Kevin Paterson is managing director of Source Insurance
With the biggest shake-up of the UK’s welfare system for decades now underway thousands of households across the UK will be affected by changes to a number of benefits.
While the government argues that these changes are necessary to tackle rising costs and cut the budget deficit, opponents claim that they will force many households into rent arrears and ultimately homelessness.
If the opponents are right, then the impact on private landlords could be devastating.
Given the growth experienced in the buy-to-let sector over the past few years and the proportion of our business for which it now accounts, I thought it would be worth looking beyond the rhetoric to see who will actually be affected by the changes and by how much.
The current system of working-age benefits and Tax Credits will be gradually replaced over the next four years by a new benefit called universal credit which applies to England, Scotland and Wales.
This will replace income support, income-based jobseeker’s allowance, income-related employment support allowance, housing benefit and working tax credit.
The government estimates 3.1 million households will be entitled to more benefits as a result and while 2.8 million households will be entitled to less, they will receive a top-up payment to protect them from a drop in income. New claimants will receive the lower payment.
The government claims that there will be an average gain of £16 per month across all households, but of course the impact will not be that evenly spread.
Looking at figures from the Department of Work and Pensions couples with children stand to gain the most followed by single people with no children and then lone parents. Couples without children will be adversely impacted.
The DWP figures show that a single unemployed 22 year-old paying £261 rent a month would have an income of around £500 a month through the universal credit.
If he worked 12 hours a week, his total income including his entitlement to universal credit would rise to almost £700 a month. If he worked 20 hours a week, it would increase to around £750 a month.
The government has also introduced a cap on the total amount of benefit that working-age people can receive. Set at the average earnings of a UK working household, the cap will mean that claimants will receive up to a maximum amount even if their full entitlement is higher.
The cap – which will apply to England, Scotland and Wales – is estimated to be £350 a week for a single adult with no children, £500 a week for a couple or lone parent regardless of the number of children they have.
So will private landlords see a negative impact on their tenants, exposing them to greater likelihood of rent arrears?
The answer to that will depend on the individual landlord’s mix of properties, rent levels and tenant types and it will be a while before there is any hard data available to analyse (even from the 40,000 households projected to be affected in the four London boroughs who have been trialling the new regime prior to its full nationwide launch this month).
However, even without such analyses for guidance, it is likely be a worthwhile exercise for any intermediary to discuss the emerging situation with their landlord clients; encouraging them to review their tenant profile and identify potential exposure if a significant percentage of their tenants do rely on benefits.
If they have not taken mitigating steps already, this would present a timely opportunity to talk to them about the benefits of Rent Guarantee cover, such as that offered by each of our panel of Let Property insurers.
