In a move aimed at bolstering the UK rental market, Chancellor Jeremy Hunt has announced a substantial financial boost benefiting both landlords and tenants.

The Treasury’s decision to unfreeze the cap on Local Housing Allowance (LHA) rates, effective from April next year, represents a major shift in rental support policy. This move translates to an increase in government contributions towards the rent of 1.6 million social tenants residing in private rental properties. Specifically, it will result in an average annual increase of £800 per tenant in government support, amounting to a total of £7.8 billion in housing benefits over the next five years.

LHA Rates Explained

LHA rates play a critical role in determining the housing benefits for social tenants. These rates are set based on the market rents in a given area. Previously, the LHA rates were pegged at the 30th percentile of local rents, meaning tenants could potentially have their entire rent covered if they lived in properties within the cheapest 30% of their area. However, these rates have been frozen since April 2020, leading to a disparity due to the rapid growth in rental prices in recent years.

The Implications for Landlords and Tenants

For landlords, this adjustment is a welcome relief, especially for those struggling with high mortgage bills. The increase in LHA rates means that more rental properties will be covered by housing benefits, reducing the risk of rent arrears from tenants. For tenants, particularly those on housing benefits who constitute 38% of the private rental sector, this change promises reduced financial strain. Many of these tenants, typically low-income earners, have been forced to cover the shortfall in rent out of their pockets, placing them at risk of falling behind on payments.

Case Studies: Local Impacts

The effect of this change will be particularly significant in areas with high rental growth since 2019. For example, in Cambridge, the allowance for two-bedroom properties is set to increase by 55%, equating to an additional £463 per month. This substantial rise highlights the significant regional variations in the impact of this policy change.

The Temporary Nature of the Boost

A Short-term Solution

While this development is a significant step towards alleviating affordability pressures for private renters on benefits, as noted by Tom Wernham of the Institute for Fiscal Studies, it’s crucial to understand that this is a temporary measure. The LHA rates are scheduled to be frozen again from the 2025-26 financial year. This implies that the relief provided by this policy is not a permanent solution but a short-term alleviation of the current rental market pressures.