LHA under threat again

It looks like ‘Austerity’ …..‘Prudence’s’ long lost sister is on the march again. George Osborne sporting his new ‘young mans’ hairstyle is after saving more money by squeezing a reported 25 billion out of the benefit system.

Two billion of this could come from restricting Local Housing Allowance (LHA) to tenants under 25 year old. Now this tightening of the net will not affect me or the majority of landlords who have steered clear of LHA and Housing Benefit tenants altogether.

However, there are still a significant number of career landlords who have targeted benefit tenants and in particular those younger tenants.

First round of benefit cuts

We have previously reported about one of our users experience with the first round of cuts, which restricted the amount of contribution for tenants under 35. It also changed the way the rent was calculated.

The essence of the first round of Local Housing Allowance cuts was to restrict rent rises and push down landlords rents . Despite this we can see from the latest Rentindex that private sector rents have shown a steady rise over the last 6 years from £575 in 2008 to over £620 now.

Landlords & tenants on LHA are being squeezed

A recent article in the Guardian about well-known professional landlord Fergus Wilson’s highlighted his move to stop letting to tenants on benefits. Fergus defended his decision by acknowledging the fact that benefit tenants in his experience of housing 200 benefit tenants, did not keep up with their rent. He pointed out to Channel 4 News that arrears amongst these tenants were running at 50%.

All this makes perfect sense when market rents are rising but benefits are being cut. This is all happening whilst living standards are falling. The upshot is that tenants on LHA have less money to contribute to their rent, their finances are very much squuezed. The latest announcement by the Government will only add to the pressure on tenants and their landlords to move away from benefit tenants in order to maximise rents and returns.

Our thoughts

Cutting benefits is always going to have unfortunate unintended consequences. Many single people under 25 are going to be exactly those individuals that don’t have access to a nice stable middle class home to go back to after 3 years at University. Landlords who have invested in property specifically for this area of the rental market are going to be in for an uncertain time. They did well during the time of living high on the hog under Labour, but now it’s all change.

In my view the Government are testing the water. I predict these threatened changes will be far less dramatic than may be expected. Politically, the Tories know there is far less votes in it for them with the under 25s than there is for maintaining benefits for pensioners.

The real problem for us all is that too few properties are being built, making property just too expensive.
This is both a curse and a gift to landlords. We love rising house prices (it makes us rich from capital growth), however, rising prises make it harder to buy property and make any reasonable rental returns, particularly when benefits are getting cut or abolished.

Landlords letting to tenants on benefit look as if they will continue to come under pressure. The result will be undoubtedly result in less choice for LHA tenants and less desirable property available for them to choose from.

That’s the price we will continue to pay for all those years of living beyond our means.

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