According to the report, for the first time more people on benefits will be chasing homes than the market currently provides. The study shows in many parts of the country there will be thousands more welfare claimants than there are properties that can be afforded by benefits alone.

The result is that in many urban areas there will not be enough inexpensive homes to rent for those claiming local housing allowance. The problem is most acute in central London where in two of the country’s richest boroughs: Westminster and Kensington and Chelsea, more than 35,000 homes will at a stroke become unaffordable to those attempting to live on housing benefit.

It’s unlikely that the poor can migrate to other parts of the capital: in east London Newham there are twice as many claimants as there are low cost homes. There’s no room in the suburbs either. In Croyden 17,000 people will be chasing the 10,000 properties that can be paid for with local housing allowance levels.

The effect is not just in the south east. Before 2012 Birmingham had more than 37,000 homes with rents that could be paid for by housing benefit. Now, 34,500 benefit claimants will be chasing just 23000 low-cost houses. On the Mersey, Liverpool’s 21,000 people collecting the allowance will only be able to afford 12,000 homes in the city.

Take a look at the interactive map on the Guardian datablog to look at the figures for your area. The data can be downloaded too.

Currently, single people aged under 25 have their entitlement to housing benefit capped at the local housing allowance single room rate [Para 5 of Sch 1, Rent Officers (Housing Benefit Functions) Order 1997]. In October 2010, the government announced that this would be extended to persons aged under 35. These regulations bring in the change from under 25 to under 35, subject to limited exemptions relating to certain homeless persons in hostel accommodation, and ex-offenders who pose a risk to the public.

The change takes effect on 1 January 2012. The same transitional provisions apply that were brought in in respect of the earlier local housing allowance cuts.

After having a quick glance through, it seems there are no major changes except of course to add information about the changes that took effect earlier this month.

The other important stuff like 8 weeks arrears and payments to landlords generally remains unchanged.

I thought therefore we would produce some guidance as to how the transitional period works.

What’s changing?

As a quick summary, the following changes take effect on 1 April 2011:

• An additional bedroom in any case where the customer or their partner is a person who requires overnight care

• New discretionary direct payments to landlords (see discussion here)

• Maximum number of bedrooms reduced from five to four bedrooms

• The LHA rate will no longer exceed the contractual rent (or the tenant’s share of the contractual rent in joint tenancies) thus removing the £15.00 weekly excess amount

• Introduce maximum (capped) weekly rates as follows:

  • £250 for a one bedroom property

  • £290 for a two bedroom property

  • £340 for a three bedroom property

  • £400 for a four bedroom property

• Change the method for calculating the LHA rate so that it is based on the rent at the 30th percentile of rents achieved in the broad rental market area

Transitional Protection

[amember_protect levels='keywee' user_action='error' user_error='amember_error_default_user' visitor_action='error' visitor_error='amember_error_default_guest']The transitional protection discussed below only applies to reduction of bedrooms from 5 to 4, capped rates or reduction in rate due to the 30th percentile of rents if they are worse off after the new rate. There is no transitional protection for the £15.00 weekly excess and that will be removed at their next anniversary renewal after 1 April 2011 so by the end of March 2012 no one will be receiving HB that is more than their rent.

Regulations 2(5) and 3(5) of the HB Amendment Regulations 2010 insert new regulation 12M into the Housing Benefit Regulations 2006 which provides up to nine months transitional protection to existing tenants who see a reduction in their eligible rent. The transitional protection will apply to tenants:

• who are on LHA immediately before 1 April 2011 (so tenants receiving HB before 2008 not receiving the LHA rate are not affected), and

• who have a new LHA rate determined on or after the 1 April 2011 either because they:

  • have reached their anniversary date, or

  • become entitled to a larger category of dwelling

and the new LHA rate determined on or after the 1 April 2011 is lower than the eligible rent which applied immediately before 1 April 2011.

Transitional protection will not apply to tenants who become entitled to a smaller category of property in between 1 April 2011 and their anniversary date (for example a non-dependant moves out). In which case whatever the rate is at the time of change will be the rate that they receive.

