Renting to LHA Tenants

It's now illegal to have a blanket ban on renting to tenants who receive benefits. However, some landlords still prefer not to rent to tenants who receive benefits - others love them and actively seek to work in this corner of the market. Here we explore the pros and cons of renting to tenants who receive benefits, and offer some tips on how to handle the financial side of renting to benefit recipients.

The acronym LHA refers to Local Housing Allowance (Housing Benefit) which ceased to act as a standalone benefit, and was merged into Universal Credit during 2013-2017. Other terms in common usage are DSS (the old Department of Social Security) and tenants in receipt of benefits.

So why would you specifically choose to rent to tenants who rely on benefits to pay their rent? For many property investors and landlords this section of the market has historically had some negative connotations.

One misconception is that LHA tenants mean higher than average maintenance costs, as unemployed tenants are likely to be home more. In truth, many people working full time now rely on benefits in some form. Other worries centre around late or non-existent payments. Weak relationships between landlords and councils can also have a negative impact.

But a good number of landlords find this niche an extremely profitable and worthwhile area to focus on. Not only are they making a good return on their investment, they're also providing necessary housing options to a chunk of the population who would otherwise struggle to put a roof over their heads.

Before you invest in property to rent to LHA tenants

The first thing to consider is the location of a property. As ever it's location, location, location. If a property is in a less than desirable location for working tenants (i.e. not in easy reach of public transport, in a less desirable area, far from decent shops and entertainment facilities) it's likely to have a much lower capital value than a house of equivalent size in a more desirable location. This means you'll have a much lower outlay but you can still expect a good return. This is because LHA levels are set for a large area, and will take into account rent levels in the sought after streets as well as those in less popular areas. Many professional landlords capitalise on these anomalies and are able to achieve as much as 40% higher yields than on properties with higher capital value in the same area.

Make sure you do your homework - understand the rates payable by local authorities and check updates and changes to benefits. Get to know your local authority contacts and build relationships, as these will be invaluable if there are issues later on with payment of rent. Don't forget that since January 2012, single claimants under 35 are now entitled to the standard room rate in shared accommodation, meaning there should be plenty of demand for rooms at the lower end of the market.

A good starting point for information is Shelter's Guide to Housing Benefit and Council Tax Benefit, available from Amazon.

Finding the right LHA tenants

Not all tenants are the same, and LHA tenants can have many advantages, especially if they stay long term. Long term tenants of course mean less paperwork and fewer void periods. Before you accept any applicants, make sure you've undertaken comprehensive tenant referencing. Make sure you do a full inventory a consider getting a guarantor in place in case there are any issues with rent payments.

LHA landlords are often prepared to go the extra mile - as they as well as their tenants will benefit. Help your tenants to fill out their claim forms and submit them as early as possible - this will help you to ensure you get your rent on time. Make sure they sign to say you can speak to the council about issues relating to the property with reference to them, otherwise the council may quote the Data Protection Act and refuse to discuss matters with you. Keep copies of everything and make a note in your diary of who you spoke to when and what was agreed.

Getting the rent paid

Whilst direct rent payments to landlords have not been the norm for some time, it has been possible to make a claim to request direct payments if you build up evidence showing that the tenant is vulnerable and likely to be left homeless through non payment of rent.

One other thing to watch out for is overpayments, which can happen when the local authority makes a mistake and pays too much. Councils can try to claim back any overpayments they have made up to 6 years after a tenant has left the property.