Tenants should be assisted but still responsible for rental debt

The Welsh Government last week announced their Tenancy Saver Loans scheme – adopting an idea I first put forward on conservativehome in June, namely that tenants should be ‘the ones expected to take out Government loans to cover their own debts. Rosalind Beck: Extending the evictions ban would not help the vulnerable

Prior to this, the Welsh Government, like the UK Government, was encouraging landlords to take out additional loans in the form of ‘mortgage holidays’ to cover tenants’ arrears. It is good to see how a sentence or two in an article on conservativehome can find its way through a snowballing process to the Welsh Government and into a positive policy so rapidly.

It will be even more gratifying if the snowball can continue to roll towards Westminster and if the latter can implement a similar sensible measure in the English private rented sector. It would provide a much-needed confidence boost for the sector.

In essence, the loans scheme consists of £8 million to help tenants who are struggling to pay rent or are in rent arrears as a result of covid-19. Any tenant assessed as eligible, could have their arrears paid to the landlord by the state with the tenant paying back the loan over five years. The aim is to prevent evictions and even homelessness.

It is rather dispiriting however that a socialist Government should introduce such a conservative policy, making people responsible for their own finances, whilst, as I pointed out three years ago ‘it is incredible the extent to which many aspects of the left-wing agenda on housing have not only been adopted by the Conservative Government but even been extended. https://www.conservativehome.com/localgovernment/2017/09/rosalind-beck-homelessness-report-dodges-the-immigration-issue.html

How the loans will work in practice is not yet known, but here are some simple calculations to illustrate.

Average rents in Wales (including houses and rooms in HMOs) are roughly £500pm (less than the UK average of around £800pm). Taking this figure, if someone didn’t pay rent for three months during covid/lockdown, £1,500 would be owed in arrears. The Welsh Government has suggested five years for the payback period, so £300 would need to be paid each year, or £25pm. That would be doable for many if they are now in reasonably-paid employment. However, for someone who didn’t pay rent for 6 months, a payback of £50pm may be less manageable.

I know of a real case where an EU national hasn’t paid the £370pm rent in a shared house for 6 months so far, with arrears standing at £2,220. If this person suddenly started paying rent from this point onwards and was loaned the £2,220, this would mean an additional £37pm.

The nitty-gritty of each case will be taken into account when an assessment is made of the likelihood of the tenant repaying the loan. The Welsh Government or their intermediaries – the Wales Council for Voluntary Action and the credit unions, so beloved of many on the left – might think the real-life example I gave is a poor bet (especially as an EU national may return to their home country before the loan is repaid).

So it wouldn’t surprise me if the Government chooses to lend to those who are least risky whilst landlords remain lumbered with the high-risk tenants in the worst arrears whom they are currently not allowed to evict in Wales without giving 6 months’ notice.

In addition, the Welsh Housing Minister, Julie James’ said in a confused statement on 11^th August that the loans were for those ‘who weren’t in any rent arrears before and whose rent arrears are as a result of covid 19, so they won’t have had substantial rent arrears before March of this year and now find themselves through no fault of their own in this particular circumstance.’

We don’t know what counts as ‘substantial’ arrears before March. We also have no idea how anyone proves their debt is or isn’t covid-related.

Some tenants will not even claim Universal Credit or Housing Benefit when they are entitled to it, whether through lack of confidence, inertia or bloody-mindedness, leaving landlords powerless to recover rent. It is likely that a significant minority of tenants will equally refuse to apply for these loans.

With this in mind, it seems wrong that the scheme is so dependent on the tenant’s cooperation when it is the landlord who is the primary loser if tenants in arrears do not apply for it. The Welsh Government must urgently consider how it can be designed to give power to landlords to make the claim using the tenancy agreement as proof of the tenancy and the rent schedule and bank statements as proof of arrears.

If landlords had had such power with regard to Housing Benefit and Universal Credit over the years, thousands of evictions would have been avoided and millions would not have been lost in arrears.

What is never mentioned, moreover, is that it is in the interests of the Treasury to avoid arrears as unpaid rent means millions lost in tax receipts. Indeed, clearing the arrears will result in a significant amount being returned to the Exchequer in the form of income tax from private landlords.

One concern is over the speed of this proposed legislation with a start date just weeks away. Rushed legislation tends to have unforeseen consequences, with this likely to be no exception.

If, on the other hand, the Welsh Government and UK Government for that matter listened to seasoned landlords for a change, we could help them to avoid pitfalls, by sharing our expertise and experiences of how these things work out there in the real world; instead of them working out their plans behind closed doors for a sector they have shown they don’t understand in any depth.

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