Banking on social housing

As the financial crisis deepens, are Britain’s high street banks helping housing associations to help their ‘unbanked’ tenants? Paul Coleman reports.

It is true that a decade ago the major banks didn’t want to touch ‘high risk’ social housing tenants with a barge pole. Yet, didn’t these banks sign up in the Blair era to corporate social responsibility agendas? Haven’t they spent thousands assisting housing associations to help tenants gain access to basic banking?

Research for 24housing shows that the UK’s top ten housing associations corporately banked income of over £2.3bn with six of Britain’s biggest banks in 2007. And yet Treasury figures indicate that 24% of housing association tenants don’t have a bank account.

Many tenants who do open a bank account simply withdraw the money and stash the cash at home, a worrying trend emerging from recent surveys jointly carried out by 17 top London housing associations. “Some people don’t realise that a bounced £20 payment could incur a £40 charge, a frozen account and more debt,” says Gail Biggerstaff, who heads London & Quadrant’s widening community and neighbourhood investment programme.

That research also showed HA tenants without bank accounts or banking know-how were more likely to fall behind with their rent. That’s reflected nationally by National Housing Federation figures confirming fears that ‘unbanked’ housing association tenants are far more prone to seeing their electricity and gas cut off.

Figures quoted by James Walsh, community regeneration manager at Mercian and a strong financial advocate at NHF, show that average gross income for housing association tenants is £10,335 with 45% earning less than £200 gross per week. Almost 75% don’t have home contents insurance.

‘Unbanked’ tenants are also more prey to the menacing appeal of doorstep lenders, loan sharks and expensive weekly payment credit shops. So, as Cable’s criticism implies, are the banks failing poorer social housing tenants?

Senior housing association staff have told 24housing that most high street banks remain committed to helping low income tenants achieve a basic financial foothold. However, hard-pressed fledgling credit unions are increasingly active as alternative sources of banking and loans.

Gail Biggerstaff praises Barclays, Lloyds TSB, the outwardly ethical Cooperative Bank and the HBOS Foundation for “actively supporting credit unions and community finance initiatives”.

However, after attending the government’s Financial Inclusion Taskforce conference last October, she felt general progress on reducing ‘unbanked’ tenants had reached a plateau. Calls for the banks, bailed out by the taxpayer, to get more engaged with financial inclusion work – to put something back into the community – were strangely absent at the FIT conference.

Gail Biggerstaff believes identification criteria lies beyond many tenants. “Many people who earn less than £10,000 per year don’t have passports or driving licences,” she says.

“Banks have offered small scale help for people with mortgages,” she says. “But people who rent also need to be able to access affordable forms of lending.”

According to the Hyde Group’s 2007 resident survey, 79% of its residents have a current or basic account with a bank or building society. Yet Sarah Thurman, acting director of Hyde Plus, the Hyde Group’s community development wing, says many residents remain daunted by banks.

However, she reports HBOS and Barclays have been “fantastic” in supporting housing association financial inclusion initiatives on money guidance and fuel poverty advice.

“Interestingly, 10% of our borrowing residents have borrowed from a credit union,” says Sarah Thurman, citing a Brighton resident – a teenage single mother – whose finances were sorted out by the East Sussex Credit Union. “Still, it’s horrible that doorstep lenders can still be seen on our estates and that people use them.”

Opportunistic lenders continue to step into the lending gaps vacated by absent banks. In 2004, 10% of residents in a deprived Leeds ward were using doorstep and other sub-prime lenders, according to a survey for Community Finance Solutions at the University of Salford.

“Earlier this year, we undertook a similar exercise in Salford,” CFS executive director Dr. Karl Dayson wrote in The Guardian. “The result was 23%, and over half the sample had no savings. We were surprised, but shouldn’t have been.”

Mark Whitehead, treasurer of the Home group, says Home offers some tenants a rent discount if they open a basic bank account and set up direct debits. Whitehead’s concern is that the banks’ refusal to offer affordable loans means more tenants will be tempted by brightly advertised weekly payment stores where typical APRs start at 30%.

“Bluntly, some branches of certain banks don’t want our customers walking through their doors,” he adds. However, he surmises Lloyds has raised its financial inclusion game possibly as it is one of the UK banks less affected by the ongoing financial crisis. He remains hopeful that good local relationships can be developed between Home staff, its tenants and Lloyds TSB branch staff.

