The pros and cons of letting to tenants on housing benefit
The dilemma of whether to accept tenants on housing benefit is one which many landlords struggle with. Others resolutely refuse to do so whilst some landlords welcome DSS tenants. As with anything, there are arguments for and against. But to help you decide whether you should rent to tenants on housing benefit we have listed the pros and cons below.
The advantages of letting to tenants on housing benefit
Guaranteed income is an obvious attraction. The DSS pay the rent. It is this promise of steady cash flow which appeals to landlords. However, there are downsides to this which we'll discuss later.
But perhaps the biggest benefit is that DSS tenants often stay longer. Unlike a young professional who may be on the move every six months, tenants on benefits tend to want the stability of a long-term lease. Long-term tenants are easier to manage and provide constant cash flow. If the tenant moves off benefits they are still likely to stay on.
Constant occupancy is also a reason to consider tenants on housing benefit. Social housing cannot meet demand. This means there is always a queue of DSS tenants for the private landlord willing to accept them. It is this demand which appeals to landlords who may have invested at the lower end of the market and may be struggling to find tenants. Even the less salubrious locations will be in high demand from DSS tenants.
The disadvantages of letting to tenants on housing benefit
Let's firstly address the elephant in the room. There seems to be a widespread preconception that all DSS tenants will either default with the rent or trash the property. Or both. Undoubtedly there will be a minority like this. Just as there are amongst any other group of renters. But to disregard all tenants on housing benefit for the actions of others doesn't make sense.
An imperfect system
But it's fair to say that most issues arise not because of the tenant but because of the system. Anecdotal evidence suggests landlords face a struggle with the way the housing benefit works for tenants who rent in the private sector.
The Local Housing Allowance is paid by the local authority which administers the system. And it's fair to say standards and operating procedures vary around the country.
Landlords have reported problems such as payments being irregular. That staff can be difficult to deal with and there is a lot of form filling. Rent payments can also be an issue. It is the tenant and not the landlord who receives the rent payment. It is then their responsibility to pay the landlord.
In the vast majority of cases, this won't be an issue but if you are unlucky enough to have a bad apple the tenant may simply pocket the cash.
Another barrier to the positive cash flow which we described earlier as a benefit is that often the benefit paid to the tenant will not be for the full amount of rent. It is up to the tenant to make up the shortfall. Some will not be able to do this leaving the landlord out of pocket.
Many tenants will not be able to pay a full deposit. And local authorities are unlikely to be able to help. Letting to tenants on benefits may mean you having to accept a reduced deposit.
Don't break the terms of your mortgage
Other things to consider include insurance and your mortgage agreement. Some buy to let mortgages preclude landlords from renting to tenants on housing benefit. Insurance premiums can be higher for DSS tenants. Obvious this needs to bear in mind when deciding whether to accept tenants on benefits.
The verdict - should you rent to tenants on benefits?
Without wanting to be accused of sitting on the fence this really is a decision for each landlord. DSS tenants will suit some but not others. But make your decision on business principles. Not on presumption and scare stories.
If it makes financial sense to let your property to tenants on benefits you should do so. But if you define your target market as young professionals or families than you should concentrate on attracting those tenants.
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