Universal Credit

29 Apr 2014

What is it?

Introduced in October 2013, Universal Credit is a new benefit that has started to replace the 6 existing benefits with a single monthly payment for people who are looking for work, or who are on a low income.

By 2017 Universal Credit will replace:

  • Income-based Jobseeker’s Allowance
  • Income-related Employment and Support Allowance
  • Income Support
  • Working Tax Credit
  • Child Tax Credit
  • Housing Benefit

Any new claimants since October 2013 have automatically been accepted in to the Universal Credit system, which is managed by the Department for Work and Pensions.

The intention behind the new system is to promote the idea of tenants managing their own finances and to bring the benefit system in line with the conditions affecting working people.

Main differences between Universal Credit and the current system

  • Universal Credit is available to people who are in work and on a low income, as well as those out of work
  • Most people will apply online and manage their claim through an online account
  • Universal Credit will be responsive – as people on low incomes move in and out of work, they’ll get ongoing support, giving more incentive to work for any period of time that is available
  • Most claimants on low incomes will still be paid Universal Credit when they first start a new job or increase part-time hours
  • Universal Credit is paid directly to the claimant’s bank, building society or Post Office account on a monthly basis
  • Any help the claimant gets with rent will be included within the Universal Credit payment. The claimant will then pay the landlord themselves.

Landlord concerns

This new system raises some concerns for landlords since it affects local authority tenants, housing association tenants and tenants in the private rented sector.

  • Universal Credit means the end of direct payments being made to the landlord to cover rent.
  • Landlords will no longer be able to request direct payments if the tenant is 8 weeks or more in arrears
  • Some landlords have raised concerns that since the gradual introduction they have seen an increasing problem with rent arrears
  • Landlords will potentially have to wait longer for payments, with increased risk of default
  • Many landlords have already begun not accepting tenants on benefits as a result. In many areas, this is not practical
  • No rights of appeal for landlords if things go wrong
  • The guidance appears to not support landlord’s interests to ensure that rent is paid
  • There is no provision for the first payment of benefit to be paid directly to the landlord.

What can landlords do to mitigate risks?

  • Expectations, processes and procedures will need to change. Procedures will need to be tightened up and payments monitored more closely.
  • Tenancy agreements may need to outline that rent is paid monthly now rather than weekly, and in advance.
  • Universal Credit applies to people in work as well as out of work; therefore more people will be on these benefits. Landlords should give consideration to whether the tenant is solely dependent on state benefits, receiving benefits as a top up or whether they are retired or a pensioner as part of their selection criteria.

Landlords can take out protection measures such as:

  • asking the tenant to provide a guarantor;
  • taking a deposit to cover rent;
  • taking out a rent guarantee product, providing the tenant/guarantor has passed a tenant reference.

Can a landlord be paid directly?

In some circumstances, the landlord can be paid directly. However, each case will be looked at on an individual basis and will be subject to a screening process combining financial and vulnerability risk factors.

Direct payment appeal process:

  • Referral – including self-referral. Referrals can be made by advisers such as the Citizens Advice Bureau and third parties such i.e. landlords.
  • Screening – only claimants who have ‘reasonable grounds’ for exceptional payment arrangements will be considered.
  • Decisions – Final eligibility decisions for payment exceptions will be taken by a member of staff on a case by case basis. One of the possible outcomes may be a decision to pay rent to the landlord directly.
  • Review - Payment exceptions will be on a time limited basis, over time moving claimants to a point where they can manage themselves.

As with the existing system, Universal Credit will permit deductions to be made from benefit entitlement for rent arrears. This is intended to be a last resort. Rent arrears and mortgage arrears will be prioritised in deductions.

Qualifying for the deduction of rent arrears

The claimant must:

  • be receiving Universal Credit including an element of housing cost
  • be in debt for rent payments (or service charges included in rent)
  • still occupy the accommodation to which the debt relates
  • be earning below the relevant minimum earnings.

Where the above applies, a monthly deduction from the Universal Credit benefit could be paid directly to the landlord, if the Department of Work and Pensions deems appropriate.

The deduction will be no more than 5% of the standard allowance and will stop if the claimant’s income reaches a certain level for 3 months.

Jenny Jervis

Written by: Jenny Jervis, Marketing Manager at Endsleigh for the Landlord and Lettings market

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