Advertising ‘No DSS’ (i.e. no benefit claimants) has been common in the private rental market for decades. But as the market changes and the risk of litigation increases, it’s increasingly important for landlords to consider all tenants for their rented property.
This article gives you the state of play, and explains some benefits of dropping the ‘No DSS’ tag. It also gives practical advice on how to accommodate tenants who claim benefits when setting up your tenancy.
How Many Renters Claim Benefits, Anyway?
Nearly two in five households who rent contain someone who claims housing benefit (English Housing Survey, 2018-19). It’s a fact that will surprise many landlords and tenants alike. But away from the UK’s student cities and areas with a large contingent of young professionals, rental markets are built on a foundation of tenants renting with housing benefit.
This trend has been growing for decades, and looks set to continue. Since the 80s, the UK’s government policy has been to move people on low incomes away from council housing and into the private rented sector, subsidising their rental payments with housing benefits (later Local Housing Allowance and now Universal Credit).
When other benefits, such as child and disability payments, are considered in addition to housing benefits, it’s clear that a huge number of renters are in receipt of benefits in the UK.
Three Reasons Landlords Might Consider Tenants Who Claim Benefits
For some landlords, it may be very unlikely that a person claiming benefits will be able to let your property; perhaps the property is at the top end of the market, making it unaffordable for people relying on capped benefit income. But for many landlords, writing ‘No DSS’ on your advert is not the best idea.
Marketing to a larger pool of tenants
As we’ve seen, a very large proportion of renters claim benefits. In some areas, excluding everyone who claims benefits will dramatically decrease the number of tenants who could rent your property. This will give you fewer tenants to choose from, making it less likely you will meet tenants you feel good about letting to.
It also makes it more likely that you will have a void period, i.e. a period of time with an empty property. The rent you lose during this period can quickly add up to being a serious cost. The problem is exacerbated if you are relying on the rental income to pay a buy-to-let mortgage or your day to day living expenses.
Increased risk of litigation
Landlords who have a blanket policy of refusing all tenants who claim benefits risk legal action. There have been several cases in 2020 where courts have found agents to have been unlawfully discriminating against groups with characteristics (such as sex or disability) protected under the Equality Act.
These agents refused to consider any tenants who were claiming benefits. Although this is an extreme policy, landlords must make sure they don’t appear to be doing the same. In addition to these court rulings, there have been out-of-court settlements worth thousands of pounds. The best way to avoid this risk is to consider each tenant based on the individual merits of their application, and never to reject a tenant’s application on the basis of them claiming benefits. If the issue is the tenant’s income is too low, then this must be the reason for rejecting the enquiry.
Mortgage and insurance terms
Many landlords feel they cannot let to tenants who claim benefits because they have signed mortgage agreements or insurance policies which require them not to. Although this will be the case for some landlords, OpenRent would advise landlords to check with their lender and insurer on this point, as following a widely-supported campaign, many banks have dropped their terms preventing letting properties with buy-to-let mortgages to tenants who claim benefits. The same is true of insurers. Be sure to check your most recent terms.
Things Landlords Can Do to Reduce Risk When Renting to Benefit Claimants
There is a perception that tenants who claim benefits are at higher risk of getting into rent arrears. This won’t always be the case, and it goes without saying that a large majority of tenants who claim benefits pay their rent with no difficulties and are great tenants to let to.
If you are concerned about the risk of arrears, however, then there are several things that you can do as a landlord when setting up the tenancy to protect yourself financially from rent arrears.
Take the maximum deposit possible
The tenancy deposit can be used to cover arrears at the end of the tenancy. Taking the maximum deposit value possible, currently five weeks’ rent, ensures you will have as much cover as possible against any arrears that accrue.
Add a guarantor to the contract
Guarantors can be asked to pay any rent not paid by the tenant. In the case of the tenancy ending with outstanding arrears, you will be able to pursue the guarantor for the arrears. As well as being an additional person to chase in case of arrears, it also means the tenant knows that if they fail to pay, then it will affect someone they know.
Perform referencing checks on all tenants and guarantors
Referencing checks will give you a wealth of information on the tenant and their guarantors, such as income, credit history and CCJs. All of this can be used to inform your decision on who to let to. Don’t be put off by the fact that tenants claiming benefits are likely to officially ‘fail’ referencing. This is because most referencing companies don’t count benefit income towards their affordability calculation. Study all of the information in the report in context to make the best decision possible.
Order comprehensive referencing checks for tenants or guarantors for just £20.Order referencing
Take out a rent guarantee insurance policy
If each tenant passes referencing, or provides a guarantor who does, then you will be eligible for rent guarantee insurance (RGI). This will cover you against rent arrears in the case of the tenant not paying as long as the terms of the policy are followed.
Have the rent paid directly to you by the local authority
If the tenant agrees, you can have their housing benefit paid to you, the landlord, via an alternative payment arrangement. If you want the peace of mind of knowing that this money will go straight to you from the local authority every month, then this could be a great idea for your tenancy.