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29th July 2011

New rules for Local Housing Allowance rates which came in force from April 1 will affect private landlords who accommodate tenants on Local Housing Allocation.

LHA rates are used to calculate housing benefits for tenants renting from private landlords.

LHA rates will now be set at 30% of the average value of local rents as opposed to 50% as before. In other words, around three in ten properties for rent in the area will be affordable to people on housing benefits, rather than five in ten.

The 30th percentile cap affects all new LHA claims from April 1, and will be applied to existing claimants of housing benefits – i.e., people who could already be your tenants – from January 2012.

Obviously, this will mean that some landlords will be considering whether to continue to accept tenants on LHA, as it stands to reason that tenants on lower benefit may not be able to fund the difference between what they are getting in LHA and what they need to pay in rent.

One possibility is to lower the rent to the level at which the tenant finds it affordable, and landlords may be prepared to do this in return for receiving the tenant’s LHA direct.

Local authorities are starting to offer this incentive to private landlords. However, landlords should be aware that this ‘break’ will only last two years and there is no long-term intention to pay LHA direct to landlords.

While the incentive may be of benefit to landlords with one or two properties, the hit on rents is likely to be too great for those with a large portfolio and a high number of tenants on LHA.

There is also some criticism of the way local authorities – which rely heavily on the private rented sector to house tenants on benefits – are being forced to negotiate with landlords.

The British Property Federation, for example, has called it wheeling and dealing worthy of ‘Del boy’.