Changes to LHA Rates : How will this affect me?

On 1^st April 2011, Local Authorities in England and Wales will change the way they calculate people’s entitlement to housing benefit. From a taxpayer’s point of view, this is long overdue, and will reduce the extent to which Local Authorities massively overpay for larger properties. From a landlords perspective this is bad news for the same reason!

What will happen?

·               You can see projected new rates across the UK at http://www.voa.gov.uk/LHADirect/Documents/LHA_percentile_rates_Jan_2011.html

·               Current indications suggest the result of all this will be a  rental reduction across the board, as follows:

NORTHAMPTON			RUGBY
Current Rent	Future Rent		Current Rent	Future Rent
£450PCM	£410PCM	1 bed	£410PCM	£375PCM
£550PCM	£525PCM	2 bed	£525PCM	£475PCM
£600PCM	£575PCM	3 bed	£575PCM	£550PCM
£850PCM	£750PCM	4 bed	£825PCM	£750PCM
£1000PCM	£750PCM	5 bed	£1000PCM	£750PCM

How will it be implemented?

·               It applies to benefit claims made after 01 April 2011 only. As such if your tenant already receives benefit they will carry on at the existing rate. No need to worry.

What should I watch out for?

·               If you have a tenant already in your property whose circumstances change, and they make a new claim after 01 April, it will be awarded at the new rate.  As such they could have a tenancy agreement with you at £1000PCM, but the Local Authority cuts their benefit to £750PCM. You need to watch out for this.

How does this affect my investment properties in Northampton or Rugby?

·               Many landlords have bought properties specifically to cater for the Housing Benefit market, as there’s massive tenant demand. These are usually larger properties in the poorer areas of town.

·               These landlords may see slightly reduced yield as a result of this change. However as the properties in question tend to be relatively cheap, we are still expecting landlords with housing benefit tenants to enjoy far better yields than landlords with private tenants, as a rule.

·               Landlords who are buying property to cater for this market will invariably now look for 4 bed properties. This will enable them to hit the top pay band whilst minimising their purchase cost. Currently the entry points for 4 bed properties are about £90,000 in Northampton and Rugby.

If you have a tenant in receipt of housing benefit, or are thinking of buying a property to cater for this market and want further advice, please feel free to contact me.

Richard.