receiving housing cost support within Universal Credit are in the sector.

2.2              Whilst the Government has sought to make changes to improve the operation of Universal Credit, we believe more could be done to provide greater confidence to landlords for them to rent to benefit claimants. This should include:

• Cross-government work to address the problem of mortgage lenders who prevent landlords renting to benefit claimants, following the welcome lead set by NatWest bank.

• Giving tenants a right to choose, where they want, to have the housing element of Universal Credit paid directly to their landlord.

• Ending the 5 week wait before being able to receive Universal Credit.

• Ending the Local Housing Allowance freeze.

• Ensuring tenants receiving benefits are responsible for clearing any rent arrears when they leave a rental property.

• Providing improved, and more timely, information to landlords about the progress of a tenants claim for Universal Credit.

• Supporting the Creditworthiness Assessment Bill to ensure landlords can better understand the potential risks around the ability of tenants to pay their rent on time and in full.

3.0                BENEFIT CLAIMANTS IN THE PRIVATE RENTED SECTOR

3.1              The 2017/18 English Housing Survey reported that 20% of all private sector tenants (889,000 households) were in receipt of housing benefit. It notes also that between 2008/09 and 2014/15, the proportion of private tenants in receipt of Housing Benefit increased steadily from 19% to 27% before falling to its current rate[1].

3.2              The same survey reported that private sector tenants in receipt of Housing Benefit received an average of £100 a week, a figure which is the same as that in 2008/09. Over the same period average weekly housing benefit paid to social sector tenants increased from £62 to £81. It is noticeable also that in 2017/18, 12% of working private sector tenants received housing benefit, up from 7% in 2008/09.

3.3              Figures recently produced by the Department for Work and Pensions show that in November 2018, 45% of households receiving a payment of Universal Credit with some element of housing support were in the private rented sector[2].

4.0                ACCESS TO PRIVATE RENTED HOUSING FOR BENEFIT CLAIMANTS

4.1               The Government’s recent survey of private landlords in England revealed that 52% were unwilling to rent to those claiming housing benefit, with 47% unwilling to rent to Universal Credit claimants[3]. 

4.2               The RLA has sought to understand the reasons why landlords have such concerns. Its most recent research on the subject, published in October last year, has revealed that[4]:

• 61% of landlords that let to tenants on Universal Credit have experienced tenants going into rent arrears in the past 12 months. This is up from 27% of landlords in 2016, and a significant increase from the 38% who said the same in 2017.

• The average amount owed by Universal Credit tenants in rent arrears increased by 49% over the period of a year from £1,600.88 in 2017 to £2,390.19 in 2018.

• 28% of landlords regaining possession of their property from a Universal Credit tenant said that the primary reason was because of rent arrears.

• Among those landlords who had successfully applied for Alternative Payment Arrangements, we found that it was taking an average of 9.3 weeks for it to be organised. This is far too long and is likely to be exacerbating the growing numbers of tenants in rent arrears.

• Additional research by Manchester Metropolitan University for the RLA found that 53% of landlords said that the gap between the Local Housing Allowance (LHA) and the local market rent was more than £50 a month. Almost 25% said the gap was over £100 a month[5]. The LHA freeze is clearly having a considerable impact on the ability of tenants to pay for their rent, even at a time when the Office for National Statistics reports that rents are going up by less than inflation[6].

4.3              Despite the considerable concerns expressed by landlords, they should not, as a matter of routine, preclude benefit claimants from being able to rent their properties. Instead, each tenant or group of tenants should be assessed individually on a case by case basis to understand what level of risk they might pose to the rent being paid in full and on time. Additionally, we have become increasingly concerned about the practices of mortgage lenders which specifically prevent landlords renting to benefit claimants.

4.4              The RLA’s research has found that 22% of landlords have mortgage conditions that prevent them renting to benefit claimants[7].

