7th January 2017
Is a benefit tenant a quick fix?
One question I am asked too often is: will the council pay a good rent for my investment as the rent is guaranteed? It may seem like a quick and easy fix to fill your investment with a council tenant, however, I think the following issues would overrule the “quick fix” we were looking for:
- Payment in arrears
When letting to tenants who are in receipt of housing benefit, the payments are always made in arrears. This compares unfavourably with a private letting where the rent is paid a calendar month in advance, which means a better cash flow for investors.
Tenants who are dependent on housing benefit often do not have a deposit to hand over to the landlord to protect. And even where the local council can help with a deposit, the council schemes are cumbersome, slow to administer and claim against in the event of damages caused by tenants.
- Red tape
The administration of housing benefit can be slow and involve lots of form filling. Payments can start and stop without notice, and councils retain the right to try to claw back past payments from landlords if it later emerges that their tenant was claiming fraudulently – even if the landlord was unaware of a change in the tenant’s circumstances.
- Insurance traps
Buildings and contents insurance premiums are often higher where a landlord lets to people dependent on the Local Housing Allowance. Sometimes insurance is refused to landlords altogether.
- Buy-to-let mortgages
Some buy-to-let mortgage loan terms and conditions do not allow landlords to let to tenants on any kind of benefits or income support.
- Constant change
Finally, the array of changes to the housing benefit system, rates of payment and rules over the last years has left landlords feeling confused. Rather than trying to understand something that keeps changing, many private landlords simply opt out instead.
If you have any questions relating to a situation you are currently in, regarding a rental property, then please call the office for a chat.