Unless your property is a protected tenancy or it does not have a Certificate of Fitness, despite requiring one, you are free to set whatever rent you like. When setting a rent, you should do a bit of research to find out what rent will cover your own costs while being affordable enough to attract tenants.
If your tenants are on certain benefits or lose their jobs they may have to rely on housing benefit to help them meet the cost of their rent. As Local Housing Allowance is usually set at the lower end of market rates, tenants in receipt of this benefit may have difficulty paying a high market rent.
The easiest way to find out what is a fair market rent is to do a bit of research. Log on to local property websites or check out what's on offer with local estate agents. Usually the rent depends on the following factors:
- area in which the property is situated
- size of the property
- quality of the internal furnishings and décor
- amenities provided with the property, e.g. car parking or gardens
When setting a rent, you should also consider what your monthly outgoings on the property are and any charges that you incur for managing the property. Your mortgage lender could also insist that the monthly rent is a certain percentage of your regular mortgage payment.
Local Housing Allowance
Local Housing Allowance (LHA) is a scheme that allows the Housing Executive to set maximum levels of assistance that they will give to housing benefit claimants who rent privately.
To calculate the Local Housing Allowance rate, the Housing Executive looks at rental properties in 8 broad rental market areas. It examines the rents charged for different property sizes in these areas and then sets the Local Housing Allowance at the 30th percentile of these rates. In practice, this means that a claimant in receipt of full Local Housing Allowance will only be able to afford 3 in 10 properties.
LHA rates are reviewed every January and the new rates will take effect in April of each year. LHA rates are set at the lower of:
- the 30th percentile of rents in each area or
- the previous year's LHA rate, increased by 1%.
There are other restrictions on the amount of Housing Benefit which is paid under Local Housing Allowance rules. Single people aged under 35 will usually only be entitled to the Shared Room Rate, regardless of what type of property they actually rent. There are some restrictions to this rule.
You can find out what the Local Housing Allowance rates for your area are by visiting the Housing Executive's website. If your property's monthly rent is much higher than the Local Housing Allowance rates your tenants will have difficulties paying the full amount if they have to claim Housing Benefit.
Setting a deposit
A security deposit can give you some financial protection if your tenant gets into rent arrears or damages the property in some way. Generally, tenants are asked to pay one month's rent upfront as a deposit, but in some cases the deposit can be more. You must give your tenants a receipt for any deposit they pay.
Some tenants may have difficulty getting the money together to pay a deposit up front. If this is the case, you could consider getting your tenants to pay off the deposit over a period of three or four months. If you decide to allow your tenants to pay off the deposit in instalments, make sure you get their agreement to do this in writing and provide them with receipts for each payment.
Any deposit you receive on or after 1 April 2013 must be protected in one of the authorised Tenancy Deposit Schemes approved by the Department for Communities. If you fail to do this within 14 days of receiving the deposit you can be issued with a fixed penalty notice.
Think about filtering some of your monthly rental income into a contingency account. This can help cover you if something goes wrong in one of your properties and you have to carry out emergency repairs.
Tenants in receipt of housing benefit
All private tenants have a legal right to apply for housing benefit and you cannot include terms in a tenancy agreement forbidding your tenants from doing so.
If your tenants need to apply for financial assistance to help pay their rent, they will have to complete a Housing Benefit Application Form. There is a section in this form that must be completed by you, the landlord, or the managing agent of the property. The form asks for information on the following:
- the duration of the tenancy and whether the tenant is in arrears
- the relationship between you and the tenant,
- the frequency of rental charges
- the amount of rent charged
- the amount of rates charged on the tenancy and who is responsible for paying these
- services charges included in the rental charge
- size and type of the property
If a housing benefit application is successful, payment will be made from the Monday after the date on which the application was received or the date on which the tenant contacted the Housing Executive to state that he or she intends to apply for Housing Benefit, as long as the application is received within 1 month of this contact.
Housing Benefit is paid in arrears and at fortnightly or 4 weekly intervals. The Housing Executive aims to process all Housing Benefit claims within 14 days of receiving all the necessary information. Payment can be held up if you or the tenant fails to complete the application form accurately or include any additional paperwork. If there is an unreasonable delay in processing a tenant's housing benefit application, the tenant can ask for an interim payment to tide them over.
As Housing Benefit is paid in arrears, new tenants who receive housing benefit may have difficulty paying the first month's rent upfront. If this is the case, your tenants may be able to apply for a loan from the Discretionary Finance Support Fund to cover the rent in advance.