All new claims after 1 April 2011 will receive the new reduced amounts.

The transitionally protected eligible rent will continue to be used in the HB calculation until the:

• Nine month period has expired, or

• Tenant becomes entitled to a larger category of dwelling and the maximum rent (LHA) is equal to or higher than the transitionally protected eligible rent, or

• Tenant becomes entitled to a smaller category of dwelling, or

• Tenant changes address, or

• Certain protections in the event of death (not discussed here)

In cases where the transitional protection expires after nine months the LHA rate will be the maximum rent that would have applied but for the transitional protection and the normal provisions will then apply.

By my calculations, the last date a tenant will receive the old higher amount could in theory be 31 December 2012 (see example further below).

Examples

Tenant’s previous LHA rate below their rent

24/6/2010 Tenant moves into property and claim HB.

Rent = £105.00

LHA rate = £95.00

Eligible Rent = £95.00

24/6/2011 Anniversary date, new LHA assessment.

Rent = £105.00

LHA rate = £85.00 (reduced under 30th percentile rules)

Eligible Rent = £95.00

As the LHA rate is lower than the previous eligible rent, the previous eligible rent remains the eligible rent during the transitional protection period.

24/3/2012 9 month protection period ends.

Eligible Rent = £85.00

The LHA rate that applied on 24/6/2011 is now used as the transitional protection period has ended.

Tenant did have a top up, but new LHA rate is less than rent.

13/5/2010 Tenant claims HB

Rent = £115.00

LHA rate = £140.00

Eligible Rent = £130.00 (Excess capped to £15.00 above rent)

13/5/2011 Anniversary date, new LHA assessment.

Rent = £120.00 (increased £5)

LHA rate = £115.00

Eligible Rent = £120.00

New LHA rate is less then previous eligible rent of £130.00 and less than the contractual rent, so transitional protection set at current contractual rent level.

13/2/2012 9 month protection period ends.

Eligible Rent = £115.00

The LHA rate that applied on 13/5/2011 is now used as the transitional protection period has ended.

Tenant was entitled to the 5 bedroom rate

10/1/2011 Tenant claims and is awarded the 5 bedroom rate

Rent = £180.00

5 bed LHA rate = £175.00

Eligible Rent = £175.00

10/1/2012 Anniversary date, new LHA assessment.

Rent = £180.00

4 bed LHA rate = £145.00

Eligible Rent = £175.00

As the LHA rate is lower than the previous eligible rent, the previous eligible rent remains the eligible rent during the transitional protection period.

10/10/2012 9 month protection period ends

Eligible Rent = £145.00

The LHA rate that applied on 10/1/2012 is now used as the transitional protection period has ended.

Tenants rent above capped rate (includes of example of last possible date for rate)

31/3/2011 Tenant awarded two bedroomed rate

Rent = £350.00

LHA rate = £340.00

Eligible rent = £340.00

31/3/2012 Anniversary date, new LHA assessment (first such assessment after 1 April 2011)

Rent = £350.00

LHA rate = £290.00 (capped)

Eligible rent = £340.00

As the LHA rate is lower than the previous eligible rent, the previous eligible rent remains the eligible rent during the transitional protection period.

31/12/2012 9 month protection period ends

Eligible rent = £290.00

The LHA rate that applied on 31/3/2012 is now used as the transitional protection period has ended.

Further information

The department of Work and Pensions have produced circular HB/CTB A25/2010
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What’s changing?

From 6 April 2011, the Housing Benefit Regulations 2006 are amended to include a new “discretionary” direct payment to landlords. Regulation 96(3A)(b) (circumstances when payment “may” be made to landlord) will have added to it:

“(iv) the relevant authority considers that it will assist the claimant in securing or retaining a tenancy”

None of the changes affects the provisions contained in regulation 95 where payment “shall” be made to the landlord if the tenant is the equivalent of 8 weeks or more in arrears. Nor is there any change to the existing rules of a vulnerable person in which case payment “may” be made direct to a landlord.

