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Landlords warned off bedroom tax loophole - Reducing official number of bedrooms could impact on loan agreements

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Joined: 09/03/2008

Landlords warned off bedroom tax loophole<


Landlords risk breaching loan agreements if they reclassify properties to protect their tenants from the ‘bedroom tax’.

The possibility that social housing providers could redefine a three-bed home as a two-bed property to protect their tenants from the bedroom tax arises in new regulations, due to come before parliament in June. The regulations, seen by senior sector figures and Inside Housing, do not define what counts as a bedroom for the purposes of the under-occupation penalty.

The bedroom tax will see social housing tenants of working age with a spare room docked an average of £14 a week from April 2013.

Crossbench peer Lord Richard Best said the wording of the draft regulations created an opportunity for landlords to reclassify some larger properties as homes with fewer bedrooms to allow tenants to escape the penalty.

A letter from the Department for Work and Pensions accompanying the regulations said: ‘In general we shall rely on the landlord to advise on the number of bedrooms in a property.’

But Lord Best warned reclassification of properties could lead to a reduction in rental income from properties, potentially affecting loan agreements. ‘Landlords would not want to renegotiate the terms on which they are borrowing,’ he added. ‘A lot of questions are left unresolved by these regulations.’

Sam Lister, policy and practice officer at the Chartered Institute of Housing, said a number of landlords had raised the issue of reclassification with him. Mr Lister said the regulations would give landlords welcome flexibility to determine whether a household is under-occupying, but warned
the government would step in if landlords carried out blanket reclassifications. ‘We would be worried about a kneejerk reaction where people look to reclassify everything,’ he said.

John Butler, finance policy officer at the National Housing Federation, said: ‘If they [landlords] do think about redesignating properties it is going to reduce income, and obviously this could have an effect on covenants.’

However, Mr Butler added that he doubted whether any association would reclassify properties if it would affect their loan agreements.

The DWP declined to comment, saying loan agreements were a matter for landlords and lenders.

Inside Housing’s What’s the Benefit? campaign called for more equitable welfare reform.