Landlords are typically reluctant to rent out their property to Department of Social Services (DDS) tenants - i.e. tenants who receive housing benefits. The complexities surrounding the benefits systems, plus uncertainty over how and when rental payments can be expected, have led landlords to adopt a cautious approach.
While there can be additional challenges when dealing with local authorities to arrange rental payments, DSS tenants ultimately have to pass the same referencing checks as every other kind of applicant. It is also illegal to impose a blanket ban on DSS applicants following court rulings that such practices are discriminatory.
If you're a landlord who has questions regarding the practicalities of letting to DSS tenants, this guide is for you. Read on and discover everything you need to know about tenants using housing benefits to rent a property.
What is DSS?
A Department of Social Services (DDS) tenant is a renter who claims housing benefits because of financial difficulties brought on by, for example, unemployment, disability or being a single parent.
Interestingly, while the Department of Social Services shut down in 2001 after a reform to the benefits system, the name has stuck around when referring to tenants on housing benefits. Essentially, a DSS tenant will use benefit payments to cover their rent.
What does the law say about DSS tenants?
The law around DSS is straightforward: courts ruled that blanket 'no DSS' listings on property websites and by letting agents are discriminatory and unlawful. It means landlords and agents need to consider each tenant's case individually and can't refuse them based solely on the fact they're in receipt of housing benefits.
Portals like Rightmove and Zoopla removed 'no DSS' from their listings in 2019 due to the ruling. On top of that, many buy-to-let mortgage lenders had to change their policy to remove restrictions on landlords letting to DSS tenants.
As a landlord, you can't advertise a property as 'no DSS' under any circumstances. However, it also doesn't mean that you are obliged to accept DSS tenants, which is where we end up with a grey area in practice. Many tenants on housing benefits believe the law did little to actually change the mindset towards them.
What should I be aware of when considering DSS tenants?
One of the most significant concerns landlords have when considering DSS tenants is regarding affordability and their ability to meet their rental payments. Universal credit and housing benefits are typically paid in arrears, whereas rental payments are paid in advance. Because of this, there are a few actions you can take to smooth over any concerns. These include:
Finding a payment structure that works with housing benefit
Housing benefit is paid in arrears, which can create issues in a tenancy agreement where rent is paid in advance, so it might be worth putting some extra thought into how you set up a payment schedule that ensures the rent is paid on time. Universal credit tenants (or the landlord) can also apply for alternative payment arrangements (more on that shortly).
Ask for rent in advance
It is possible to ask for rent in advance, especially if a DSS tenant is in the process of applying for universal credit or housing benefits. The housing charity Shelter states that two months' rent in advance should cover the period while the DSS tenant is waiting for the application to be processed, and it can also offset issues created by universal credit and housing benefit being paid in arrears.
Using a guarantor
Alternatively, you may require that the tenant provides a guarantor. Doing so means the guarantor guarantees the rent if the DSS tenant cannot pay. Guarantors are typically popular with students who don't pass credit checks, but they can be helpful for DSS tenants too.
DSS tenants still need to pass the usual affordability checks, which may give you more confidence about renting your property to an applicant on housing benefits. They'll need to provide bank statements, obtain references and demonstrate they can pay the rent without issue. In that sense, it's no different from any other tenant applying to live in the property.
What is an ‘alternative payment arrangement’?
You can apply for something called 'alternative payments arrangement', which sees the housing benefit paid by directly to the landlord by the local authority to cover the rent. It's also known as direct payment.
This can be helpful for DSS tenants who are struggling to budget, as they know the rental portion goes directly to the landlord. It also offers more peace of mind for landlords, who may be wary about initially renting to a DSS tenant. All applications for alternative payment arrangements are handled on a case-by-case basis.
Does accepting DSS tenants make it harder to get landlord insurance?
Initially, landlords struggled to get landlord's insurance with a DSS tenant in situ. Since courts ruled that prohibitions on DSS tenants are unlawful, however, the insurer can't refuse to provide landlord insurance if the landlords rents to a DSS tenant.
Even with the changes, you should always check the policy on the insurance document. Look out for any ambiguous wording and clarify anything you don't understand with the company providing landlords insurance.
Should I rent to DSS tenants?
First and foremost, you can't turn down a tenant because they're on DSS. It's discriminatory, and you could end up facing a lawsuit if you refuse based on their status. But whether a tenant is DSS or not, they still need to pass all the usual checks.
This should be enough in itself for you to make a decision, taking other factors like their affordability and rental history into account. The stigma that follows DSS tenants is unfair, and the overwhelming majority of them (as with all tenants) pay the rent on time and take good care of the home.
Top tips for renting to DSS tenants
Renting to a DSS tenant can provide the same experience as any other type of tenant. And just like other tenancies, there are precautions you should take to safeguard the tenancy. These include:
- Make sure you understand the payment set up
- Try and get permission for the council to pay you directly
- Find out the tenant’s rental history and go through references from previous landlords
- Get landlord insurance (you should do this regardless of the tenant)
- Ask for a guarantor
- Understand the DSS setup and how it works so that you know what to expect
Summary: renting to DSS tenants
DSS tenants are just like any other type of tenant – most are great, but there may be, on occasion, some issues (usually due to the structure of benefits payments rather than the tenants themselves). With robust referencing in place, renting to a tenant using housing benefits or universal credit can be as good an experience as renting to anyone else, with rent paid on time and your property looked after well during the tenancy.
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