Derek Steele, CEO of Mobysoft, suppliers of RentSense, a rent arrears management software product, writing for MortgageFinanceGazette.com, explains why arrears management for housing associations and buy-to-let landlords needs to change from 'after the event recovery' to 'before the event prevention?
Universal Credit is about to introduce a major change in the way people receive their benefits which could have significant implications for private landlords and housing associations alike.
Labour MP Karen Buck?s analysis of official statistics shows that between 2011-12 and 2014-15, £35 billion of housing benefit will be received by private landlords, £13 billion more than the previous three years. This is a large proportion of the total value of rents in the UK in the year to June 2014 which was £44.8 billion.
Basically, the changes mean that benefits payments will combine six benefits into one 'universal benefit?. The aims are to introduce real-time earnings status, make work pay and reduce the amount of fraud and errors within the benefits system, which are estimated to cost billions of pounds a year.
The government?s stated aim of paying rent direct to tenants under UC is to replicate the world of work, where monthly payments are the way that people receive their income, but this may be something of a challenge to tenants who have never before been confronted with managing a bank account.
UC will combine income-based jobseeker?s allowance, income-related employment and support allowance, income support, child tax credit, working tax credit and, most importantly from a landlord?s viewpoint, housing benefit.
Currently for private landords the default position is that housing benefit money goes directly to the tenant, unless there is a history of default, in which case payment can be made direct to the landlord. On the whole private landlords with housing benefit tenants have become accustomed to the tenant direct payments system, but now UC will introduce combined benefits, monthly payments and bring housing associations into this system.
Following trials, and according to the MortgageFinanceGazette.com article, housing associations have already expressed concerns about many aspects of Universal Credit. According to a report by the National Housing Federation, these concerns included:
- the capability of tenants to cope with monthly budgeting (98 per cent)
- issues with the IT infrastructure for Universal Credit (96 per cent)
- the capability of tenants to access online systems (94 per cent)
- increased difficulty in rent collection (91 per cent)
- the additional resources needed to support tenants with the transition to Universal Credit (90 per cent).
Mr Steele comments:
?Housing associations are already expecting to have to spend more (increased legal costs, rent collection costs, spend on financial inclusion) to collect less rent. While 84 per cent of them have assumed that some of the income they currently receive through direct payment of housing benefit will be at risk. On average, associations anticipate 35 per cent of the income currently received through direct payments to be at risk of non-collection.
?Data already released shows that arrears can also vary quite widely by region – in Wakefield the increase in rent arrears was 9 per cent, whereas in Edinburgh, Oxford and Southwark the increase was around 30 per cent.
?Interestingly, in a separate report, 'Welfare reform impact assessment, final report ' Jan 2015' found that only 4 per cent of tenants said they would prefer to receive their housing benefit directly; 92 per cent said they would prefer it be paid straight to their landlord.
?A recent report from the Department of Work and Pensions states that at the three month stage in the pilot areas, 16 per cent of Universal Credit renters were in arrears, reducing to 12 per cent at six months.?
Mr Steele says:
?Our RentSense business intelligence product analyses over 900,000 tenant payment records using big data predictive algorithms to present frontline officers with a smaller case load prioritised by risk rather than value. This allows housing associations to reach those tenants who need support faster and ensure evictions are minimised.?
They advocate a process of 'arrears management' which is 'fundamentally different for tenants on benefits?; rather than kicking in after a payment has been missed it is best managed proactively to ensure that the payment is made.
With the use of a focussed proactive approach and modern technologies, such as the use of e-mail and text reminders, claims Mr Steele, landlords can decrease the number of tenants going into rent arrears and increase their rent collection efficiency levels by an average of 25 per cent.
Article courtesy of LandlordZONE