Local Housing Allowance gap set for a record before the Budget

The gap between the housing support low-income private renters can claim and what cheaper homes actually cost is heading for a record. The Resolution Foundation, a think tank, says the Local Housing Allowance (LHA) gap is set to reach 23.3% this October. It wants LHA relinked to rents in the Budget on 28 October 2026 (GOV.UK, 31 July 2026). LHA is the cap on the help with rent that private tenants on Universal Credit or Housing Benefit can receive.

How big is the Local Housing Allowance gap now?

LHA rates were last relinked to the 30th percentile of local rents in April 2024 and have been frozen in cash terms since. That is according to Saving private renters, the Resolution Foundation report published on 19 September 2026. The 30th percentile is the rent that three in ten homes in an area let at or below. Rents kept climbing. By August 2026 the gap had reached almost 23%, close to the March 2024 record of 23% that prompted the last reset.

The report's shortfall figures in pounds cover English areas only. Across England, a two-bedroom home at the 30th percentile rent sits £158 a month above the LHA rate on average, weighted by private renter households. In more than half of English Broad Rental Market Areas (BRMAs, the zones each LHA rate is set for), the two-bedroom gap is above £100 a month. London is widest: £324 a month in Inner East London and at least £200 across the rest of London, the Foundation's press release says.

Two qualifiers are part of those figures. The £158 compares area rents with area rates; the report says it is not the median shortfall claimants pay, and in the median area the gap is £125. And the 23.3% October figure is an estimate that assumes rents keep rising at just under 4% a year. You can look up the rate for your own postcode on our free LHA rates map.

Jurisdiction matters here. LHA covers 1.9 million privately renting households on Universal Credit or Housing Benefit across 192 BRMAs in Great Britain, the report says. Its area figures are for England only. The Foundation's press release says more than 1.1 million low-income families face an acute cost-of-housing crunch.

Do landlords pocket an LHA rise?

The usual objection to relinking is that landlords simply raise rents to match, capturing the extra support. The Resolution Foundation tested that on the April 2024 relink using Valuation Office Agency rents, which cover English areas only. Its central estimate is that around 10p in every pound of the uplift fed through to higher rents at the bottom of the market.

The detail sits behind that 10p. Across 150 English areas where the relink took full effect, the two-bedroom rate rose by between £5 and £62 a week. For every £1 a week added, the 30th percentile rent rose around 10p a week more than it otherwise would have over the next two years. The Foundation notes a standard error of 0.08, so the data is consistent with anything from no spillover to around a quarter.

Claimants saw the difference. In England there were 154,000 fewer Universal Credit households with a rent above their LHA in March 2025 than in March 2024, the report says, citing DWP data. That fall came even though the number on LHA rose by 124,000 over the year. The share with a shortfall crept up again over the next 12 months, but in May 2026 it was still below its March 2024 level.

This mirrors DWP-commissioned research on the 2011 LHA cut, which the Foundation says found around 90% of that cut fell on tenants. Both studies point the same way: landlords did not capture most of the change.

What would a relink or a freeze mean for landlords?

Here is the worked example. Take a two-bedroom home in England let at the 30th percentile rent. On the Foundation's average, the LHA rate falls £158 a month short, which is £1,896 a year (£158 x 12). In Inner East London the same sum is £3,888 a year (£324 x 12). A tenant relying on LHA covers that difference from other income.

That is where the landlord risk sits. In May 2026, 58% of Universal Credit households receiving housing support paid rent above their LHA rate, according to the report. And in 2024-25, 58% of working-age adults in private-renting families on housing support in Great Britain were in material deprivation (unable to afford a set of basic items). A household already going without essentials has little slack if the rent gap widens. For a landlord at the lower end of the market, our reading is that arrears and voids are the thing to watch.

A relink would narrow the gap your tenant funds from other income. On the Foundation's evidence, it would not create room for a matching rent rise. A continued freeze runs the other way: the Foundation says the gap could reach 30% by March 2028 without a relink. That is a projection, not an outcome. If you want to see how a tenant shortfall or a void affects your mortgage cover, our stress test calculator shows rental coverage against the loan.

LHA is a benefit, not a tax, and nothing in the Foundation's report proposes a change to landlord tax. If you are modelling what either outcome does to your net rental income, speak to your accountant.

What is the Resolution Foundation asking for in the Budget?

The Foundation makes two proposals for Autumn Budget 2026. First, relink LHA to the 30th percentile of local rents in April 2027. Second, restore automatic annual linking so rates reset every year. It is calling for these changes. The Foundation's press release of 21 September was still urging the Chancellor to act, so no commitment had been made when it was published.

It puts the cost at £2 billion a year, in current prices, by 2029-30. If the money must come from within the working-age welfare budget, it suggests raising the Universal Credit taper from 55% to 58%. The taper is the rate at which Universal Credit is withdrawn as earnings rise.

Timing limits what a relink would do. An April 2027 relink would set rates on rents from the year to September 2026, so it would still sit below the rents most claimants pay, the report says. The same lag left a 9% gap on the day of the April 2024 relink.

The call is getting attention ahead of the Chancellor's statement. Letting Agent Today reported the analysis on 21 September 2026 as pressure building for Budget rental reform. If you are weighing whether benefit-supported lets still fit your plans, our property investment strategies guides cover the trade-offs.

Key takeaways

• The Resolution Foundation says the gap between LHA and rents at the lower end of the market is set to reach a record 23.3% in October 2026.

• In England, a two-bedroom home at the 30th percentile rent sits £158 a month above the LHA rate on average, or £1,896 a year.

• The Foundation estimates around 10p in every pound of the April 2024 LHA uplift fed through to higher rents at the bottom of the market.

• Without a relink, the Foundation says the gap could reach 30% by March 2028.

• The Budget is on 28 October 2026 (GOV.UK); the Foundation wants LHA relinked in April 2027, at a cost of £2 billion a year by 2029-30.