Existing Tenants

The policy intention

The intention behind the new safeguard is to protect tenants who find themselves living in accommodation after April 2011 when the announced cuts to housing benefit are made. If a tenant finds that his housing benefit is reduced so that he can no longer afford the full rent, this new direct payment provision can be offered as a bribe to the landlord so that he will reduce the rent to a level that the tenant can afford. If the landlord reduces the rent, then, the local authority can offer direct payment because that rent reduction is assisting the tenant to retain the tenancy.

The importance of the amount of rent

The [tenant] can only be accepted as being able to retain or secure a tenancy if the rent is at a level you consider they can reasonably afford whilst in receipt of HB. If the [tenant] continues to have a shortfall which they cannot meet they will be unlikely to be able to meet their rental commitment and will be at risk of eviction. In these circumstances, they will not be able to retain the tenancy and so the safeguard will not apply. [para 10 circular A4/2011].

Therefore, the DWP argument is that if the rent is higher than the local housing allowance rate (either before or after the announced reductions) then direct payment can never be made under the new provisions because the landlord is still likely to evict if they can’t pay any shortfall. Therefore, the criteria of assisting in retaining the tenancy is not met.

Note: I’m not entirely sure I agree with this interpretation from a legal point but I see the point and for now will run with it.

Of course, if the rent you charge is already lower than the LHA rate and is less than or equal to any reduced LHA rate after the cuts take place, there is no need for a landlord to show that they have reduced the rent because the landlord will be able to show the tenant can afford the rent. In this case, the provision maybe used if the tenant is less than 8 weeks in arrears if the landlord intends to evict because the provision of assisting to retain the tenancy still applies.

What is an affordable rent?

The intention is that the rent should be at a level which is affordable to the tenant. In the vast majority of cases this will be the LHA rate which applies to the customer and on which their maximum rent determination is based. However, some tenants may decide that they can pay slightly more than the LHA rate if they have other resources. For example, if they have resources such as capital to meet a shortfall. However you must be satisfied that the rent is affordable to the customer. [para 16 circular A4/2011]

New Tenancies

The new provision of direct payment is not only available for assisting with retaining a tenancy, it is also available if will assist the tenant secure a tenancy. It is this that will be of most interest to landlords because it maybe useful to try and achieve all new tenancies are paid direct to the landlord.

As with existing tenants, in order to achieve the direct payment, according to the guidance it is absolutely essential that the rent is affordable (see above). Therefore, if the rent you are asking is above the LHA rate then it is unlikely that the landlord will receive direct payment under these new provisions (but the 8 weeks arrears rule still applies).

The rent therefore will need to be reduced to at least the LHA rate (if like me your rents are usually well below the LHA rate, then no reduction will be necessary).

The guidance states:

The safeguard can also apply to customers seeking new tenancies who might not otherwise be able to secure a property with a rent which is affordable. You should not apply the safeguard unless you are satisfied … the letting would not have been made without direct payments and the rent charged is affordable. [para 21]

But continues …

If you are aware that the landlord has routinely let to HB customers at affordable rents without direct payments it would be reasonable to expect that they would continue to take on new tenants without direct payments. It is not the intention that the safeguard be used to make payment to the landlord as a matter of routine. [para 23]

Because of this last paragraph landlords are going to have to make a decision and stick with it if they wish to achieve direct payments.

What the guidance is basically saying is that if you have always charged a lower rent and always accept housing benefit tenants then the new provision cannot apply because it is not assisting the tenant to secure a tenancy (because the landlord would have let to them anyway and past history has proved this).

However, it seems there is no reason why a landlord in this type of situation cannot make a decision to never again let to a housing benefit tenant unless direct payment is made. Once a landlord has made such a decision (and must stick with it) then any request for direct payment will assist the tenant in securing the tenancy. However, just to repeat, if a landlord does not stick with the decision to never let to housing benefit again without direct payment but then does so will never be able to receive direct payments from the local authority.

