I have a 3 bed terraced house near Nuneaton town centre and I am advertising it privately but I keep getting a lot of people in receipt of Housing Benefit showing interest. What are the risks when renting to people on benefits? Are there any positives? What information could you offer that might help me decide?
I look forward to your reply.
This is a really great question and it’s certainly a question that, I’m sure, many landlords ask themselves when it comes to renting their Nuneaton properties. To follow are the answers to your questions…
“What are the risks to renting to people on benefits?”
Who controls the money?
If the tenant receives their housing benefit, they are responsible to pay you that money each month. This means they will need to be organised with money because they get paid every 4 weeks but, normally, their rent will fall on the same day each month so, they need to be able to budget / save their money for when the rent is due.
If you receive the Housing Benefit (HB) direct from the Council, this is better for your cash flow but can carry more risks e.g. if HB discover that your tenant has misrepresented a claim, they can stop the housing benefit and even ask you, as the landlord to pay back what you have received in rent because of the tenants’ deceit. However, if you find out that the tenant has misrepresented a claim and report them to HB then you are not liable to re-pay the rent but you are likely to stop receiving the HB for some time while the situation is resolved. So, you’d better hope there is no misrepresentations because you could be stung either way.
The tenants word is gospel
We’ve recently had a landlord ask us to manage his Nuneaton property after he had a bad experience with a tenant receiving HB. He had served her notice because she was not paying the full amount of rent each month (she was supposed to pay money as well as the HB to cover the rent) and, a few days later she informed the council that she had moved out of the property so, all payments to the landlord stopped. The tenant was in fact still living in the property and had no intention of moving out “until the bailiffs kick [her] out”. The landlord rang the council and informed them that the tenant was still living in the property but he was advised that, unless the tenant rings the council to tell them otherwise, there wasn’t anything they could do. The landlord eventually managed to get the tenant to admit (via text) that she was still living in the property, as well as getting written confirmation from the neighbours and the council said that they would carry out a visit to the property to establish who lived there. It’s a long story but, you get the jist of it!
Does the HB cover the rent?
If the housing benefit does not cover the full amount of rent, the tenant is liable to pay the rest. Can the tenant afford to do this? How can you be sure that they will top the rent up each month?
Are they paying a cash bond?
Some people in receipt of benefits who apply for private housing offer a ‘paper bond’ from the Council but, you should look into this more as there are a lot of the things the paper bond will not cover…
Do you have a back-up?
If you do decide to let your Nuneaton property to someone in receipt of HB, I would strongly recommend ensuring that they have a guarantor in place. It’s important to ensure the guarantor can afford the rent as well as getting all the relevant ID and proof of income from them.
Are you doing reference and credit checks?
Again, something I would strongly recommend. If credit checks reveal several debts (paid or unpaid), it gives some idea of how the applicant manages their money. On the other hand, credit checks could reveal good money management and be a re-assurance to you. It’s recommended that you get proof of current address as well as people often say that they live [d] with parents to avoid having a bad reference from a previous or existing landlord.
If you’re unsure about this process or want some more advice, please feel free to contact us on 02477 674 545
Will it affect your insurance?
It’s a good idea to check your Insurance Policy still covers you if your tenant is in receipt of benefits as some do not. Similarly, you should also check that you are not in breach of your buy-to-let mortgage.
Are there any positives?
The green deals that come and go with funding are often available for free or at a substantially reduced rate if you have tenants in receipt of benefits (but this can also apply to people who receive tax credits who work full or part time too).
If the HB covers the rent in full, and the tenant pays you on the same rent day each month, and the benefits don’t change, and they look after the property, and they have a cash bond, and a guarantor and it won’t affect your insurance or mortgage policy then, renting to people in receipt of benefits would be a positive (although very rare).
As a private landlord, I have had both good and bad experiences with tenants in receipt of benefits so I am very much in the middle. I do believe that more should be done to encourage landlords to rent to people in receipt of HB and support landlords in the event of rent arrears, misrepresented claims etc because, at the moment, regardless of the problem, the landlord usually bears the brunt and it’s usually very costly!
As you can see, the risks outweigh the positives quite heavily. However, if you’re organised, committed to ensuring you have back up in place and you have an applicant that is willing to tick all the relevant boxes (as listed above) then, there is no reason why you shouldn’t rent your property to a person/people in receipt of benefits.
If after reading this you’ve decided that having a tenant in receipt of HB isn’t the route you want to take, or you would like more advice, please feel free to drop me an email firstname.lastname@example.org or give me a call on 02477 674 545. I’m happy to offer some more advice and can even help find the right tenant for you.
Alternatively, why not check out how we can help you to manage your property or simply just find you the right tenant http://www.qthomes.co.uk/