4.5              According to a survey carried out by our mortgage consultants, 3mc, in 2017 66% of lenders out of a pool representing approximately 90% of the buy-to-let market did not allow properties to be rented out to those in receipt of housing benefit.

4.6              3mc repeated the survey for the RLA in the autumn of 2018. This found a slight improvement, with 61% of lenders, representing approximately the same proportion of the market, not allowing properties to be rented out to those in receipt of housing benefit (see Appendix 1).

4.7              The most high profile case of a lender preventing a landlord renting to a benefit claimant has been that of Helena McAleer, from Northern Ireland. She contacted her bank, NatWest, after she discovered that the value of her property had increased and that there was a potential that she could release equity from the house. Following discussions with the bank, she was told that she would no longer be able to receive her buy-to-let mortgage from NatWest as it was the bank’s policy not to allow rentals to benefit claimants who she was housing[8]. At the time, the bank’s own buy-to-let eligibility criterion, which has subsequently been taken down, noted: “We will not consider multiple tenancies, Homes of Multiple Occupancy, bedsits, DSS tenants or ‘Related Person’ tenancies.”

4.8              At the time, the RLA wrote to the Economic Secretary to the Treasury, John Glen MP, as the Minister responsible for banking calling for the following:

• For the Government to use the influence it has in those banks in which it currently has shares to end such discriminatory practices.

• For the Financial Conduct Authority, working with the Bank of England, to undertake a full investigation into the extent of this problem and prepare plans to end it. It is the RLA’s belief that preventing lending to landlords with benefit claimants as tenants raises questions about breaches of a number of principles within the FCA’s ‘Treating Customers Fairly[9]’ agenda. Specifically, outcomes 1, 2, 4, 5 and 6 as this is an unreasonable product restriction which does not meet reasonable customer need and creates an expectation that this form of discrimination is legal (which it may not be) and an acceptable practice, which it clearly is not.

• For the Equalities and Human Rights Commission to undertake a review of whether such practices breach equalities law.

4.9              In his response to the RLA, the Minister noted that decisions around the availability of buy-to-let mortgages are “not a regulated activity, but are commercial decisions for lenders.” As a result, he argued that “the Government does not seek to intervene in these decisions.” Whilst noting that he was aware of the restrictions imposed by some mortgage lenders, the Minister argued simply that in the case of Ms McAleer, she might want to get “independent legal advice about what was allowed under her mortgage contract.” He went on to urge landlords to “shop around” for lenders that do not impost such restrictions.

4.10              The RLA is concerned that the Minister’s response amounts to a shrug of the shoulders to what can cause landlords considerable difficulty in being able to house sometimes the most vulnerable people in society.

4.11              In its response the Equalities and Human Rights Commission advised that Ms McAleer should contact its Equality Advisory Support Service (EASS) for advice on her rights and options available to her.

4.12              For the Financial Conduct Authority, its Chief Executive, Andrew Bailey, noted that the FCA does not regulate buy-to-let lending, which means that its “detailed rules do not apply” and that as a result “even if we wanted to require a change in behaviour, we would not be able to do so.” The RLA questions why the FCA believes it has no role in this regard.

5.0               PROPOSED SOLUTIONS

5.1              As a result of the coverage surrounding the case of Ms McAleer the NatWest has announced that it will end restrictions in all its products that prevent landlords renting to benefit claimants. This followed extensive campaigning by the RLA which has been publicly recognised by the Bank. We therefore warmly welcome this step and would encourage others to follow.

5.2              We also welcome the on-going engagement that UK Finance has had with the RLA on the issue, and look forward to attending the Government’s newly announced discussion on the issue.

5.3              That said, we believe that much more could be done to improve access to the sector for benefit claimants and believe it vital that the Treasury, MHCLG and the DWP work jointly with the banks, insurers, landlords and tenant groups to come up with a package of further measures to improve confidence in renting to benefit claimants.

