Private Landlords Housing Homeless Applicants
From time to time we are approached by the housing options team in many of our local authoritys, charities, parole groups and others seeking to house applicants who are homeless or at risk of homelessness.
Each approach varies, but the typical story will be that you are trying to build links with private landlords who are willing to consider referrals, from your charity or service. Normally from either single applicants or families struggling to find housing in the private rental sector (but seldom couples, by the way). As we see this situation so often - we thought it appropriate to lay out some guidance for all parties.
Given that such tenants are 30x more likely to default, we argue for mandatory rent guarantee insurance paid for the duration of the tenancy by the local authority or introducing agency.
The Sell
The suggestion is that persuading private landlords to be a bit more open minded or willing will solve the problem, at least for those individuals.
It is an important question that deserves an answer, but what you are asking is far from as simple as it may first appear. The key is understanding the risk to private landlords, and then taking steps to mitigate that risk.
If you are one of our landlord members, or potential members, we hope this article guides your thinking. We want you to understand what to expect and what questions to ask.
We have long argued that in offering to introduce tenants, housing options, charities or other providers are in fact operating as an agency, or perhaps more accurately providing an alternative route to a traditional agency service.
We accept you may not see it that way, but from our perspective we expect anyone so doing to be able to function as a tenant introduction agency, at least to the point of understanding professional responsibilities and the duty of care you owe to landlords.
For this reason, we suggest that services or charities seeking to place tenants should adopt a professional approach and understand housing law. We consider that at least one employee should hold a level 3 qualification, typically from the Chartered Institute for Housing, the NRLA, PropertyMark, RICS and Rightmove all provide similar qualifications.
It is not enough to introduce a tenant and hope for the best, abandoning a landlord to their fate. In fact, at worst it can be negligent to the point of recklessness. This article explains why. But first let us introduce ourselves.
Landlords
We are a small landlords association of less than 500 members. In some cases, our landlords are single property or small portfolio landlords (perhaps 2 or 3 properties).
We also have portfolio landlords and these are perhaps a little more inclined to join a landlords association, often feeling the need for support rather more than single or two property landlords.
We represent the interests of all landlords in Portsmouth and surrounding areas in our advice and policy work and we speak to landlord groups around the country.
Around half our our landlords are retired or semi retired, typically using property for pension income. Nearly all of our landlords describe their strategy as aiming to provide or supplement pension income.
As an association, we are very conscious that we are entrusted by our landlords to provide support to enable them to sustain their pension income. Of course landlords have duties (including repairing obligations for example) and we advise and ensure landlords understand and meet these obligations.
We actively encourage membership of our association, but also to undertake regular training and provide monthly meetings to help them in their property management duties.
We will provide advice in respect of disrepair, although our advice may not always be obvious to our members tenants.
Our aim is to keep our landlords compliant, up to date on matters of regulation and trading profitably. Some do this alone, some use an agent for tenant introduction, referencing and credit checks, followed by that agent drawing up a compliant tenancy agreement.
The key point is that for our landlord members, the impact of arrears can be devastating. In severe cases of rent arrears and legal costs, landlords can be left with no option but to sell up, with a devastating and life changing loss of pension income. For us as an Association, to see this is nothing short of heart breaking.
Nobody should be in any doubt about not just the financial but also the personal impact of losing property income after a protracted and expensive repossession and associated costs. We have seen landlords who appear to us to suffer something like post traumatic distress when this happens and we have examples where self-sufficient pensioners have ended up depending on benefits owing to the arrears and costs of dealing with a bad tenant.
Allowing this to happen to pensioners is simply unacceptable and no charity or public service should allow tolerate anything like it, either by deliberate act, omission or negligence.
That is why we encourage you to think and act like a letting agency when introducing tenants. Lets look at some of the professional skills we expect from referring agencies.
How a letting agency works
A propertymark or RICS regulated agent will take their duties seriously both to landlords and tenants. This may seem obvious but what it will help if we look in a bit more detail at what this entails. We are looking at what we expect from an agency service.
