Opinion: Growing need for debt awareness in social housing
Published by Max Salsbury for 24dash.com in Housing
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By John Morris, chief executive, Trident Social Investment Group
This week is debt awareness week. A timely report from the StepChange debt charity warns that household debt could hold back economic recovery, with under pressure borrowers getting deeper into debt and taking longer to pay back loans. Links between overall household debt and housing costs are also becoming more evident. A recent Shelter survey revealed that one in five households borrow money to meet rent or mortgage costs with unauthorised overdrafts, loans, credit cards or family and friends being the most commonly used sources of credit.
Social tenants are groaning under the strain of household debt too. Our research in the Midlands reveals that, while most have some form of debt, which is generally small in monetary terms, the debt to income ratio is high since the majority of social tenants are low earners and/or on benefits. Indebted tenants spend on average 20p in every £1 of income on debt repayments, running only marginally behind spend on fuel and food. More than half of social tenants always or often have trouble making debt repayments.
Our research describes a social tenant group which is highly credit dependent – that is, not having enough income to meet necessities and often forced to borrow from high cost lenders, including pay-day lenders, rent-to-buy retail credit providers, home credit companies and pawn-brokers as well as the more unsavoury and illegal loan sharks.
High-cost credit, despite the government finally agreeing to consider a cap on interest charged, remains a major and growing problem with social tenants paying a ‘poverty premium’. It creates greater credit dependency and it exploits the poor and vulnerable, distorting localised credit market despite the efforts of community finance institutions. More than one third of social tenants have had an ‘awful’ experience with such high-cost lenders and half said in our survey that they had been harassed for repayments.
Social tenants constitute around six in ten financially excluded households of whom one in six have no bank account, eight in ten have no savings and nine in ten have no insurance cover. So the more expensive end of the credit market, with rolled-over loans costing 1000s per cent annually the only option for social tenants to stretch low incomes and deal with emergencies.
Debt and financial exclusion among social tenants are likely to worsen in the wake of Government changes to the welfare system and austerity economics. The bedroom tax, benefit cap, the localised and stunted social fund and the 1 per cent increase in in-work benefits for the next three years, alongside stagnant wages and a soaring cost of living will erode the living standards of social tenants further, increasing their reliance upon debt to make ends meet.
Many social landlords are tackling the growing debt problems faced by tenants head on. Research shows that money advice services and provision of easier access to affordable credit for tenants generates considerable social value and helps landlords’ bottom line in terms of lower rent arrears and reduction in tenancy churn.
Trident has run a variety of financial inclusion initiatives for tenants in recent years. Over the last two years, we have helped 630 tenants with a total of £209,000 in benefit maximisation achieved on their behalf and a further £521,000 of personal debt written-down or consolidated. These interventions have reduced tenants’ debt overhang and improving the sustainability of tenancies. All of this was achieved at an investment rate by Trident of around £120,000.
It is clear, with austerity stretching to the end of the decade that social tenants will become increasingly reliant upon social landlords to help sustain their tenancies by directly providing affordable credit and helping to hold fuel bills down. A social investment stance is required to achieve these ambitious goals with more commercial concerns taking a backseat until we enable tenants to realise a decent standard of living.