Over the past year, the Renters’ Rights Bill has been the primary focal point of debate amongst landlords, and many letting agencies have both discussed this internally and with landlords who are considering their future options.

However, this is not the only way in which changes in tenancy law could potentially affect certain landlords and certain tenants, as a change to the Fair Repayment Rate and how claims are administered could have a larger effect than might be expected.

Here are some of the reasons why, and how this change could potentially be a net positive for both landlords and tenants in trouble.

What Is The Fair Repayment Rate?

The Fair Repayment Rate is a mechanism within the Universal Credit system which allows a proportion of any payments made through the system (including child tax credit, housing benefit, jobseeker’s allowance and several other benefits) to be automatically deducted to pay debts.

For landlords, this will primarily affect rent arrears and some ongoing rent payments, ensuring that any outstanding rent payments from people who claim Universal Credit will eventually be paid.

What Is Changing?

Two significant changes are being made to the Fair Repayment Rate, one announced in the Autumn Budget 2024 and overshadowed by the continued debate surrounding the Renters’ Rights Bill, and a more recent announcement as part of a wider set of welfare reforms.

The first change is the percentage rate that can be deducted to repay debts is set to be reduced from 25 per cent to 15 per cent, with the justification being that the previous figure was causing households on Universal Credit to enter uncontrollable debt spirals.

The other major change is that the current system automatically approves deductions of up to 20 per cent of Universal Credit to repay rent without any further consultation, mediation or exploration of the means to pay.

The latter is in direct response to a High Court ruling that the automatic deductions system was unlawful without consulting the tenant first, with major implications for automated decision-making tools that operated on behalf of the Department for Work and Pensions.

A Net Positive?

Whilst this is undoubtedly a positive for tenants, who will have an opportunity to discuss, negotiate or challenge automatic repayment plans, it is easy to see why a scheme such as this could be a net positive for everyone.

The biggest benefit is that it avoids the potential for expensive and adversarial legal challenges such as the one between Nathan Roberts, his landlord and the DWP.

In this case, the automatic approval came during a period when Mr Roberts was already moving out and was in a dispute over the habitability of his property. Had the deductions not been automated, it could have led to a more productive discussion surrounding repair liability.

Cutting the amount of debt deductions would also avoid the risk of arrears in the first place as they would have more of their Universal Credit and the housing benefit component of it to pay rent, can be more consistent with payments and avoid pushing people into further debt and the expensive evictions process.