Doing so will explain the traditional reluctance to consider those on a marginal or benefits income.
By way of background, here are some of the duties that agents are bound by.
It is important to understand that both the common law and code of practice obligations are not optional and should never be disregarded. If you are introducing tenants we expect you to adopt the same approach.
We consider that any government department, agency or charity referring tenants to landlords, particularly unrepresented or self managing landlords, should adopt the same duties of care. We think if you are acting as an agent you should use the same level of skill. The following should guide the referral process, if not all are strictly relevant.
In some cases you may wish to do this by approaching landlords via a reputable agency rather than going directly to landlords. If this is the case we encourage you to use a regulated (RICS or Propertymark) agency. Lets look at some of their duties.
Common law duties fo a letting agent;
- Duties to follow Instructions or Customs:
- Duty of reasonable care and skill.
- Duty to avoid a conflict of interest.
- Duty not to make secret profit:
- Duty to remit sums.
- Duty to maintain Accounts (and an audited client account):
- Duty not to delegate responsibilities.
- Duty not to discriminate
More specific, the code of practice obligation on referencing makes clear our duty in tenant selection, and is probably the most misunderstood part of an agents' duties.
Codes of practice
Agents MUST comply with the RICS code of practice. The key passage in relation to assessing applications for rental properties states;
10b You must take references on a prospective tenant or guarantor appropriate to the circumstances of the application and in line with arrangements agreed with your client. Your own referencing procedures should usually be by way of a Referencing Service provider or by direct application to third party referees or any combination of the above.
Practical implications for tenant finding
It is worth considering, in this context, that key point and implications for tenant finding;
An agent must get the best price at the lowest risk of default for a landlord, and must use reasonable skill in so doing.
A landlord is NOT obliged to drop a rent to the level of benefits and should not accept tenants into properties they cannot afford, it would be setting the tenant up to fail and therefore negligent. Careful consideration must be given to affordability on the part of the applicant.
Pre pandemic, research showed that more than half the people claiming Universal Credit are in rent arrears, according to the (then) Residential Landlords Association. Now part of the NRLA.
It can therefore be argued that accepting a tenant on UC without a guarantor would be a breach of common law and professional standards.
Recent experience of one of our portfolio landlord (and agent) members illustrates the point regarding risk.
During and since the pandemic they housed 54 people referred by housing options, mostly former homeless people. As such, they are entitled to 'tier one' support, meaning that alternative payment arrangement (direct payment to landlord or agent) should be automatic. In fairness, they are also often the most difficult tenants to support but the example demonstrates the risks you may be asking us to take on.
Of these tenancies, around 50% have now failed ending in eviction, imprisonment, abandonment (or ghosting) or sadly in 2 cases the tenants passing away. Of normal family lets around 1.5% end in eviction.
This means the risk from homelessness referrals is around 30x greater than a professional tenant.
No landlord should be asked to accept that level of risk, and it is important to remember that every one of those people already had an extensive support package.
Impact of non payment of landlord direct (Alternative Payment Arrangements)
Seeking payment direct takes on average 8.5 weeks to arrange and in many cases rent collection can take up 3 hours per tenant per month on average, whereas student tenants take on average 20 minutes per month and professional less than a minute per month of staff activity. This is why many agencies are forced to charge landlords more to remain viable
At one point, in one house between 3 tenants on room only contracts, arrears had accrued amounting to over £10,000 in one case.
The agency involved made over 100 calls, emails and visits to try to resolve the matter. They commenced eviction proceedings at legal cost to the landlord (never recovered). The matter was partially resolved only when the agency indicated an intention to seek an order from the court hearing the possession proceedings for the permanent undersecretary at the DWP to be served with a witness order to come to court to explain why departmental failures were making 3 vulnerable people intentionally homeless, and therefore in a much worse position than when we provided accommodation.
