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Local Housing Allowance Regulations

Background:

In October 2002 the Government announced the introduction of the Local Housing Allowance (LHA) which was part of a wider review of Housing Benefit regulations in 'Pathfinder' or pilot areas.  LHA was introduced nationally on 7 April 2008 to provide Housing Benefit entitlement for tenants renting private sector accommodation in England and Wales.   The LHA system introduced significant changes to the way Housing Benefit (HB) levels are restricted and how benefit is paid. It does not replace Housing Benefit - it is just a different way of calculating entitlement under the existing Housing Benefit scheme. Its aim is to improve levels of transparency when calculating Housing Benefit.

LHA is means tested and tapered in exactly the same way as Housing Benefit.  Under LHA, a flat allowance was originally used to decide the eligible rent of all claimants with similar sized households living in a broad rental market area, rather than tying the level of benefit to the individual property. This was supposed to provide an incentive for those on Housing Benefit to find cheaper accommodation.  If the tenant moved into accommodation that was cheaper than the LHA rate, the tenant got to keep any difference (up to a maximum of £15 per week). 

This has recently changed and from 1st April 2011 if the rent paid is less than the weekly Local Housing Allowance rate, the tenant will only receive the amount they need to pay their rent.  An evaluation of the operation of the LHA was commissioned by the Department for Work and Pensions, and carried out by The Centre for Housing Policy, working as part of a consortium of universities, together with the National Centre for Social Research.

In April 2011 maximum local housing allowance rates in all areas were reduced and only three out of ten properties for rent in any area are now affordable for people making a new claim.  Unless the rent is one of the lowest 30% in the area the local housing allowance payable will be less than the rent payable.

Operation of Local Housing Allowance:

Housing Benefit is a means tested social security benefit in the UK that is intended to help people with low incomes pay for rented accommodation. It is governed by various acts of Parliament - see, for example, The Social Security Contributions and Benefits Act 1992 (via www.opsi.gov.uk).

Operationally, the governing Regulations are statutory instruments arising from that Act. It is governed by one of two sets of regulations. For working age claimants it is governed by the "Housing Benefit Regulations 2006", but, for those who have reached the qualifying age for Pension Credit, these are amended by The LHA and Information Sharing Regulations. The legislation to enable Local Housing Allowance was introduced under the Welfare Reform Act which received Royal Assent in May 2007. This provided for the national application of the LHA regime on 7 April 2008 and the introduction of the Employment Support Allowance, which replaced Incapacity Benefit.


The LHA system is a form of housing benefit administered, along with council tax benefit, by the local authority in whose area the property being rented lies. For those areas where there is two-tier local government, Housing Benefit is administered by the district or borough council layer of local government.


Unlike the previous schemes, the claimant is normally unable to request that payments of benefits are made to their landlord, although they may be made to a third party. Exceptions may be made where the tenant has a history of not paying rent or is not sufficiently able to handle their affairs. Decisions on this are subject to a Council operated Safeguard Policy which may be requested from the Local Authority.  In all cases a landlord must be paid the rent (without any excess) if the tenant is more than 8 weeks in arrears. This will continue until the arrears are below 8 weeks.


LHA does not currently affect:

  • Council tenancies

  • Most tenancies with registered social landlords

  • Tenancies that started before 15 January 1989

  • Benefit claims that are treated as under the rules in operation prior to 2 January 1996 because of care, support, or supervision being provided by certain categories of not for profit landlord.

Eligibility:

Housing Benefit is available only to those who are treated as liable to pay rent, have a permanent right to reside in the UK and pass the habitual residence test. 

Transition arrangements:

In the main only new claims and tenants who move into a private assured shorthold tenancy on or after 7 April 2008 will be paid Local Housing Allowance.


In the Pathfinder and Second Wave Group of Local Authorities (those detailed in the section above), any tenant who would have received less Housing Benefit under the LHA rules than under their previous scheme had their prior eligible rent protected until their LHA figure is higher than the benefit allowed under the previous scheme, after which time their eligible rent switches to that set under the LHA rules.

