Flexible Payment Options for UC Arrears
Research conducted by the National Federation of ALMOS (NFA) and the Association of Retained Council Housing (ARCH) recently found that 86 per cent of universal credit claimants living in social housing are in arrears. For 59 per cent of claimants, this equates to more than one month’s rent, with the problem steadily getting worse since the implementation of universal credit two years ago. Alarmingly, the average value of arrears these tenants owe has nearly doubled to £615 since March 2016, when the sum was £321.
Not only is this putting tenancies at risk, but it’s having a significant impact on housing providers and local authorities’ rental income streams and the long-term ability for them to provide essential services to their communities.
What’s the solution? While the NFA and ARCH research points to a mixture of tenant behaviour, administrative problems and issues with some specific elements of UC’s design, we would argue that ensuring landlords offer their tenants a wide range of flexible payment options can help combat arrears, reduce manual administration and provide assurance for tenants.
While few people in the social housing sector would argue against the central premise of universal credit – bringing together in and out of work benefits into one system to make work pay – alarm bells are ringing about the administration of the roll-out and the black and white nature of its application to social housing tenants.
The NFA and ARCH research brings all of this to the fore in its latest survey results of ALMOs and stock-holding councils. However, while the sector continues to lobby government over the administration of the scheme, there are some very practical steps housing providers can implement now to make it easier for their tenants to pay their rent and set up automated payment schedules, thereby reducing arrears and staff time.
One of the biggest impacts is making your preferred payment option (often direct debit) easy for a tenant to set up, allowing them to choose a collection date and frequency that suits them and their circumstances. Last year, Allpay’s own research found that fewer than 30 per cent of ALMOs offer a paperless sign-up for direct debits and fewer still offer their tenants collection dates on any day of the month, thereby significantly hampering take-up and risking arrears under universal credit. The figure is more concerning for stock-holding local authorities, with less than 20 per cent offering a paperless facility and just 4 per cent offering collection dates on any day of the month.
It’s staggering because the effects of offering this flexibility are two-fold. According to the Housing Quality Network’s Rent and Income Excellence Network (RIEN), housing providers moving to any-day direct debits have increased take-up by up to 20 per cent, while two ALMOs Allpay has worked with to facilitate paperless, any-day direct debits (Kirklees Neighbourhood Housing and Your Homes Newcastle) have increased take-up by more than 100 per cent over a two-year period.
With more tenants signed up to an automated payment schedule, even if they are just small, weekly collections, the number of ad-hoc payments being made by more expensive payment channels, such as card and cash, is reduced, and so is the risk of arrears. Importantly, because universal credit can be paid on any day of the month, depending on when the claim is first made by the tenant, being able to offer a facility to collect the payments close to when they receive their universal credit is vitally important because it minimises the risk of it being spent on other things.
Having also recently launched the ability for housing providers to automatically re-attempt a failed direct debit when it occurs – and witnessing the subsequent success rate – it’s clear that this option should also be assessed. All banks are now required to offer basic bank accounts that don’t penalise customers for failed direct debits, thus automatically collecting a failed payment five days after the original failure should be an option for housing providers to look at.
Where we have implemented this, up to 33 per cent of failed payments are being collected, saving resources and staff time from needing to manually chase the arrears. With average income officer costs at approximately £7.20 per contact, the ability to automatically reattempt the collection for a few pence per transaction is much more cost effective.
We know from our own research that having control of the payment is a significant factor for households budgeting on low incomes. We also know that up to 20 per cent of customers can phone into the office to make the same weekly or monthly payment. As such, landlords should look at whether a recurring card payment option can be offered to tenants that delivers both automation and control. Our own service puts the tenant in full control to cancel the instruction at any time, with no fees for insufficient funds, a choice of frequencies, and with email notifications on set-up, amendment and cancellation. With the ability to set the first payment in advance, this could be set up ahead of a tenant’s first universal credit payment, so they are already on a schedule in advance.
How many housing providers offer a mobile payment facility for tenants to pay their rent? We know from our own data that mobile app transactions now typically represent up to 12 per cent of a landlord’s debit/credit card payment mix, with the average transaction value often more than a direct debit or cash transaction, showing tenants have confidence in mobile as a payment channel.
In a post-universal credit world, the NFA and ARCH research shows that there are a myriad of factors leading to the high level of arrears, but housing providers should ensure that their payment options aren’t also a contributory factor.
Ross Macmillan - head of research and intelligence at allpay