It seems a landlord can make a decision to never let to housing benefit tenants unless direct payment is made because in the examples contained in the guidance it states:

Maria needs to leave her current tenancy because she cannot afford her rent because of a reduction in her LHA rate. She has two children aged less than 10 years. A friend puts her in touch with a landlord of a two-bedroom flat for which he charges £200 a week. The local LHA for a two-bedroom flat is £215 in March 2011 and reduces to £205 in April 2011.

The landlord has not let to anyone on benefit for some time as a previous tenant left without paying the rent. He says that he is willing to let to Maria and her two children, if HB is paid direct to him. The LA agrees to pay HB direct, as otherwise it would not have been possible for Maria to secure the tenancy and she would have been at risk of being made homeless.

[Annex A circular A4/2011]

This example makes it clear that it is possible for a landlord who has previously let to housing benefit tenants but because the benefit was paid to the tenant and the landlord was left with arrears, the landlord decided not to take any more tenants unless payment was made direct. There is therefore no reason why any landlord cannot make this same decision (but to clarify a landlord making such a decision must stick with the decision).

How to apply for direct payment before the tenancy has been granted

The Guild of Residential Landlords will produce a notice / letter that either the landlord or prospective tenant will take to the local authority. This notice will explain that a tenancy will not be granted (or a higher rent above the LHA rate will be charged) if the local authority refuse to pay direct to the landlord.

However, any landlord using this notice will have to stick to the contents i.e. if you say you won’t let the property unless direct payment is made and the local authority refuse to pay, you should not let the property to the prospective tenant. Otherwise, the production and use of such a notice will be pointless.

The local authority will either sign the notice accepting that direct payment will be made or alternatively the local authority may notify of a decision in the normal manner when making decisions (the guidance suggests the latter approach).

If the local authority either refuses to sign or notifies of a decision that payment will not be made direct, then, the landlord should not agree to let the property to the tenant and should find someone else. Appealing a decision is a possibility but because it is a discretionary provision, these are much harder to appeal.

Of course, this theory is going to depend on market conditions. If most landlords simply carry on as now and accept tenants where the tenant receives the payments, the local authority are going to have no incentive in awarding direct payments. However, if the majority of landlords simply refuse to accept tenants unless they get direct payment, then the provision of assisting to secure a tenancy will apply and direct payments will be made in many more cases than currently.

Below is a DRAFT form requesting direct payment from 6 April 2011.

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IMPORTANT NOTE: THE BELOW FORM IS ONLY DRAFT AND MUST NOT BE USED. PLEASE PROVIDE FEEDBACK ON IT’S CONTENTS SO WE CAN PRODUCE A FINAL VERSION BEFORE 6 APRIL

Word version

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The cost of the software is £125.00 + VAT and I wonder if anyone can tell me what this does that can’t be done for free on-line?

If you use the valuation office website cleverly, you can check any current LHA rate for every local authority and you can now shadow the changes as if they were post April 2011 alongside these rates so as to compare what the rate would be if the changes were now implemented. The valuation office are producing these shadows for each current month (rather than as previously where there was just one example for June 2010).

No piece of software can actually tell you right now what the rates will be in April and beyond until the actual rents used for the calculation are published (which change every month) and therefore it seems the software is simply predicting the rates relative to the current month. This is just the same as the shadow function on the VO website.

If anyone can tell me what the software does differently to warrant the £150.00 (inc. VAT) I would be very interested!

See our calculate your LHA rate link on our local housing allowance website which has all the links needed. to perform your own calculations for free.

I’m going to attempt to explain the much publicised 30 percentile reduction in LHA rates as it seems to be causing worry amongst landlords. The reality however is that there is no need to worry too much. I accept that there is going to be a reduction but because of how the formula works, in real terms, the reduction will be nearer 10% as it’s not a simple 30% of the LHA rate from April 2011. Allow me to explain:

Firstly, below is going to be a really brief summary as the formula is quite complicated. The main thing to remember (as suggested above) is that it is not a 30% reduction in the actual rate. Currently, a median value is taken of all rates in a given area. The changes simply alter this calculation to be a 30% median value.

