Debt Advice

Deteriorating economic conditions, changes to the welfare benefits system and the squeeze on household incomes are likely to exacerbate the financial stress faced by financially vulnerable residents in the social housing sector.

Equally, these are extremely challenging times for sector itself. The deteriorating financial outlook for residents will have a knock-on effect for landlords with rent arrears expected to grow, together with the costs associated with the rising numbers of court and eviction actions. Moreover, the impact of welfare changes are already being felt by social landlords[1], despite the consequences of major housing benefit reforms particularly direct payment of housing benefit via Universal Credit still to be felt.

Identifying effective debt advice interventions that help financially vulnerable residents manage their finances and deliver commercial benefits for social landlords is therefore critical and extremely timely for the sector. There is a prima facie case for social landlords investing resources in debt advice. The potential mutual benefits and evidence from the private sector demonstrates how over-indebted consumers benefit from funded specialist debt advice[2].

Yet, there has been little objective corresponding evaluation of the potential benefits of debt advice for social landlords. The Financial Inclusion Centre was commissioned to evaluate the effectiveness of providing access to debt advice to residents and establish a business case for extending access to advice.

The summary report can be found here: Does_Debt_Advice_Pay_A_Business_Case_for_Social_Landlords_Executive_Summary[1].pdf
The full report can be found here: Does_Debt_Advice_Pay_A_Business_Case_for_Social_Landlords_Final_Report[1].pdf

· Debt advice is highly valued by residents and is regarded as effective. Almost half of residents responding to our survey indicated that debt advice helped them avoid eviction and a similar proportion from facing court proceedings – all which have significant cost saving implications for the social landlord.

· 71% claimed their rent arrears had reduced following debt advice - 36% of those said their arrears levels are ‘a lot less’. Although some landlords are apprehensive about intervening, 73% of residents had no concern about accessing debt advice via their landlord.

· We estimate that residents that received some form of debt advice saw their average level of arrears fall by 37% over the 12 months following referal, while average arrears amongst those who received no support at all actually rose by 8% over the same period.

· Direct access to specialist debt advice for overindebted residents delivers significant net financial gains for social landlords, equivalent to an estimated £239 for every resident supported compared to those not getting support.

· Our cost-benefit analysis suggests that significant financial benefits could be realised by increasing spending on debt advice for residents. For every £100 invested in debt advice interventions, we estimate there is a commercial gain of £122 (a return of 22%) in the form of reduced arrears and associated costs.

· With total rent arrears across the housing association sector estimated to be over £350 million, if the impact of these debt advice interventions was repeated nationally, we believe that this would deliver an annual net benefit of £49 million for the social housing sector.

· Furthermore, our research estimates that a social landlord spends between £3,099 and £8,287 each time they evict someone from their home. Removing the 7,188 residents evicted because of their rent arrears in 2010/11 cost large housing associations an estimated £40.9 million. There are substantial savings to be made from reducing arrears costs through debt advice provision.

· Each type of direct debt advice intervention achieved significant benefits when compared to not offering support for tenants. In terms of reducing arrears, the most effective model was in-house debt advice. However, the most effective in terms of overall reduction in arrears and associated costs[3] was outsourced debt advice followed by in house debt advice and telephone debt advice.

· There is a strong rationale for social landlords to intervene when arrears levels reach £600 or more given the cost-benefit trade off. Yet, uptake of debt advice is often taking place much later, when arrears have already built-up and residents already face more serious action. Just over half (56%) of our survey respondents were facing court action and a third (36%) facing eviction when they were given debt advice appointments. Nearly two-thirds of residents stated they would have benefited more by accessing support earlier.

This report presents compelling evidence that funding specific debt advice interventions should offer a win-win situation for already overindebted social housing residents and social landlords as ‘social creditors’.

Simply pointing vulnerable residents in the direction of informal information and support with their debts is better than offering no support at all. However, our research shows that funding debt advice services for residents is much more effective and delivers significant value for money for social landlords. There is strong evidence for social landlords to actually increase investment to ensure that more residents can access services and at an earlier stage to prevent arrears from accumulating to serious levels.

This business case should be a useful aid for all social landlords, providing the evidence, confidence and guidance to help inform their own approach to debt advice delivery and make difficult longer-term investment decisions that should ultimately ensure the continued viability of their business and allow for future investment in much-needed new homes and neighbourhood services.

To help individual social landlords establish their own unit costs associated with the rent arrears management, we have developed a financial model for download at: https://www.needtoinserweb.com

Does debt advice pay?
State of play report

As part of the debt advice project, we produced an interim report which summarises the scale of the challenges facing the social housing sector and the state of play of advice and financial inclusion services.

The summary interim report can be found here: Interim_Summary_Report_-_Financial_Impact_of_Debt_Advice_for_Social_Landlords_010411[1].pdf

The full interim report can be found here:
Interim_Report_-_Financial_Impact_of_Debt_Advice_for_Social_Landlords_050411[1].pdf

[1] The National Federation of ALMOs (NFA) is already reporting arrears increases amongst its members following changes to non- dependent benefit deductions (NDD) in April 2011.

[2] Wells, J. Leston, J., Gostelow, M. (2010) - The Impact of Independent Debt Advice Services on the UK Credit Industry. Friends Provident Foundation.

[3] It should be noted that outsourced debt advice referred residents much sooner than in-house so would have avoided much of the additional associated cost of arrears management.