Renting to working tenants or those on benefits?

No matter where you are in the United Kingdon (UK) this is a question that will be faced by all private landlords at one time or other. And by benefits, I am specifically referring to the local housing allowance more commonly referred to as housing benefit. In this brief article, I hope to present you with some food for thought that may help you make a more informed judgement.

The slice of the market:

Assessing how many people are actually renting in the UK as at November 2017 depends on which statistics you read but a rough estimate is here:

The latest English Housing Survey, produced by the Department for Communities and Local Government (DCLG), found that of the estimated 22.8m households in England, 14.3m – or 62.9% – were owner-occupiers in 2015-16. This had slipped from 63.6% the previous year. This is down from a peak of 70.9% in 2003 and is the lowest figure since 1985, when it was 62.4%.  By contrast, the private rented sector has ballooned in size and now accounted for just over 4.5m households – double the 2.3m in 2004. The new figure represents 20% of the total, whereas in 2002 it was 10%.  Of his 4.5 million private rented households approximately 1.5 million is funded by housing benefit.  This represents a significant market share of potential tenants that, I suggest, cannot be ignored as a source of income by private landlords.

Why some landlords avoid housing benefit:

I am increasingly meeting landlords who have decided to avoid potential tenants on housing benefit altogether as they say it represents too big a risk.  But is this stance justified or can it be mitigated by a robust business model when selecting suitable tenants?  See my article on “Avoiding a tenant eviction” 

The table below summarises the main reasons why landlords can feel dissuaded from tenants on housing benefit. I have also added advise on what you might do to persuade yourself otherwise. Don’t forget that a lot of people on benefits claim only as a top up to their low income:

Benefit tenants dissuaders:	Benefit tenants persuaders:
Your buildings insurance premiums may be higher for benefits claimants	Political parties of most persuasions do not like this attitude and may move soon to to pressurise insurance companies to change their mind. You can always look to change your insurance company.
My 'Buy-To-Let' mortgage won't allow me to rent to benefit claimants	Not an aweful lot you can do about this in the short to medium term. If you have the opportunity to remortgage you can always survey the BTL mortgage market for a more enlightened company.
Lack of deposit	This is not always the case. Recently, insurance companies, credit referencing agencies and others have started to offer products that substitute an insurance backed scheme in place of a deposit.
Claw back of rents when tenants claim fraudulently	This problem can happen to any landlord. make sure you always take up good, reliable references from the start and go with your "gut feeling".
Benefits paid in arrears	I recommend that you always get the first months rent in advance. I would also , always recommend that landlords never start a tenancy relying on the rent to pay their mortgage. It's just asking for trouble and stress.
Benefits paid every 4 weeks	Work out your cash flow, like any other business, and this should not be an issue. See 6 above.
Benefits claimants are more likely to miss rental payments	This is just one of those myths. There is no evidence that this is true.
Benefits claimants are less likely to look after your property	Again, another myth.
Benefit claimants are not going to pass the credit/referencing	Not true. Claiming benefits is about income not how you do or don't manage it.
Approval and payment of benefits is slow	This has been true in the past but there are signs that this is improving,