FTA: Social Housing’s Silent Threat?
Rightly or wrongly, former tenant arrears (FTAs) rarely feature highly on the radar at an executive level within social housing providers, despite it often being a large debt on the balance sheet. During the current financial climate however, maximising rental income and minimising bad debt write-offs in order to offset some of the cutbacks to budgets allocated to other areas of social landlords’ operations has never been more pressing. (Take a look at our Effective Management of FTA Guide to identify effective approaches to managing this debt successfully).
It’s fair to say that many organisations simply do not prioritise FTAs over ‘normal’ income collection channels though, often as a result of misconceptions around various elements of the collections process. Could this continuing ‘c’est la vie’ attitude towards FTAs present a threat to some social landlords’ financial wellbeing though? Well, we’re about to take a closer look at some of those fallacies and attempt to dispel some of the myths around FTAs that, if not challenged, could compromise housing providers’ ability to continue to deliver an equitable service to their tenants.
Myths of The Near Future
Some of the main misplaced beliefs about FTA by those at an executive level within social housing providers are, in our experience*, as follows:
- Difficulty of collection
- Resources could be better deployed elsewhere
- Legacy systems are not optimised for effective collection
- Provision is already in place so collection not a priority
- Historically accepted as unrecoverable
Consequences of Inaction
The financial impact of FTAs on social housing providers can be significant. When tenants leave owing unpaid rent or other debts, it can lead to financial losses that can make it difficult to invest in new properties and maintain existing ones. This, if left unchecked, could lead to social housing providers failing to meet their obligations to tenants and ultimately prevent them from delivering on their core objective as an organisation; providing housing to those on low incomes.
Additionally, social housing providers are also affected by the administrative burden of chasing up unpaid rent. This often involves sending reminders and warnings, conducting online searches and carrying out in-person visits, all of which take up a significant amount of time and resources. The outlay required to undertake these actions, both financial and in terms of time available, can add up and can be significant on the overall budget of the social housing providers.
Despite the above widely held beliefs, there has of late been somewhat of a shift in attitudes across the sector, possibly driven by ever decreasing operational budgets caused by increased arrears (which are in turn caused by financial pressures on tenants resulting from the current cost of living crisis). The below factors are now being considered as drivers towards putting a greater focus on FTA collection:
- Negative effect on revenues
- Bad debt provision proving problematic for FDs
- Negative impact on current tenant arrears collection
- Convoluted write-off processes can be negated
- Availability of improved systems for flagging FTAs
- A pressing need for a unified approach to mutual benefit
Perhaps the most pertinent of the points listed above is that of the steady realisation by social landlords that a ‘joined-up’ approach to FTAs is mutually beneficial both for tenants and other service providers within the sector. Fundamental to this is the encouragement of a ‘positive payment culture’ by which is meant the efforts landlords go to towards promoting prompt and consistent payment amongst tenants. Incentives include the promotion of Direct Debit payments (often with a discount to encourage uptake), the highlighting of alternative payment methods available, and the offering of various payment frequency options.
Social housing providers are also coming to the realisation that allowing FTA debts to go unrecovered can have a negative effect on whoever might be the next landlord to a tenant with outstanding debt. Whereas previously there had been little practical collaboration transferring a tenant between tenancies – many practices including referencing and requiring payments in advance cause unintentional conflict in fact – the sector is now looking to smooth over those administrative aberrations to provide a more seamless service for tenants.
Adopting Common Protocols
Social housing providers in the UK, no doubt spurred in to action by the constant squeezing of operational budgets, are steadily taking steps to address the silent threat of outstanding FTAs. By adopting common protocols such as more robust referencing and a dialogue between both landlords at the point a tenant leaves one tenancy and signs another, any anomalies can quickly identified and the potential for the incoming landlord to be incumbered with FTAs potentially mitigated.
In addition, many landlords are now moving to a system of conditional offers based on closing balances. Open communication channels and sharing information more readily between organisations has enabled this to happen, meaning that any tenants with outstanding debts to one provider will be flagged to the incoming provider. The response to any flagged FTAs can then be decided between all parties involved with many social landlords now adopting reciprocal debt arrangements. This approach ultimately benefit both housing providers and the tenant with outstanding debt as these plans allow the landlord to recoup valuable income and the tenant to repay in a way that is manageable for them. Take a look at our Effective Management of FTA Guide to learn more about such approaches.
The Bottom Line
FTAs have historically been viewed as something that’s merely part and parcel of the sector as a whole and not something that social landlords should be overly concerned about. However, the recent change in climate brought about by multiple factors including the cost of living crisis affect on tenants ability to pay rent, has sharpened landlords focus. FTAs are increasingly being seen for what they are; an untapped source of valuable rental income that can assuage the budgetary pressures that many organizations now find themselves subject to.
By adopting commonality of working practices and apportioning resource to collecting FTAs, landlords are steadily seeing the benefits both to their income teams and the satisfaction levels of their tenants who, now free of overhanging debts, are no longer subjected to the financial exclusion that can result from having bad credit histories.
If you’d like to learn more about FTAs, effective ways of preventing and collecting them, and how Mobysoft products can help, be sure to subscribe to our YouTube channel to ensure you don’t miss out on our in-depth FTAs: In-Conversation video feature that will be live in a few days’ time.