Around 85% of the claims were eventually paid, but not the legal expenses. The very distressed landlord will never accept a similar referral again.
Who Uses An Agent?
Around 50% of tenancies are introduced by agents, and around 14% of tenancies are fully managed by agents.
A very large number of landlords are therefore self managing, often with a great deal of success, seeking either student or professional tenants.
Increasingly, landlords are dipping their toe into agency services, for example just for referencing and providing a tenancy agreement. For referring services this may be a good route to demonstrate a duty of care. Not all tenants will pass referencing, but at that point some attention can be given to alternative risk mitigation.
Understanding private rental property as an investment
However it is acquired by a landlord, whether by saving a deposit and using buy-to-let finance, or inheritance, or as a result of letting a former home, property is an investment. It should be viewed as an investment class. Before considering tenant finding and offering a tenancy, it is worth reminding ourselves of the basic rule of investment:
Capital flows to the best return for the lowest risk.
Anything that threatens income (non payment or non affordability of rent) or introduces risk (damage to property, legal costs for repossession) is a driver of disinvestment.
Reduced supply of property increases costs for the remaining tenants. The laws of supply and demand apply as much to the private rental sector as anywhere else. Possibly more so. Replacing lost rental stock is a slow and uncertain process
How A Landlord/Agent Selects A Tenant
Tenant finding
An agent will wish to advertise as widely as possible, then consider responses from applicants, assessing affordability and following code of practice obligations. Doing so demonstrates an understanding of the agents' clients business and helps them reduce risk.
Rent affordability
In particular, the industry uses an affordability criteria. It is usually stated as the thirty times rule. That is, the applicants annual gross income is thirty times the monthly rent. A prospective tenant for a flat costing £1,000 per month should be able to demonstrate an income of £30,000. Savings can be taken into account so it is a little more complicated than can be captured in a single sentence
In practice this means
Landlords (and agents, if used) have a Duty not to discriminate (unlawfully) against, but at the same time not setting a tenant up to fail.
Referencing is a cost to the landlord, but a holding payment is paid by the tenant and can be withheld if misleading information is provided. We carry out basic enquiries prior to offering a tenancy but sadly some will misstate their financial status. Rent application fraud is in the rise, over 150% in the last year alone.
Sometimes a guarantor or guarantor service can help offer a tenancy to an applicant who may otherwise be declined., agent has a duty to use reasonable skill and care.
Poor credit history and a heavy debt repayment burden will also usually be grounds for a tenancy being refused, depending on the severity of the problem.
It is often reported in the media that there are 25 times the number of applicants to every property. This is true, but as landlord or agent we see a number of applicants enquiring about property after property, even though past referencing or pre referencing checks have indicated that they will not be accepted. For those applicants it must appear a desperate situation, but that does not make the risk acceptable.
The Impact of Licensing
The introduction of additional licensing, compounded by the truly shocking behaviour and public pronouncements by some councillors, has actively dis-incentivised landlords and thus reduced private rental stock. Not least small affordable shared housing. As we predicted, the price of rooms in shared housing has risen faster than any other type of rent, impacting those who can least afford it.
Smaller HMOs have closed, with large en suite super HMOs filling the void. The very thing that licensing aimed to prevent. In fact, it has distorted the market by reducing supply of affordable accommodation. It has also embittered landlords.
And remember, most people introduced as being at risk of homelessness will need to be accommodated in HMOs.
Working Collaboratively
When seeking to work with landlords, PCC employees in particular should be aware of and sensitive of the need to overcome distrust and reputational damage caused by local licensing, compounded by failures of direct to landlord payments and the slow prepossession process. It matters not that responsibility lies elsewhere. Landlords are entirely correct to adopt a sceptical approach.
Abolition of Section 21
It is all but inevitable that landlords will become more risk adverse, which will act as a factor to exclude more marginal tenants.
Section 21 (of the housing act, 1988 as amended) , was originally included in the act to satisfy Finance providers (in order to ensure that they can get vacant possession of repossessed securities). The buy to let market is now well established, but abolition may have an impact on lending. Of more immediate concern are recent reports that up to a third of landlords are now considering selling up.