“I’d hoped the pseudo-nationalisation of some banks might indirectly have led to more help for our customers,” says Mark Whitehead, although he admits to being dismayed by Northern Rock’s aggressive repossession activity despite it’s rescue by government and taxpayers.

“The banks have offered basic bank accounts but there’s been a reticence to get involved directly with the customers who need them. They’ve not actively marketed them. Credit unions are helping us to fill that gap.”

Government seems to be listening; and the saving of the Post Office Card Account has eased some pressure. “The whole concept of credit unions gives genuine alternatives to the so-called mainstream which has failed so many millions of people, before and since the credit crunch,” former cabinet minister Ian McCartney MP, now the secretary of the All Party Parliamentary Group on Credit Unions, told a recent Association of British Credit Unions conference.

James Walsh at Mercian Housing Association agrees low-income tenants are likely to secure a £500 loan from a credit union but wouldn’t from a high street bank. “Credit unions won’t be as good as banks but they provide services aimed at different clients,” he says.

Mercian and the Waterloo Housing Group are working with four credit unions in Birmingham to help them provide a better service. “We’ve offered credit union staff training, helped paint their shop-fronts and got their heating boilers serviced,” says James Walsh, a strong advocate for financial inclusion at the National Housing Federation.

However, Mr Walsh wouldn’t want to see the banks let off their moral responsibility for financial inclusion. He feels many housing associations are too stretched to deliver financial capability skills to tenants. “The banks could step in and build a financial capability training package for the tenants who need it,” he argues.

Sarah Thurman at Hyde Plus believes the banks should build bridges with the credit unions. “Credit unions are a good stepping stone or bridge to get people used to using a financial institution,” she says. One third of Hyde residents who become credit union members used to be previous users of doorstep lenders.

“The Financial Inclusion Taskforce has done more than enough survey work,” says Ms Thurman, pointing to the Taskforce’s UK map that pinpoints areas lacking basic banking facilities.

“The banks ought to use that tool to actively support credit unions in those areas.”

Gail Biggerstaff at L&Q echoes Sarah Thurman’s caution about the banks’ stated commitment towards financial inclusion. “If the banks don’t have an appetite for helping low income customers then they ought to support third sector organisations who’ve built up a head of steam and are looking to expand.”

In recent years, Britain’s biggest banks adopted financial inclusion as part of their wider corporate social responsibility agenda.

Sceptics argue the banks have just been courting potential future customers. Cynics even claim current bank efforts amount to nothing more than a desperate grab for business spawned by the financial crisis.

Three high street banks are also represented amongst the 13 members of the Treasury-based Financial Inclusion Taskforce: Susan Rice of Lloyds TSB; Chris Lendrum (Barclays); and Benny Higgins (HBOS).

Here is a flavour of some of what the banks are doing to directly help housing associations increase financial inclusion amongst social housing tenants:

Barclays
• Contributed £20,000, two-thirds of funding needed for the Hyde Group’s one-year fuel poverty advice service aimed at older people.
• Supported the 18-month Change pan-London DWP-funded programme in 2003 that saw 2,000 London tenants open new basic bank accounts.
• Designates and vets some housing association staff to record tenants’ identification and proof of address to help them open an account.

The Co-operative Bank
• Supports the credit union current account where housing and welfare benefits are paid in directly, bills paid and remaining balance drawn by account holder.

HBOS
• Provided £190,000, via HBOS Foundation, for half of funds needed for a money guidance programme run by L&Q, Hyde Group, Circle Anglia, Metropolitan Housing Partnership, Amicus Horizon. The project employs three staff who undertake ‘financial health checks’ for residents.

Lloyds TSB
• Developing standard letter for Home tenants that bypasses passport ID criteria to open account.
• Offering basic banking to people with county court judgements, though not to bankrupts.
• Cheltenham & Gloucester developing with Home and other social housing landlords a broker scheme to identify suitable mortgage products where ultra-creditworthiness and cash deposit requirements are not so stringent.

RBS/NatWest
• Operates the Step Account Scheme with Mercian Housing Association that gives possible access to basic bank account despite difficult credit history.
• Promoted financial inclusion amongst six housing organisations in 2007 with £100,000 from the RBS Innovate Fund.