K&G Lettings Limited

Housing benefit has been in place in one form or another for many years.  Recently, there has been a change to the way housing payments are made to people with low incomes.  This article aims to outline what these changes are and how they impact on the tenant and the landlord - it includes the changes announced in April 2011.  The article is divided into two sections.  The first outlines information on LHA and the second outlines how Local Housing Allowance (LHA) affects landlords.

1. General information

This section describes LHA and its features and definitions and includes sections on the difference between LHA and Housing benefits.

1.1 What is Local Housing Allowance?

LHA replaced Housing Benefit nationally on the 7th of April 2008 after successful trials across England and Wales.  LHA is a means tested benefit paid to people on low incomes who can not afford to pay for their accommodation. LHA directly replaced Housing Benefit which was the previous system for paying benefits for housing to low income families.

1.2 Why has it been changed?

The introduction of the LHA was designed to give more responsibility to people on low incomes, to encourage them to take control of their lives by paying rent directly to them, rather than the landlord.  Paying the rent to the landlord on the tenants behalf was believed to remove the necessity for tenants to take responsibility for their finances and budget to pay the rent.

The government hope LHA will stimulate individuals receiving benefits to return to work.  A further factor for the introduction of LHA was to simplify what was considered a confusing benefit system.

1.3 What are the main changes?

The main change is the payment of benefits directly to the tenant, rather than the landlord, with the exception of:

• If a tenant is vulnerable and unable to ‘manage their affairs’;
• If a tenant is unlikely to pay their ren;
• If a tenant is in arrears by 8 weeks or more; and/or
• If a tenant is having deductions made from Income Support or Jobseeker’s Allowance to pay off rent arrear.

It is the responsibility of the tenant or landlord to convince the local authority (LA) that a tenant meets one of these exceptions.  Documentary evidence will be required.

Further changes include:

• Individual properties will no longer be assessed by a rent officer. Instead, each LA will be divided into Broad Rental Market Areas (BRMA). Properties within these areas will be eligible for the same flat-rate allowance.
• The amount of LHA paid will also be affected by the number of bedrooms required by the household.

1.4 How often do LHA benefits change?

LHA allowances are published by each Local Authority and can change on a monthly basis.  Once the LHA has been calculated for a tenant it remains static for 52 weeks.  Allowances for Kingston-upon-Hull City Council and the East Riding of Yorkshire Council can be found by accessing the links below:

• The Rent Service LHA website - provides information on all rent areas within England & Wales.
• Kingston upon Hull LHA rates
• East Riding of Yorkshire LHA rates

1.5 Which of the benefits apply now?

Individuals who started their tenancy before the 7th of April 2008 will remain on the previous Housing benefit scheme unless they take a break from claiming benefit of more than one week or change address.  If they do, they will move onto the LHA scheme.  Tenancies which commenced on or after the 7th of April 2008 will automatically be placed onto LHA.

1.6 What happens if the tenant was on HB before LHA was introduced?

A tenant who is living in private rented accommodation before the 7th of April 2008 will continue to receive housing benefit on the old system.  They will only transfer to the new system if there is a break of one week in their benefit claim or they move into a different private rented property.

1.7 How do people become eligible?

LHA is paid to people on a low income who rent from a private landlord. The amount paid to the individual is means tested and based on the area in which the person lives and the amount of bedrooms required by the tenant(s).

1.8 How is LHA calculated?

The amount of Local Housing Allowance which a tenant is eligible for is calculated based on the following criteria:

• The Broad Rental Market Areas (BRMA) the property is located within.
• The number of bedrooms required by the household.

LHA payments are capped, and the level of this cap depends on the size - in bedrooms - of the property. In 2011, rates were capped at:

• £250 for a one bedroom property,
• £290 for a two bedroom property,
• £340 for a three bedroom property,
• £400 for a four bedroom property.

1.9 Calculating the number of bedrooms required

The number of bedrooms required by the household is prescribed by the government and depends on the age of the person and their relationship with the person claiming LHA.  Only dependents of the person claiming the allowance are entitled to a bedroom as part of the claim.  A dependent is defined as a child or a partner of the person claiming LHA.

The table below outlines the number of bedrooms occupiers qualify for under the LHA scheme:

 Example:

The number of other rooms required are not taken into account within the calculation as all tenants are entitled to living rooms, bathrooms and kitchens. A four bedroom property is the maximum allowance given.

The rent service provide a bedroom calculator which can be used to determine the number of bedrooms a tenant is entitled to - see links at the end of the article.

The Hull City Council and East Riding of Yorkshire council have created their own calculators which can be accessed here:

• Kingston upon Hull LHA calculator
• East Riding of Yorkshire LHA calculator

1.10 The Broad Rental Market Areas (BRMA)

The exact definition of a BRMA would take a whole article to explain.  For the purpose of this article a summary has been written to provide enough detail for readers to understand the concept.

A BRMA is an area which contains a mix of residential property types (terrace, flats, semi-detached, detached) available to be privately rented, which have reasonable access to a range of services (Health, education, personal banking, shopping).

Rent officers collect information on rents within the BRMA area and calculate a rent for the area - this rent will be based on the 30th percentile of rents. This means that 70 per cent of rents will be higher than the rent set by the Rent officers.  The Rent Service website outlines how the allowances for BRMA are calculated - see links at the end of the article.

A more detailed definition of a BRMA can be found in the article Guidance: Broad Rental Market Area by the rent service.