Initially, where the LHA amount was more than the actual rent paid, the claimant was permitted to keep any excess Housing Benefit paid over and above their rental liability up to a maximum of £15 per week. The rules have been amended and since 1st April 2011 the maximum £15 weekly excess has been removed so that claimants cannot receive more in Housing Benefit than they actually pay out in rent.  This proposal removes incentives for tenants to seek less expensive accommodation which was one of the primary rationales for the roll out of Local Housing Allowance.

Coupled with the removal of the supervisory role formerly played by the local rent officer, this raises questions about the long-term sustainability of the program.  Where the landlord is a not for profit company (or voluntary organisation), a Registered Social Landlord or a Local Council that provides care support or supervision, they will be exempt from Local Housing Allowance and will fall under the housing benefit rules in operation prior to 2 January 1996.


Council and Housing Association Tenants:

The LHA does not currently apply to council tenants and most housing association tenants.


Direct Payments:

LHA will only be paid directly to the landlord if there are exceptional reasons - e.g. if the tenant is unable to handle their financial affairs, has a bad history of paying landlords or is more than 8 weeks in arrears. If the tenant is in arrears by more than 8 weeks, the benefit must be paid to the landlord.


LHA Rates:

The amount of LHA awarded depends on the number of bedrooms deemed to be required by the claimant, and where they live (which determines the market level of rents within this area).

Bedroom Requirement

Local Housing Allowance will be calculated on the number of rooms the claimant's household needs not the number of rooms in the property or the amount of rent charged. The number of bedrooms needed is based on the number, age and gender of people who live in the claimant's household. The bedroom requirement is calculated as follows:

  • one bedroom for the claimant and partner (over 16 - including same sex couples)

  • one bedroom for other person aged 16 or over

  • one bedroom for any two children of the same sex aged under 16

  • one bedroom for any two children regardless of sex who are less than ten years old

  • one bedroom for any other child

If the claimant is single and aged under 35, the category of property considered appropriate is a bedroom in shared accommodation. This means a property in which the claimant has the exclusive use of one bedroom, but shares one or more of a kitchen, a bathroom, a toilet or a room suitable for living in.


Market Rental Areas

The old way of setting fair rents for an area involved rent officers assessing each property, and a maximum Local Reference Rent set to reflect the maximum 'reasonable' rent for the area. Under LHA, Broad Market Rental Areas (BMRA) have been defined, and rent officers attempt to determine a median rent level which is intended to give Housing Benefit recipients access to roughly half the properties available to rent in any given area.


A BMRA is an area 'within which a person could reasonably be expected to live having regard to facilities and services for the purposes of health, education, recreation, personal banking and shopping, taking account of the distance of travel by public and private transport, to and from facilities and services of the same type and similar standard.'  It must contain a variety of residential property types held on a variety of tenancies.  It must also contain 'distinct areas of residential accommodation'.


Rent Officers are required to monitor BMRAs/localities, to review them if necessary and when appropriate, set new ones.  The BMRAs, which decide how much benefit can be paid, have been criticised by the House of Lords, in the Heffernan case (R (Heffernan) v The Rent Service [2008] UKHL 58) and by Shelter.

It was announced this year that the weekly rates for Local Housing Allowance will be capped from 1st April 2011 as follows:

  • £250 per week for a one bedroom property

  • £290 per week for a two bedroom property

  • £340 per week for a three bedroom property

  • £400 per week for four bedrooms or more

The maximum rate of benefit will be limited to the rate for a four bedroom property.  If a claimant received the five bedroom rate prior to 1st April their benefit will be reduced up to nine months after the anniversary of their claim.  Anyone who is renting a property with a weekly amount above these caps will receive a reduced local housing allowance rate up to nine months after the anniversary of their claim or sooner if household circumstances change.

