Choosing between paying for rent or food

A recent survey by the Insider Magazine has revealed that nearly two fifths of private landlords in Wales are not prepared for the impact the forthcoming changes in welfare benefits will have on their income. Shockingly, one in seven of the respondents weren’t even aware of the reforms.

Further research from Sliced Bread Consulting and the Oak Foundation shows that tenants in the private rented sector are more likely to be financially excluded and less well informed of the support and advice they can access. In the not too distant future, many landlords could find themselves facing a high level of rent arrears which could affect their cash flow, their income and even their business.

Whilst housing associations and local authorities have been concerned for some time about the changes to welfare and benefits, this is less evident in the private rented sector. The changes may be a real concern to many ‘accidental landlords’, who often miss out on important changes and information. ‘Accidental landlords’ are people who find themselves renting out properties they have inherited or moved out of due to changes in their family circumstances. Their properties were probably never intended as part of an investment portfolio and so they will not have joined any trade or support bodies. Although the National Landlords Association and the Guild of Landlords are trying to raise awareness of the issues, the message is not reaching everyone.

Meanwhile, a recent survey conducted by the Wales Co-operative Centre and Caerphilly County Borough Council has found that private sector tenants are just as poorly informed and prepared as their landlords.

Following changes to the Local Housing Allowance in 2008 some tenants already receive their rent directly. However, a sizeable proportion of landlords are still receiving the allowance directly from the local authority under a ‘safeguarding’ policy. Safeguarding has been used when a tenant is at risk of accruing arrears or losing their tenancies due to their vulnerability. For some tenants this has been essential in enabling them to maintain their tenancy. For others it is still in place as a result of complacency. These are the tenants we are most concerned about as they will be more likely to move straight into Universal Credit without an option of an Alternative Payment Arrangement being put in place.

Welfare reform will affect the way that all claimants, including those currently receiving housing benefits, receive their payments. Each household will receive the benefits they are entitled to in one single payment that will be monthly in arrears

In theory the principle of treating people equally and getting individuals to take responsibility for their finances, is to be welcomed. Yet for some people taking on this responsibility a major challenge. Many tenants of both private and social landlords will still say that they don’t pay rent as they have never been in receipt of the money and have never had to make a physical payment. Many tenants are also digitally excluded, and have no means of accessing the online services that will help them manage better.

Budgeting is another fundamental issue, for tenants who are used to receiving smaller amounts of money on a weekly or fortnightly basis. Used to existing within a cash economy, they may soon find themselves in difficulty. Even, tenants who are working and are used to managing their money on a monthly basis may struggle if they move jobs and their pay date changes by a few weeks or even days.

People in or living close to the poverty line often don’t want the temptation of having the rent money in their pocket. Most people faced with the choice of paying rent or feeding or clothing their children will ensure their children’s immediate needs are met first.

Single payments to households could see an increase in financial and domestic abuse. If one person in a household controls all of the household income then it is possible that the money will be misused where there are problems such as gambling addictions or substance misuse.

The Welfare Reform and Universal Credit changes will be rolled out over the next few years. If more resources were put into proactive methods of engagement with ‘at risk’ tenants now it would be far more effective and offer better value for money to the public purse than crisis intervention at a later date.

Whilst good relationships have been forged between many landlords and their local authority housing benefit team, it is unlikely that they will be the main point of contact in the future. The Department for Work and Pensions will be the decision makers when it comes to qualification for benefits and any allowances made in their delivery to the clients.

Effective partnerships are vital if ‘at risk’ tenants and their families are to transfer to Universal Credit without endangering their tenancies or finding themselves at the mercy of unscrupulous lenders. These must have the capacity and funding to deliver preventive support that helps change behaviours, and prepares people for the coming changes.

A bank or credit union account along with a holistic approach to support will offer a more permanent solution, empowering people to budget and manage their money more effectively.

Work carried out by Caerphilly County Borough Council, the Smartmoney credit union, and Caerphilly Private landlords and their tenants suggests that four out of five tenants, are still unaware of exactly how the reforms will affect them. At least half of the tenants surveyed had no access to on-line facilities.

Working with staff from the local authority we were able to explain the effects of the reforms to each tenant. All faced different challenges, whether paying bills, paying rent, buying food, or buying clothing for their children. More than half had struggled to pay bills such as rent and utilities in the past year and one in five had turned to door step lenders. We were able to advise them on applying for additional funding and referrals were made to other advice and support agencies in the area, including foodbanks. Of the tenants we visited 80 per cent wanted to explore the Credit Union Rent Account as they felt it was the best way to protect their tenancy.

We need a range of solutions to meet the needs of different people as nobody should be forced into using a product or service that isn’t appropriate for them. For some people, a solutions is a Credit Union Rent Account since it removes the temptation to use the rent money to make up short falls elsewhere. For the landlord it’s the closest they will get to safeguarding their rent under the new system.

The Tackling Homelessness through Financial Inclusion project is working with local authorities and landlords across Wales to promote this model. A Credit Union Rent Account can be set up in three simple steps:

1) The tenants becomes a member of the credit union
2) The tenant and the landlord then complete the forms to request the Local Housing Allowance to be paid into the rent account
3) Payment is made into the rent account, it is ring fenced and transferred to an account of the landlord’s choice.

There is a small tax deductible fee payable by the landlord, of around £5 per benefit payment received. However, when you compare this to the cost of arrears, evictions, voids and re-lets it makes good business sense.

The Welsh Government has recently launched a refreshed Tackling Poverty Action Plan. This makes it clear that no one department can eradicate poverty in Wales. Rather it is the role of all departments including Education, Communities and Economy to collaborate and offer long term sustainable solutions for the people of Wales. Financial inclusion features heavily within the plan and the same principles apply. It is the efforts of different organisations coming together to support a person in a way that is most appropriate to them, that will in the longer term, see a change in behaviours.

In light of the changes to Welfare Reform and the cuts to public sector funding, there has never been a more important time for public, private and the third sectors to work more collaboratively in supporting people and tackling poverty.