The recent U-turn on the issue of allowing buy-to-let landlords rent to social tenants by lender, The Mortgage Works (TMW), part of Nationwide, is to be welcomed.

But the flipflop only serves to highlight the wider underlying concerns of all lenders about the impending Government changes to the housing benefit system.

The caps, the cuts in entitlement, the decoupling from local rent levels and now, the moves (under Universal Credit) to increasingly try to force payments to be made to the tenants direct (not the landlord) have made letting to people on benefits increasingly risky and unattractive for landlords.

This is especially the case in London where there is a vibrant non-benefit dependent private rented sector market to tap into instead.

The Government urgently needs to change tack and one way to do this would be to re-establish the tenants’ option to nominate payment of the housing benefit element in Universal Credit to be always made direct to the landlord, as the default option.

Letting to people who are dependent on benefits has never easy for landlords, although experienced landlords can make it work for them. Mostly these reasons are not to do with the nature of the tenants but rather other external factors around the clunky system of housing benefit admin and payment methods and higher insurance premiums.

But the recent changes to housing benefit look a step too far and clearly the lenders think that the risks of landlords getting into trouble, going into arrears and ultimately being repossessed are just too great. We think this is why some lenders have stopped landlords letting to this part of the market.

What the landlord is supposed to do when someone’s circumstances change and has to go on benefits is not exactly clear for all lenders. We advise tenants may be well advised to not tell their landlord in case the landlord thinks he needs to then evict. Mortgage lenders who have imposed restrictions are, of course, rather coy on this issue.

In London, Crisis found that only 1.6% of accommodation in the shared house market in the private rented sector was available to people dependent on housing benefit. Our findings are that it is a similar experience in the rest of the private rented sector.

Our view, based on our work in this area, is that lenders’ blanket restrictions preventing landlords letting to people on benefits is unnecessary – though in selective areas, the arrears statistics might justify such restrictions where the mortgage loan to value on a particular property is high and the landlord’s experience level is low.

As the lender restrictions sink in, even fewer landlords in the private rented sector will be able to let to people dependent on housing benefit. And these people will need to turn to their local authorities in ever increasing numbers.

We can expect more stories of families being put up in hotels and B&Bs, for longer periods, and at great cost.

In summary, it is clear that some mortgage lenders have done their risk assessment – and delivered their verdict on the Government’s changes to housing benefit. And the taxpayer will increasingly be picking up the bill for this.

David Lawrenson is a property expert from www.LettingFocus.com, private rented sector and buy-to-let consultants. He advises private landlords via seminars and one to one advice.