Stagnating incomes, rising cost of living and changes to benefits are squeezing tenants, many of whom are already financially vulnerable. Figures obtained by a national newspaper suggest as many as half of all social tenants who receive the housing element of Universal Credit are behind on their rent. The knock-on impact for social housing providers can include less rent collected, increased management cost, and ultimately more unsustainable tenancies.
The costs of unsustainable tenancies are significant. In 2016 there were almost 20,000 evictions from social housing in the UK and more than 47,000 possession claims lodged at court by social landlords at a cost to the sector of approximately £28 million in court fees alone. This of course doesn’t include other significant costs such as investigations, preparing documents, managing the tenant, lost rent income and knock-on costs of re-homing. The efficiency (or not) with which social housing providers manage revenue streams is also a factor considered by business credit rating agencies. A poor rating can result in increased cost of raising credit necessary to build new homes or fund improvements to existing stock. But these aren’t just problems for the financial bottom-line, they impact the ability of the housing sector to deliver on its fundamental social duty towards families and communities which need housing.
Here at TransUnion (formerly Callcredit) we believe that the key to managing risk may be in greater understanding of ‘pre-delinquency’ risk and earlier alerting to changes which may impact on tenancy sustainability if not addressed.
In any lending scenario, the lender gathers financial information about the consumer at the point of application and uses this to create a view of risk which informs acceptance decisions, interest rates, etc. This is run of the mill in lending and works to the benefit of everyone involved. The lender minimises the risk of bad debt and the borrower is better protected from unaffordable commitments. However, it can often be the case that when a customer does suffer financial difficulty further down the line, the lender is not aware of this until they miss a payment, i.e. they become delinquent. To address this, lenders are increasingly augmenting the gateway approach with ongoing credit management strategies using alerts to actively identify customers who are at heightened risk of missing payments, i.e. they are pre-delinquent.
This enables the lender to reach out to the customer and put in place strategies which both support them and increase the likelihood of repayment. The results can be impressive. In a recent case study a financial services provider saved £12 million a year off their bottom line by using TransUnion’s alerts service CallMonitor.
TransUnion’s ThreeSixty Revenues solution provides alerts to local authorities on changes which affect Council Tax Single Person Discount (SPD) entitlement, including move out, deceased and new occupant flags. This enables councils to remove more erroneous SPDs, collect more revenue and manage their investigations more efficiently than the old batch jobs carried out once every one or two years. In 2017 one local authority using ThreeSixty Revenues removed over 35% of SPDs flagged as Very High or High risk. Here there are obvious parallels with the social housing sector where the earliest possible information about abandonments, deceased tenants or sub-letting tenants can enable quicker action to get social housing legitimately back into use.
In all these examples alerts work by delivering valuable information at the earliest opportunity which drives targeted action. The action taken will vary from use case to use case, but in all sectors it typically involves reaching out to the customer to establish facts, offer support and agree a strategy for managing or recovering from a disadvantageous position.
At TransUnion we believe alerts can have a similar impact in the social housing sector. Early indication of changes impacting a tenant’s financial ability to pay their rent, perhaps using a combination of a social landlord’s own data and data supplied by TransUnion, would mean fewer failed tenancies and less pressure on already struggling families and communities. Alerts on residency changes, such as moved outs, goneaways or deceased flags, would help landlords take earlier action on changes to occupancy which put rents at risk, such as abandonments.
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