Welfare shake-up may boost the B2L market

Historically, properties let to tenants claiming welfare have been seen by lenders as risky business and many excluded such tenancies in their terms and conditions.

But a handful of specialist lenders will lend on such properties and a few others overlook the status of their tenants.

However, change is on the horizon with the implementation of the new Local Housing Allowance. This means that rent monies will be paid directly to tenants.

The aim of this is to reduce the barriers to getting unemployed tenants back to work and to make the benefits system easier to understand for tenants and landlords. Industry experts have des-cribed this move as one of the market’s biggest shake-ups since the Human Rights Act.

In some respects, it has in-creased lenders and landlords’ uncertainty as rent will no longer be officially guaranteed. This concern is not unwarranted due to the negative stigma attached to tenants claiming welfare.

The concept of welfare claimants conjures up thoughts of fecklessness and sometimes anti-social behaviour. In fact, they could just as easily be single mothers or elderly people who are unable to work and earn enough money to pay for mortgage repayments or rent.

Any letting ex-perience can be difficult, and poor behaviour is not solely the preserve of welfare claimants.

The objective of the Local Housing Allowance is to give claimants res-ponsibility for their financial welfare, in turn encouraging more responsible be-haviour. Nevertheless, the initial vetting pro-cess carried out by landlords to filter out unreliable tenants will remain crucial.

The main issue for lenders is the lack of control they have when a property is let to tenants on welfare.

Where third parties andy young is chief executive of The Business Mortgage Companyare involved in tenancies – as is the case with council agreements – repossession proceedings can become much more difficult.

This revolution in social housing regulation will also mean that, as landlords have direct contact with tenants, assured shorthold tenancy agreements will need to be in place – typically running from six to 12 months.

These are different from local authority contracts, characteristically being three to five years long. This duration is off-putting for lenders.

But by removing the involvement of councils from the equation, the complexity of welfare tenancies can be greatly reduced and this factor should entice more lenders to get involved in this underexploited market sector.

Therefore, we should see an increase in the number of lenders accepting welfare tenants within their standard terms. The buy-to-let market has surpassed expectations, but for this to continue, fresh avenues of expansion must be explored.

Lenders with foresight realise that some niche markets hold great business potential.

And with clearer rules for the welfare sector, this niche could lead the buy-to-let industry to even greater heights.