Rent officer duties

Firstly, a rent officer must create a list of all rents within their area. This list must be made up of true market value properties and non of the rents must contain housing benefit tenants (thereby reflecting true market value). There are other conditions but these aren’t relevant for now.

There must be one list for each type of property, so one list for one bedroom, one list for two bedrooms going up to four bedrooms (currently five bedrooms but that will be removed from April).

So, let’s take an example of one bedroomed properties in an area. Of course, in reality the list will be extensive with hundreds if not thousands of rents. Importantly, the list must be produced [amember_protect levels='keywee' user_action='error' user_error='amember_error_default_user' visitor_action='error' visitor_error='amember_error_default_guest']in ascending order (lowest first, highest last) and each rental must be numbered. For example:

1 65

2 70

3 75

4 80

5 85

6 90

7 95

8 100

9 105

10 110

11 115

Here we have 11 rentals for one bedroomed properties in the appropriate area (obviously this list would be much longer in real life).

To establish the current LHA rate (pre April 2011), the rent officer must count the number of rentals (in our case 11). If that number is an odd number, then 1 is added producing 12 and divide that by 2 (producing 6). The rent officer then goes to row 6 using our example and that is the current median value. Therefore in our case, the one bedroom LHA rate for the area would be £90.00 per week or £390.00 PCM.

Under the new rules (post April 2011), the rent officer must take the number of lines (11) divide them by 10 and multiply by 3 (producing 3.30 in our example). This is rounded up to 4. The rent officer as before now goes to row 4 of the list and this gives us the new LHA rate for one bedroom properties namely, in our case £80.00 per week or £346.67 PCM.

As can be seen, in real terms this is about a 10% actual money reduction in the rate. It ought not to be forgotten that in most cases when the LHA rates came in, landlords saw an approximate 20 – 30% increase in real terms of the amount of rent they could charge.

Table showing new and old rates:

1 65

2 70

3 75

4 80 – New (post April)

5 85

6 90 – Existing (pre April)

7 95

8 100

9 105

10 110

11 115

Useful guide

There is a very useful guide produced by the valuation office which compares the rates (as they were in June 2010) with what they would have been had the 30% median value been introduced then and gives a good indication as to the likely reductions. It also shows likely affected areas by the capping of rates also being introduced. This table also confirms that in real terms the likely reductions are nearer 10%.

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Regulation 2 of the amendment regulations amends regulation 96 HB regs 2006 which regulates when a local authority may pay a landlord direct.

The new addition states that a local authority may pay a landlord where:

the relevant authority considers that it will assist the claimant in securing or retaining a tenancy

So, what does a landlord need to do to ensure payment is made under this new power?

[amember_protect levels='keywee' user_action='error' user_error='amember_error_default_user' visitor_action='error' visitor_error='amember_error_default_guest']The first thing to do is put this in context. Under the regulations before local housing allowance (which still exist for those tenants before LHA), the regulation allowing payment “where the tenant consents” was only a power under regulation 96 and not a duty. Therefore, even though a tenant consented to payment being made, the local authority did not have to do so. Yet, they always did make payment in this case with little or no argument needed. Of course, the problem with this regulation was that the following day, the tenant could go back into the local authority and simply revoke their consent and payment had to by law go to the tenant unless 8 weeks arrears arose. Of course this didn’t happen much thankfully but it did happen and was a problem at the time.

This new regulation it is submitted is even better for landlords because there is no consent element. If local authorities didn’t bother arguing about the discretionary payment under the previous regulations (which they could have done) then I submit they won’t put up much of an argument over the new wording.

The only contrary view to this is that the LHA guidance seems to be suggesting that these provisions are only available to local authority introductions where they have deemed a person homeless for example.

There are two parts to the new amended regulation. The local authority may pay a landlord if:

• It will assist the tenant in securing a tenancy or,
• It will assist the tenant in retaining a tenancy.

Assist in securing a tenancy

The first one is going to be difficult to figure out in the early stages from 1 April 2011 because although it makes it easy for local authorities to now promise direct payment for their homeless persons, it is going to be more difficult for other prospective tenants because they can’t get a decision on this until the tenancy has been granted because only then can they apply formally for housing benefit.

