Are former tenants’ arrears a ticking timebomb of debt?

In 2019 there was over £440 million outstanding in former tenants’ arrears across all English social landlords. That equates to over £100 per property for each of the 4.3 million English social tenancies. And that does not include the former debt in Scotland, Wales and Northern Ireland.

So, why is it an issue and why is there so much debt? Well different landlords take different approaches. Some will write off bad debt each year, where others allow it to accumulate without writing anything off. Many focus primarily on current tenants arrears and have little resource or appetite to chase former arrears, that are viewed as low yield.

Jon Brownbill, currently Head of Customer Accounts at Mobysoft, has previously worked for three landlords in the North West of England, focusing on income collection. Jon believes the sector should be taking a unified approach to former arrears.

“Often a tenant with a poor arrears history will have incurred arrears with their previous landlord. One of the key influencers on this developing culture is often that there were no repercussions from their debt with a previous landlord. If the sector takes a unified approach then this can help change tenants behaviour to their past arrears from a former landlord.”

Jon Brownbill. Mobysoft
former tenants
A surge in former debt

The recent pandemic and the pressure on landlord’s income streams, means some landlords will deliver fewer services focusing on their core services and key projects for a period of time.

Therefore, increasing collection levels of former debt and reducing the bad debt provision is now more important than ever.

Mobysoft insight points to a potential rising issue with tenants and their arrears. Across a like for like sample of RentSense customers since 1st September 2019 to the end of August 2020 gross arrears* across this cohort (covering 1.1m social tenancies) have decreased from 5.99% to 5.39% (a reduction of 10%) and the number of tenancies in arrears fell by over 11.7% and all that despite Universal Credit claimants increasing by 85.8%. But, the average arrear has risen from £617 to £667.

The data is showing that across RentSense customers their collective arrears have fallen, along with the number of tenants in arrears. But those tenants with pre-existing arrears have fallen deeper into debt.

Some landlords are not surprised by this, due to circumstances and how services, such as court, have been stalled or stopped completely.

Evictions have been put on hold, and courts closed for a long time, so landlords have not been able to take action or process customers in arrears as they would do normally. As a result these individuals’ arrears have increased.

Michelle Fitzgerald, Head of Customer Accounts at Moat

“What we have also seen is that customers that have lost their jobs have typically engaged with us quickly, and got their rent account back on track relatively quickly.”

With courts now open and the eviction ban lifted landlords will begin to look at what they can do with those who are not engaging and not paying rent. This may well lead to a surge in court action around the country and more evictions. If this does materialise then former debt may rise dramatically too.

There are ways of mitigating against this rise in former debt and improving collections as well as measures (both preventative and proactive) that landlords can employ to mitigate against current debt moving across to former arrears.

To find out more about these download Mobysoft’s guide for effective management of former tenants arrears.

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