An Introduction to DSS
Strictly speaking, DSS doesn't actually exist anymore. DSS stands for Department of Social Security, which is a now defunct British Government department. However, as a landlord you may have seen the "No DSS" message on property adverts and letting websites when looking for inspiration for your own listings, as it is still widely used both by landlords managing their own listings as well as by letting agents.
What No DSS Really Means
Today, "No DSS" is a colloquial language term. It can mean "No tenants that receive benefits of any kind," or "No tenants that receive housing benefit." Given that most tenants in receipt of housing benefit are likely to receive other benefits, they may effectively mean the same thing, but a "No DSS" message isn't often that clear.
What is Housing Benefit?
Housing benefit is paid to those that are on a low income or unemployed. They receive a monthly allowance from their local council for part or all of their rent, and the allowance will be dependent on whether they rent privately or from a council.
For private lettings, the local housing allowance (LHA) is used to determine how much housing benefit can be paid. The applicable LHA rate differs by geographic location.
What Landlords Need to Know About Housing Benefit
The Clawback Clause
If the tenant has been overpaid benefits for any reason (i.e. they weren't actually entitled to them, they failed to declare all income and/or savings, or even due to an administrative error at the council), then the local council may make the landlord repay the money as it will have been received as rent.
Some tenants will receive housing benefit payments which may not cover the full rental amount. This means the tenant must make up any shortfall and you will be reliant on two sources to cover the rent. If you know your tenant is in stable employment despite receiving housing benefit, then this may not be a big concern to you.
Tenants receiving housing benefit would be considered a higher risk due to the fact that they can't necessarily cover rental payments fully with a regular income. Tenants receiving housing benefit now receive payments directly, as opposed to pre-2008 where a landlord was paid directly, which means you are reliant on the tenant passing on the rent payments. Also, the amount a claimant is paid can also change without much warning, potentially leaving the tenant to make up a shortfall in the rent without there necessarily being any change in their circumstances. However, more often a housing benefit drop will be accompanied by an increase in their income from another source. This means that as long as the tenant has budgeted correctly and caters for their additional income will be counteracted by some drop in housing benefit, and therefore they need to give more of their own money towards the rent, you shouldn't be affected at all.
Dealing with Local Councils
Many landlords report that when they approach councils regarding late or missed rent payments by housing benefit claimants it is difficult to get anywhere because the council won’t discuss details due to the Data Protection Act - leaving you in the dark as to where your rent is.
If a tenant falls eight weeks into arrears, you can apply to have their housing benefit paid directly to you, though this can again be a drawn out process. At eight weeks arrears you are entitled to seek possession of the property via a section 8 notice anyway, so if you reach this point you may wish to consider how best to move forward.
Landlord Insurance and Landlord Mortgage Providers
A lot of companies that offer landlord insurance won't cover DSS/housing benefit tenants, which may be problematic if you're looking to protect yourself with a product like rent guarantee insurance. Likewise, some mortgage providers may have certain conditions which don't allow you to rent to tenants receiving housing benefit.
Remember to discuss any changes in how you let your property with your landlord insurance or mortgage provider; if anything bad was to happen you could find yourself not being able to cover your mortgage costs, or even having your property repossessed.
We also recommend reading this post about landlord insurance to give you an idea of the risk you could be taking if you rent to DSS/housing benefit tenants when your insurance explicitly states that you can't.
Receiving Rent Payments from Tenants on Housing Benefit
Local housing allowance is paid 2 or 4 weekly, rather than calendar monthly, so it would be best to state in your tenancy agreement that the rent is paid every 4 weeks, as long as this isn't going to make your accounting process problematic. Note that not every bank will allow four-weekly standing orders to be set-up, so you may need to factor that into your decision, too.
Another option you have as a landlord is to ask for a guarantor. If a tenant puts a parent or relative at risk of covering their missed rental payments then they may be less likely to miss one.
Cover Yourself During Tenant Referencing
When conducting tenant referencing, remember to look for a previous landlord reference as well as conducting a credit check. This is important because their previous landlord should be able to tell you if there were any issues with late or missed rent payments, anti-social behaviour, or damage to the property.
Should You Let Your Property to Housing Benefit Recipients?
Ultimately this is an individual decision for landlords to take. Although there are risks involved, it is arguable that these risks are similer with any tenant. What's to say a tenant who earns a large salary won't have a lazy approach to ensuring you get your rent on time?
Is Saying "No DSS" Even Legal?
In February 2018, the BBC reported that landlords and letting agents who put "No DSS" on letting adverts could be breaking the law.
Upad CEO James Davis is a portfolio landlord, and rents a number of properties to housing benefit receipients, finding these to be among the best and most reliable tenants he has dealt with. James commented on the BBC story for the Upad blog here.
If you perform all your regular due diligence with tenants, and are happy they will be good, reliable tenants, then it is up to you to decide how relevant it is that a tenant receives housing benefit. Remember that you could be closing yourself off to a large chunk of the rental market if you automatically label your property adverts "No DSS."