More landlords will be tempted to withdraw from the social housing sector if housing benefit payments under the new Universal Credit system are paid to tenants rather than directly to landlords.

According to the nationwide tenant eviction and referencing firm Landlord Assist, many landlords in the social housing sector have been exposed to rental arrears under the current Local Housing Allowance system because tenants fail to pass on payments.

This is set to be replaced by the Universal Credit in 2013, which aims to simplify the system by combining all in-work benefits into a single payment.

Under current proposals from the Government the housing element of Universal Credit will be paid directly to claimants to encourage personal responsibility and help claimants make the transition to work, although landlords will receive payments directly should the claimant fall into considerable arrears by persistently defaulting.

The government’s Welfare reform minister Lord Freud has recently announced that direct payments of the new credit system will be tested by six councils and their housing associated partners.

Commenting on this, Graham Kinnear, MD at Landlord Assist said: “There is enormous evidence which suggests that many tenants in receipt of housing benefit do not pass this on to their landlords. With the cost of living increasing it is very easy for tenants to spend benefit money on other things rather than paying the rent.

“We have dealt with cases in the past where landlords have been at risk of having their property repossessed due to tenants retaining the housing benefit and the landlord unable to evict them quickly enough in order that they can gain a rent paying tenant and resume their own mortgage payments.

“If payments under the new system aren’t made directly to landlords then many will be tempted to leave the social housing in favour of the private market where tenants are more likely to have a regular income and good credit record.”