Reduced local housing allowance if you have non-dependents

Anyone who shares their home with an adult who is not dependent on them for example, son or daughter, friend, parent, their local housing allowance may be reduced as it is assumed that the non-dependent should pay something towards the rent.

Increased payments for disable people who need overnight care

If a claimant or their partner are disabled and need a carer to stay overnight, they may qualify for help with paying for an extra bedroom, if there is an extra bedroom available for the carer to use, care is required and provided.

Appeals:

All Housing Benefit decisions of a Local Authority are subject to appeal through the Tribunals service. There is no direct right of appeal against the LHA rate awarded to an individual tenant, or the local rent level specified by the rent officer for the Broad Rental Market Areas. However, their decisions are open to Judicial Review and they have already been subject to challenge.


Probelms with LHA system:

The new LHA system has been more generous, giving housing benefit tenants more freedom and choice of accommodation and in some cases, the tenant has been left substantially better off.  However, there are problems with the current LHA system, which include the following: -

  • Costs.  The Government is aware that under LHA, housing benefit costs are continuing to rise as the more generous LHA benefits have encouraged claims and rents to rise. 

  • Unintended Consequences.  Apart from the swelling costs of running the housing benefit system, the introduction of LHA and the practice of including the most expensive properties in an area when calculating rents have both had the unintended effect that some housing benefit claimants can now afford ‘luxurious’ accommodation at the taxpayers’ expense.

  • 30th percentile of local rents.  Only three out of ten properties for rent in any area are now affordable for people making a new claim and unless the rent is one of the lowest 30% in the area already the maximum LHA payable will be less than rent payable.

  • Direct Payment.  A significant gripe for landlords has been the assumption under LHA that housing benefit should be paid to the tenant rather than allowing it to be paid directly to the landlord as had previously occurred pre-LHA.  According to the National Landlords Association, the system of tenant only payments has contributed to around £220m of arrears.

  • Processing Delays.  Although the processing of new housing benefit claims has been substantially improved from 55 to 26 calendar days, this is still someway short of the government target of 14 days.

  • Fraud.  Inevitably, the operation of such a complex and generous system of benefit provision through local authorities with little co-ordination on a national level, does leave the system open to abuse and fraud. 
  • Rent arrears. Many private tenants will struggle as a result of the recent changes and it could be difficult to make up the shortfall between the reduced amount of benefit recieved and the rent payable. Some may even fall into rent arreas and end up trying to negotiate with the landlord for a reduced rent.

Future Policy:

As part of the spending measures announced in the Budget, the Government has sought to remove payments that it believes traps claimants in poverty instead of providing an incentive to work, as well as being unfair to families on low income who do not rely on income support.

The Government has introduced a package of reforms to the Housing Benefits regime that may have a significant impact on Housing Association tenants and revenues. In 2013 the Government proposes capping overall benefits as they believe no non-working household should be entitled to more in benefits than the average working household in wages.  As a result of this change and those made in April 2011 tenants may not be able to afford their current property and may have to find cheaper accommodation in order to avoid rent arrears.

Sources for Further Information: 

This factsheet provides a summary of Local Housing Allowance. Further information is available from the following sources:

  • The Housing Benefit Office of the local authority for the area concerned.
  • The Local Government Ombudsman (if government departments fail to fulfil their duties): 020 7915 3210
  • The Valuation Office Agency: 0845 026 4696 or www.voa.gov.uk
  • Department for Work and Pensions website: www.dwp.gov.uk
  • Local Housing Allowance Direct Website: https://lha-direct.voa.gov.uk/secure/default.aspx
  • The Letting Centre Letting Handbook. Chapter 15: Housing Benefit
  • The Letting Centre, website: www.letlink.co.uk

This summary is intended to assist landlords and letting agents to understand the effect of the Regulations. It is not an authoritative interpretation - this is a matter for the courts. For more detail, you should refer to the text of the Regulations themselves.