Universal Credit and Local Housing Allowance

Understanding the nuances of Universal Credit (UC) is crucial for managing rental properties and supporting tenants effectively. Universal Credit consolidates several existing benefits, including housing cost assistance, into a single monthly payment.

Preparing Tenants for Universal Credit

Ensuring Readiness

To assist tenants in preparing for Universal Credit, landlords can:

  • Encourage the establishment of an email account.
  • Advise on opening a bank account to receive Universal Credit payments.
  • Inform tenants of their rental obligations and any eligible service charges.
  • Suggest setting up direct debits for rent payments.

Universal Credit Payments

Universal Credit combines several benefits into a single monthly payment, paid in arrears directly into the claimant's bank account. The first payment usually arrives one month and seven days after the claim is filed. This includes eligible housing costs but not personal utilities such as water or electricity.

For Private Rented Sector Tenants

The amount for housing costs within Universal Credit for private tenants will be the lower between actual costs and the Local Housing Allowance rate.

Evidence Requirements

For Private Rented Sector Landlords

Evidence of tenants' rent liability and residency in your property is required. DWP may accept various forms of documentation, such as tenancy agreements or letters from landlords.

Paying Rent

Tenants will generally manage their finances and pay their rent directly. Landlords can facilitate this process by discussing rent collection routines and suggesting automated payment solutions such as direct debits.

Understanding the Local Housing Allowance Rate

The Local Housing Allowance (LHA) rate is critical in calculating housing cost support for private tenants under Universal Credit. The LHA rate determines the maximum amount tenants can receive towards private rent based on their circumstances and the rental market in their area.

Basis of the LHA Rate

LHA rates are based on:

  • The area in which the claimant's property is located, known as the Broad Rental Market Area (BRMA).
  • The number of rooms the claimant is eligible for, which relates to the size and composition of their household; this is known as the 'bedroom entitlement'.

Each BRMA has its own LHA rate, determined by the rent levels of properties in that area. The rates are set by the Valuation Office Agency (VOA). They are intended to cover the lower 30% of market rents in the locality, ensuring a range of affordable properties without referencing the actual rent charged for a specific property.

Bedroom Entitlement

The bedroom entitlement rules used to calculate LHA are as follows:

  • One bedroom for each adult couple.
  • One bedroom for any other adult (aged 16 or over).
  • One bedroom for any two children of the same sex under the age of 16.
  • One bedroom for any two children under the age of 10, regardless of sex.
  • One bedroom for any other child.

Additional rooms may be allowed for a live-in carer (if the claimant or their partner requires overnight care) or for foster children, although these cases are assessed individually.

Applying the LHA Rate

When a private tenant applies for Universal Credit and requests housing cost support, the applicable LHA rate is identified based on their BRMA and bedroom entitlement. The actual amount of financial support towards housing costs will be the lower of:

  • The LHA rate for the tenant’s BRMA and bedroom entitlement.
  • The actual rent charged by the landlord.

If the tenant's rent exceeds the LHA rate, they will be responsible for paying the difference themselves. Landlords need to be aware of local LHA rates and consider them when setting rent amounts for their properties.

Tenants can find their applicable LHA rate by visiting the Directgov website and entering their postcode or local authority area. This information can also be valuable for landlords as it provides insights into rental market trends and helps inform rental pricing strategies.

Alternative Payment Arrangements (APA)

When tenants face difficulty managing their monthly Universal Credit payment, an Alternative Payment Arrangement (APA) can be requested. This includes Managed Payment to Landlord (MPTL), where the housing cost portion of Universal Credit is paid directly to the landlord.

APA Considerations

APAs can be considered at any stage of a Universal Credit claim, with the decision based on individual circumstances, including:

  • Addiction issues.
  • Severe debt problems.
  • Homelessness or temporary accommodation.
  • Domestic violence and abuse.
  • Learning difficulties.
  • Mental health conditions.

Typically, direct payment of Universal Credit is made to the landlord if the tenant is two months or more in arrears with their rent. Direct payment may be considered if there are fewer arrears.

Requesting an APA

Both landlords and tenants can request an APA. For landlords, the request can be facilitated through the new online Apply for a Direct Rent Payment service, which streamlines the process of requesting direct rent payments or arrears deductions and replaces the UC47 form.

Reviewing APAs

APAs are subject to periodic reviews based on the claimant's evolving circumstances and capabilities, with the frequency of reviews tailored to each case.

Calculating Rent

Universal Credit calculations accommodate different rent payment frequencies by adjusting the monthly payment amount accordingly, ensuring tenants receive the correct support to meet their rent obligations.

Rent-Free Weeks

Agreements, including rent-free weeks, will have these weeks factored out when determining the monthly Universal Credit payment.

Service Charges

Eligible service charges are part of the Universal Credit payment to tenants. It is the responsibility of landlords to clearly outline which service charges are eligible for Universal Credit coverage.

Recovering Rent Arrears

Landlords can request a deduction from a tenant's Universal Credit for rent arrears at the current property. The maximum deduction rate is 20% of the Universal Credit standard amount.

Reporting Changes

Both landlords and tenants must report changes affecting Universal Credit payments. This encompasses changes in rent amounts, eligible service charges, and household situations. Overpayments due to unreported changes may result in repayments by landlords.

Paying for Two Homes

In certain situations, such as fleeing violence or waiting for disability adaptations, Universal Credit can provide support for two homes simultaneously.

Specialist Accommodation Needs

For claimants in specified supported accommodation or local authority temporary accommodation, housing costs must be covered through Housing Benefit rather than Universal Credit.

Conclusion

In conclusion, landlords should grasp the intricacies of Universal Credit to ensure tenants can fulfil their rent obligations effectively and mitigate potential impacts on their property management business.

More information about Universal Credit can be found on the .gov website.

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