Landlords wishing to have payment direct for new tenants, should therefore do two things. First, they should hand to all prospective tenants an appropriately worded document before any tenancy is granted which sets out the conditions of granting any tenancy. This document should make clear that no tenancy will be granted unless direct payment to the landlord is made and that the prospective tenant should first obtain this confirmation in writing from the local authority before the landlord will grant a tenancy.

In addition, the tenancy agreement should have a condition that if housing benefit is being received and if the local authority do not pay direct, then the landlord will bring the tenancy to an end (I am pondering exact wording and of course the Guild tenancy agreements will be amended before 1 April 2011).

Assist in retaining a tenancy

When this regulation takes effect on 1 April 2011, landlords in the early stages are going to have to hold their nerve and be a little ruthless in my view. Basically, once the regulation comes in and the tenant is receiving payment but the landlord wishes to receive direct payment from the 1 April onwards, the landlord will have to serve a section 21 notice (if possible e.g. depending on fixed term etc.) and then make a request to the local authority seeking direct payment. The landlord should state that if direct payment is not made, possession will be sought. However, in my view, I think in the early stages landlords will have to follow through with their threats in order to achieve a similar result to the previous regulations where local authorities never queried the consent power.

We will work on a suitably worded notice for landlords to serve on local authorities which will be available before 1 April.
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The London Borough of Newham gave wrong advice to a woman about local housing allowance (LHA), leaving her with rent arrears. The Ombudsman said:

“Both [the complainant] and her landlord sought specific advice from the Council regarding the appropriate LHA rate for this particular property … They were given the wrong advice because at least one officer failed to check the correct LHA rate for a property of its type in its location. This was a fault by the Council which caused injustice to the complainant who is contractually obliged to meet her rent obligation without now having the means to do so.”

‘Miss Thornton’ (not her real name for legal reasons) lived in temporary accommodation provided by the Council. She complained that the Council gave her misleading information about the amount of LHA that she would be entitled to when she sought a move from her accommodation. She now has rent arrears that she is unable to pay due to the shortfall in the LHA paid.

The Ombudsman found maladministration causing injustice. The Council admitted that it gave the wrong information about the potential LHA, due to an officer believing that the accommodation was in a different borough. This caused injustice to Miss Thornton because she was unable to make up the shortfall in the rent.

The Council believed that its offer to support Miss Thornton to move to alternative affordable accommodation through its bond scheme was an appropriate remedy for her complaint. The Ombudsman did not agree, and said:

“l do not consider that it was reasonable for the Council to expect Miss Thornton to move home when its error came to light. Miss Thornton would still be contractually liable for the rent as a result of the assured shorthold tenancy agreement she had entered into with her landlord. Neither did she want the additional upheaval that a further move would cause her and her daughter, nor the additional expense which is inevitably associated with moving house.”

To remedy the injustice, the Ombudsman recommended the Council to pay Miss Thornton £899.60 to make up the shortfall between the amount of LHA advised by the Council and the LHA paid, plus £250 for Miss Thornton’s time and trouble. The Council should also remind officers to check the Valuation Office Agency’s website to ensure that it gives the correct advice regarding LHA rates.

Link to the case is here

From April 2011, we are temporarily widening the direct payment safeguard provision to enable you [local authority staff] to consider making payments to landlords when it would help customers secure or retain a tenancy. We intend to issue detailed guidance relating to using this safeguard soon. However, this measure is intended for use only when landlords reduce their rent to a level that is affordable to tenants (which will usually be on or around the LHA rate). This should by no means be considered a return to direct payments to landlords as a matter of course and we will continue to engage with you over the next few months in the run up to April in relation to implementation of the package of measures, including the application of this safeguard.

An HB/CTB Adjudication circular providing more detail will be issued imminently and more information is available at http://www.dwp.gov.uk/local-authority-staff/housing-benefit/claims-processing/local-housing-allowance/

We are sending a toolkit of implementation products to benefit managers shortly.