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The Local Housing Allowance (LHA) has caused more than a quarter of claimants to fall behind on their rent payments, according to a report from Shelter.

The LHA system was set up to give private sector tenants more choice by paying rent money directly into their bank accounts rather than directly to the landlord.

But tenants say the system is causing them huge problems, with many falling into arrears and some losing their homes.

Shelter asked 450 LHA claimants how they would prefer to receive their benefit. Of those who would rather have their money paid to their landlord, 95% are struggling to manage their finances.

And almost half of the claimants who have experienced both forms of payment believe direct payment to landlords helps them manage their rent and household budgets better.

Shelter director of policy and campaigns Kay Boycott said: "The government’s aim in introducing LHA was to give tenants some choice when looking for a rental home. However, under this system tenants have no choice about whether their benefit is paid to them or to their landlord.

"Many of these people are already struggling financially, so when they get rent money paid into their bank account they face the difficult choice of spending it on necessities such as food or bills rather than paying their rent.

"Direct payments are causing problems for many tenants who are failing to manage their finances properly, falling into rent arrears and having their tenancies terminated."

Shelter’s research also found that landlords were increasingly reluctant to let to LHA claimants as a result of the changes. Some 60% of respondents to Shelter’s survey found it difficult to find landlords who are willing to let to them as LHA claimants.

Boycott said: "Shelter is today calling for the Government to simply give claimants the choice over who their benefit is paid to. This would help prevent rent arrears and homelessness but would still enable people to control their own finances if they prefer. It would also increase the number of landlords willing to let to benefit claimants."

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