To compound this, a further concern is the implications for courts and the abysmal lack of access to justice where tenants are defaulting on rent or misappropriating benefits. In the UK, pre pandemic, it took 44 weeks for a landlord to regain possession of a property when a tenant is in arrears, in British Colombia, it takes 4 weeks.
The new government are committed to abolition of section 21 but have also promised court reform, as did the last government.
We have advocated elsewhere for mediation to augment the work of the courts, but also for example to assist tenants where disrepair is an issue. However we do wish to point out that misappropriated benefits and non paid rent has implications for society as well as landlords, particularly where funds are spent on substances of addiction or paid to loan sharks.
If you wished to design a system to divert funds away from taxpayers towards organised crime, it would be hard to design a better one, however bleak a synopsis that may seem.
A Robust Mediation Service Is Not a Pro Landlord Policy
It is an anti abuse strategy and better, one aimed at providing restorative support and direction to educate both landlords and tenants alike. The ACAS of the world of Landlord and Tenants, in fact. (ACAS provide a conciliation service for settlement of employment tribunal claims as an alternative to hearings).
The renters rights bill is likely to introduce a landlord redress scheme. While not a bad idea, we would prefer to see a landlord accreditation model, with voluntary membership and training to achieve accreditation along the lines of the NRLA scheme. Agents must already belong to a redress scheme.
Making Tax Digital
This may be a last straw that drives landlords to exit the PRS. On a more positive note it may focus a spotlight on non compliant landlords. As an association, we are exploring providing a landlords portal with a view to either providing financial information or perhaps enabling submission.
It may increase the number of landlords who become members, although this will have a market cost implication for tenants as landlords are driven towards agencies and additional software fees.
Future of Lettings Agency
The lettings agency industry, led by propertymark, have long argued for regulation and a stronger emphasis on professional qualifications to underpin registration.
As an association, we wholeheartedly agree. One further potential development within the proposed legislation are proposals to make "superior landlords" (property owners) financially liable for penalties incurred by sub landlords, or more commonly rent to rent operators.
Both rent to rent operators and non regulated agents are significant providers of budget accommodation. As an association we have little time for either of the above, although we acknowledge that some in both categories do a great job.
However, those engaged in homelessness prevention and seeking accommodation for claimant tenants should have these potential developments firmly on their risk horizon.
Both may further impact on landlords deciding to exit the market, if only for risk avoidance
Understanding Arrears
In recent years, it has become apparent to us, if somewhat shocking, that the causes of rent arrears are poorly understood and not at all well researched both locally and nationally.
It would seem that this could be a fruitful area for record keeping and research. From one member's personal observations, use of tobacco is a major risk factor (one of our members, with over the last 30 years as a landlord and agent and nearly 4,000 tenancies has evicted 54 tenants for rent arrears, of whom 47 smoked tobacco).
Other key causes of arrears are;
- Compound addiction and substance or alcohol abuse
- Failure to pay universal credit/APA
- Benefit misappropriation
- Fabricated discontent (tenants withholding rent on a pretext)
- Inability to manage a tenancy
In many cases these issues are compounded. From a landlord perspective, there are few more heart breaking experiences than being deprived of pension income, knowing that misappropriated benefits are being used to feed addiction or poor personal financial skills.
The slow, expensive and morale sapping legal process of recovering a property compounds the misery.
Preventing Arrears and Homelessness
Tenants should be in no doubt of the consequences of accruing arrears.
Rent is a priority debt (along with Council Tax and taxes owed to HMRC) and these are the ONLY priority debts. Once rent arrears are established Landlords should be regarded as a creditor and afforded the same courtesy as any priority creditor (and ahead of non priority ones). Best practice should be followed and this must include both early preparation of an income and expenses spreadsheet.
