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A government scheme designed to stop landlords from evicting buy-to-let tenants by paying rent arrears in instalments from benefits is in tatters after a judge ruled the practice unlawful.
The Department of Work and Pensions (DWP) must stop acting on requests from private landlords under the Alternative Payment Arrangement after a tenant objected in court to a £500 deduction from his benefits to pay for repairs to a rented home without his permission.
The court ruled the automatic deductions unlawful, highlighting a lack of consultation and the potential for increasing financial strain for tenants.
DWP Secretary Liz Kendall has triggered a review of the Alternative Payment Arrangement, which is also used to collect debts such as court fines, Council Tax, and energy bill arrears.
She announced an overhaul of the benefits system to prevent claimants from falling into debt. She confirmed that the DWP would seek alternative methods to ensure landlords receive their due payments while safeguarding tenants' financial well-being.
The DWP automatically processes landlords' requests for Alternative Payment Arrangements. The system allows the DWP to divert up to 20 percent of a claimant's monthly benefit without notification or consent.
The aim is to stop evictions by paying off rent arrears and other property costs through instalments.
Besides overhauling the Alternative Payment Arrangement, the DWP has also reduced the Universal Credit Fair Repayment Rate to cap the amount that can be deducted from a tenant's benefits from 25 per cent to 15 per cent from April 2025.
Reducing the cap to 15 per cent will benefit 1.2 million households, increasing their disposable income by an average of £420 a year.
This could cause more financial strain for landlords as tenants will pay debts more slowly.
Letting professionals, led by trade body PropertyMark, fear that changing the system may lead to tenants building significant arrears and that agents must address payment issues with rent earlier.
However, Universal Credit rates have been rising by 1.7 percent since April 2025. Although this is a slight increase, 5.7 million families will collect an extra £150 a year.
A PropertyMark spokesman said: "This is a step in the right direction for those struggling to meet increasing rental costs. Recent estimates suggest that fewer than 10 per cent of private rented homes in the UK are affordable for people on Universal Credit, specifically those relying on Local Housing Allowance (LHA) rates."
PropertyMark encourages landlords with tenants falling into rent arrears to talk to them and their guarantors about the problem.
Landlords with rent cover as part of their buy-yo-let insurance should contact their provider.
If a tenant has not paid rent for two months and has made no effort to resolve the situation, landlords should serve a Section 8 notice. The notice will be cancelled at a hearing if the arrears are paid.