2. The impact of the introduction of LHA on landlords

This section aims to outline the impact of the change from Housing Benefit to LHA.

2.1 How do these changes affect landlords?

The change to LHA removes the possibility and therefore security of direct payments from the LA to the landlord.  Previously, individuals on housing benefits could opt for the LA to pay housing benefit directly to the landlord whether by cheque or automated bank transfer.

The commencement of LHA means the tenant is responsible for paying the rent to the landlord.  The tenant will receive the LHA directly into their bank account and will then be responsible for making payments for the rent to the landlord.  There are exceptions to this rule which allow the LA to pay LHA directly to the landlord.  These exceptions are outlined in the next section.

2.2 How do landlords receive LHA?

In the majority of cases, a tenant will receive LHA and will then be responsible for paying rent to the landlord.  However, in certain cases, the landlord will receive LHA directly from the LA to pay the rent.  Such cases include:

1. If a tenant is vulnerable and unable to ‘manage their affairs’;
2. If a tenant is unlikely to pay their rent;
3. If a tenant is in arrears by 8 weeks or more; and/or
4. If a tenant is having deductions made from Income Support or Jobseeker’s Allowance to pay off rent arrears.

Anyone acting on behalf of a tenant can approach the LA responsible for LHA to inform them they feel the tenant is vulnerable or having trouble paying their rent. It will be the responsibility of the person acting for the tenant to convince the local council using documentary evidence (usually in writing) that the tenant is vulnerable. Individuals/organisations that can provide evidence usually include:

• the tenant;
• friends and family of the tenant;
• the landlord;
• Social Services;
• probation officers;
• Jobcentre Plus;
• The Pension Service; and
• homeless charities/organisation.

An example of the procedure for making a claim for direct payment can be found on the Hull City Council Website.

2.3 How is vulnerable defined?

Vulnerable has been defined by the Department of Work and Pensions (the Government Department responsible for the LHA scheme) as someone who is unable to manage their own affairs.  Examples of people who may fall into this category include people who are/have:

• Learning difficulties;
• Medical conditions;
• Illiteracy;
• Drug/alcohol/gambling dependencies;
• Leaving prison;
• Care leavers;
• Fleeing domestic violence

2.4 How is 'unlikely to pay their rent' defined?

It is impossible to provide a complete list detailing the types of people who are unlikely to pay their rent.  However, it is likely to include people who are, or have:

• Previous history of rent arrears;
• History of fraud;
• On remand;
• Severe debt problems/recent County Court Judgements; and
• Undischarged bankruptcy.

2.5 What a landlord needs to determine before taking on a LHA tenant

When taking on an LHA tenant it is important the landlord understands the LHA scheme and the situation of the tenant.  We recommend the landlord determines the following:

• Will the housing benefit/LHA meet the rent?
• How long before the landlord will receive the benefit?
• On what day of the month will the rent be paid?
• Can the LHA be paid directly to the landlord i.e. Are the tenant(s) vulnerable or unlikely to pay their rent?
• What is the rental history of the tenant?
• Does the tenant have a guarantor?

Due to the added complication and bureaucracy associated with making a claim for LHA or housing benefit, it can often take several weeks for the benefit payments to commence.  It is therefore essential the landlord is aware at what stage of the LHA/housing benefit process the tenant is at.  This will allow the landlord to determine the length of time before rental payments will be made.

We recommend landlords ask the following questions to determine whether the tenant is vulnerable or unlikely to pay their rent.  Answering yes to any could be a sign a direct payment request may be warranted.

• Do you have any debt problems?
• Have you a County Court Judgment against you?
• Have you been declared bankrupt in the last 5 years?
• Are you on remand?
• Have you any criminal convictions?
• Do you have any drug/gambling/alcohol dependencies?
• Do you have Learning difficulties?

In addition to these questions, it is essential the landlord ensures the tenant has a guarantor who is responsible for any breach of the tenancy the tenant does not remedy.  It is strongly recommended that any guarantor is working and if possible a home owner - see our What is a Guarantor? article.

We also recommend landlords ask for a deposit of at least two months rent.  This covers the landlord should the tenant owe two months rent.
 
LAs are bound by strict data confidentiality rules and are only allowed to share a limited amount of information with the landlord.  To ensure the landlord can receive the full details on a tenants claim we recommend landlords ensure they get tenants to sign an Authority to disclose agreement.  This is a formal agreement which outlines that the tenant allows the LA to discuss the details of their claim with the landlord.  Authority to disclose or their equivalents can be requested from LAs.

Once you have collected the information above, call the local authority responsible and check the tenant’s details and answers to ensure they are correct.  This may be more difficult than expected due to data protection laws but, is always worth pursuing.

3. Tenants Frequently Asked Question

This section is designed to answer frequently asked questions from tenants on LHA.  The section will expand as more questions are asked.

3.1. My rent is less than the LHA, can I keep the excess?

No.  This was stopped in 2011.  Prior to this, a tenant was able to keep up to £15 per week. 

4. Useful Links

• Leaflets on Local Housing Allowance: Department for Work and Pensions
• Frequently Asked Questions on Local Housing Allowance: The Rent Service
• Kingston upon Hull Local Housing Allowance calculator
• The East riding of Yorkshire Local Housing Allowance calculator
• The Rent Service website outlines how the allowances for BRMA are calculated

Information for readers:

© K&G Lettings Limited 2011. All rights reserved. Never rely exclusively on our standard answers and general content. Always do your own specific research and seek professional advice. Always have the entire facts and all documents to hand before making any decision.