5.4               The RLA has been working closely with the Government on these issues, and welcomes the positive, ongoing discussions that have been held which have yielded important fruit in the form of reforms to Universal Credit announced in the 2017 Autumn Budget[10] as well as in the current Secretary of State’s speech on Universal Credit at Kennington Jobcentre in January this year[11].

5.5              Combined these reforms will, we believe, improve confidence in the system among tenants and landlords. However, more can be done:

5.6              Giving tenants a choice. In her interview with ‘The Times’ on 8th December 2018, the Secretary of State indicated that she wanted to see more payments of the housing element of Universal Credit paid directly to landlords.  It noted that she had said: “The housing element of Universal Credit should more regularly be paid directly to landlords to ‘avoid the fear people have of not being able to pay their rent at the end of the month’.”

5.7              Whilst we recognise the government’s argument that Universal Credit should mirror the world of work, we believe strongly that tenants are best placed to decide for themselves how payments should be made. That is why we welcomed the Secretary of State’s comments and believe that tenants should have the ability to choose, where they want, to have the housing element paid directly to their landlord. This should be available to the tenant from the outset of a claim.

5.8              The five week waiting period to apply for Universal Credit should be ended. We need to ensure that rent arrears are prevented in the first place. Such a waiting period inevitably leads many tenants to start off in arrears when they begin to receive payments. Whilst advances are available it cannot be right that some claimants are being required to take on loans which then have to be paid back later.

5.9              End the Local Housing Allowance freeze. As has already been outlined, the LHA freeze is causing a considerable gap to develop between rents and what benefit claimants can afford. We join with other groups in calling for the freeze to be lifted when the current period ends in Spring 2020.

5.10              Ensure debts follow Universal Credit claimants. At present, where a Universal Credit claimant builds rent arrears and then leaves a private rented property there is no formal route for the landlord to reclaim rent arrears. Not only do we believe that such behaviour should not be facilitated, it is another example of the system failing to provide confidence to landlords to rent to benefit claimants.

5.11              Improve information for landlords on a tenant’s claim for Universal Credit. As with the social rented sector, procedures should be developed to enable private landlords to obtain improved and more timely information on the status of a Universal Credit claim by a tenant, such as confirmation of whether claims have been successful. This would greatly improve the ability of landlords to work with tenants to devise suitable rent payment schedules.

5.12              Support the Creditworthiness Assessment Bill. To assist landlords to make better judgements about the risks associated with individual tenants we believe that a tenant’s rent payment history should be included as a standard part of their credit scores. We therefore call on the Government to support the Creditworthiness Assessment Bill being promoted by Lord Bird and Justine Greening MP.

March 2019

APPENDIX 1: 3mc SURVEY OF BANK LENDERS UNDERTAKEN SEPTEMBER 2018

• 3mc, an award-winning specialist mortgage distributor which advises the RLA and its members. 
• For all lenders detailed in the below table, 3mc telephoned each lender with a hypothetical enquiry for a 2-bedroomed flat where the tenants were in receipt of housing benefits. The lenders listed are the majority of those in the UK lending in the buy-to-let market, representing around 90% of all such mortgages.  Out of 57 lenders:

-          35 (61%) do not allow properties to be rented out to those in receipt of housing benefit.

-          12 (21%) do allow properties to be rented out to those receiving housing benefit, although one of these is with the caveat that properties cannot be rented to “vulnerable tenants.”

-          9 (16%) indicated that they are prepared to “consider” housing benefit claimants.

-          1 (2%) indicated that it does not have a criteria related to housing benefit claimants.

• Below is a standard language used by lenders in their mortgage offers (who do not accept tenants in receipt of housing benefits). The exact wording can differ from lender to lender, but it provides an idea of the kind of thing they say:

“The following are unacceptable as tenants for the property:

-          tenants who do not have the right to rent in the UK;

-          multiple tenancies (including for the avoidance of doubt, houses in multiple occupation);

-          tenants in receipt of housing benefit;

-          Local Authority tenants;

-          people who could claim diplomatic immunity;

-          holiday lets.”