Local Housing Allowance

Why do you need to know?

If a member of your credit union is eligible for Local Housing Allowance (LHA) they may choose to have their LHA paid directly into a credit union account instead of it being paid into the their bank account where it can become mixed up with other monies. The rent is then transferred from the credit union account to the private landlord. Any excess is then left in the member account for them to access as normal.

The Key Points

• The Government introduced Local Housing Allowance (LHA) in 2008 as a means of simplifying Housing Benefit and to ensure wider objectives for welfare reform.
• LHA is a flat rate allowance based on the size of household and the area in which a person lives. It is based on a person’s income and savings and proof of a valid tenancy. Payment is normally made to the tenant, who will then pay the landlord.
• Landlords involved in the scheme have become more willing to accept tenants in receipt of benefit/LHA because of the security it provides in ensuring that the rent is paid.
• Research suggests that many members who become involved in the LHA scheme begin to save the excess LHA payments and generally begin to engage with other financial services that the credit union offers.

Putting into Practice

The scheme operates on the basis that the landlord stipulates credit union membership and provides permission for the payment of rent by the credit union in their tenancy agreement. The landlord then pays a flat per-transaction or per-tenant-per-month fee which covers the administration costs incurred by your credit union; it can also provide you with a revenue stream.

You should ensure that the agreement specifies that 30 days notice must be given for termination of the agreement. This provides you with time to adjust the members account and notify the landlord of the change.

Many tenants in receipt of LHA are classed as “financially excluded” and do not have ready access to standard financial products such as current account, savings facilities, affordable credit lines and some insurances.

Research suggests that many members who become involved in the LHA scheme begin to save the excess LHA payments and generally begin to engage with other financial services that the credit union offers.

Further information is available from http://www.dwp.gov.uk/docs/lha-guidance-manual.pdf

Local Housing Allowance Case Study

RAINBOW SAVER Credit Union has linked up with Peterborough Accredited Landlords Scheme (PALS) to offer a Local Housing Allowance processing service to local landlords.

Local Housing Allowance (LHA) was introduced in April 2008 and has replaced Housing Benefit for tenants renting accommodation from a private landlord. As an incentive for landlords to take part in the PALS initiative, which is financed by Peterborough Council, Rainbow Saver offers an LHA processing service to accredited landlords who sign up.

Sally Chicken, Chair of Rainbow Saver Credit Union, says:

“Rainbow is delighted to work with PALS to reach landlords who previously knew nothing about credit unions. Landlords are seeing rent arrears if the Local Housing Allowance gets muddled up with a tenant’s other finances in a bank account, or if someone only has a Post Office card account or basic bank account and they cannot have their LHA processed through their account. We felt that Rainbow Saver could offer a valuable service to landlords in reducing arrears, and making life easier for the tenant and the landlord. Where the allowance is more than the rent, we are finding that tenants start building up savings.”

A small charge of £5 per month per tenant is made to cover administrative costs at the credit union, which participating landlords feel is offering good value for money.

Several landlords were also attracted by credit union services in general for their tenants, asking for information for tenants who had no bank account, or who needed a loan to move to a bigger property.

Renaissance Property Management, which manages the largest private sector housing portfolio in Peterborough, has already referred a number of its tenants to the credit union.

The Landlord Accreditation Officer at Peterborough Council was also delighted at the amount of interest in the credit union, explaining that local councils often find it hard to get landlords to take part in accreditation schemes such as this, and that the credit union service was a valuable new feature to help get landlords to commit to the initiative.