This should be followed by appropriate debt and benefits advice aimed and reducing non priority expenditure and maximising income.
All available information and proposed remedial steps should then be disclosed to landlords at the earliest opportunity. This will be a process in which the tenant should have to give consent, but I would expect any debt advisor or homelessness prevention officer to advise disclosure and if necessary for this advice to be quite robust.
No bank or financial creditor from personal finance to catalogue company would be prepared to enter an arrangement without income and expense disclosure and our advice to landlords has always been to accept nothing less. In fact, once disclosure is sought we would want any refusal to be brought to the attention of a court hearing repossession cases and weigh heavily in favour of the landlord claimant in respect of a claim (or supplementary claim) on discretionary grounds.
In short provide the information, try to engage, or face the consequences.
Given the risks, the prospect of placing people at risk of homelessness in the private sector might seem bleak, particularly those with more marginal circumstances, either fully supported by benefits or claiming in work benefits.
But there are ways of mitigating risk.
Guarantor services
It is not just agents that should use referencing and where necessary seek a guarantor. In fact we encourage all landlords to do so.
From a local authority perspective, this need not be insurmountable. Paid guarantor services are available and there are a range of providers available.
For the moment, the one service that seems to be leading the market in supporting claimants, including in work claimants are Rent Guarantor;
https://www.rentguarantor.com/tenants/benefits
They will not (and should not) accept every applicant on risk but that makes them a useful yardstick by which landlords can both assess and mitigate risk.
From a landlords perspective, we can think of few better ways of recovering trust in the local authority. It is not a fix on its own and a key performance indicator from our point of view will be be both willingness to provide guarantor insurance but also, crucially, to undertake to renew the policy.
We would also expect to see, as a minimum, an undertaking not just to provide the initial policy, but to ensure it is renewed annually. Landlords should not be left adrift after an initial period.
Communication with ALL service providers
Mental health, addiction services and (occasionally) probation services are also key providers who should be actively encouraged to engage with landlords as problems arise.
Landlords should not exist in a silo, integration should be genuine, meaningful and enable two way communication across support teams, particularly in regard to supporting a tenancy that is breaking down by reason of both arrears and other challenges to the tenancy including but not limited to ASB.
Consent should actively be sought. Data protection and confidentiality should not be a barrier to prevention and a gateway to homelessness.
Conclusion
It is not enough for support services to engage in a public wringing of hands, acknowledge past failings in the passive voice, "mistakes were made" without ever taking ownership of those mistakes and then compound the failing by offering vague platitudes "lessons will be learned".
Those seeking to prevent homelessness and refer applicants to private landlords, directly or via agencies, should adopt an evidence based approach to best practice and outcomes.
We hope this article helps find the balance between enabling tenants to find homes and mitigating or eliminating risks to our landlord members, particularly our more vulnerable members.
We think agents should be regulated to reduce risk. By extension, charities and housing options making referrals to private landlords should also be qualified, licensed and ultimately regulated by law if they wish to undertake these activities.
The focus should be on learning support approaches that work and those that are less fruitful. Given our experiences, it would seem fairly obvious that outcomes should be measured over the medium to longer term.
A good starting point would be for support service providers to ask themselves two questions;
- What could be learned by measuring outcomes?
- If the service had to disclose success and failure rates of placements at say 12 and 36 month dates to landlords, prior to requesting a placement, would you keep doing things as you currently are?
If landlords are to be engaged, services should not only ask these questions, they should measure and be prepared to disclose the outcomes. Landlords have every reason to expect nothing less if we are not to feel we are being abandoned to a silo, left to fend for ourselves.
Failing that, charities & local authorities seeking to find a home in the PRS for someone with a history that implies unusually high risk for a landlord would be well-advised to offer to pay the premium for rent guarantee insurance, understand that the underwriters will demand different premiums depending on the risk factors associated with that individual, and that such insurance premiums will be due each year afterwards, not just at tenancy commencement.
Alwin Oliver
PDPLA vice chairman
August 2024