Show me the money

Since Notting Hill Housing Group stopped threatening tenants with eviction as soon as they failed to pay the rent, legal bills have fallen by 70 per cent – and arrears are down.

If your rent arrears are constantly rising what should you do? The prevailing attitude among social landlords is to threaten eviction. If tenants refuse to pay then they should be aware of the consequences.

But what if you have tried all that and arrears are still increasing?

Two years ago Notting Hill Housing Group found itself in that position. Possession action was on the up, but so were arrears. Director of customer accounts Vincent Thomas (below right) decided there must be another way.

And there was. A combination of the sort of nagging used by catalogue companies and a decision to spend resources chasing the money rather than preparing court papers is now paying dividends. Before the process started rent arrears peaked at over nine per cent of charges due. By March 2003/04 it was 7.9 per cent. This puts Notting Hill in among the average for a housing association of its size and type in London. Thomas says: ‘The target is 6.5 per cent by the end of the year and we are on course to do that. As we get more and more people with accounts in order that will accelerate until we get to five per cent or less.’

The decision to change was for both financial and social reasons. Court action was costly and did not reduce arrears. Thomas says he was also influenced by reports from Shelter and Citizens Advice which raised concerns that possession action was not always a last resort for many social landlords. Notting Hill estimated that evicting a tenant who then becomes homeless and is placed in temporary accommodation by the council could cost as much as £50,000. This does not include additional social costs such as children changing schools. ‘We want to be a social organisation so we don’t want to throw people out. It also makes business sense because if we evict people we lose that money. We have limited resources and we need to apply them to get the maximum income.’

Under the old system those resources were spent on letters and paperwork for legal action. After two weeks of arrears a tenant got a letter. After another two weeks the association sent a second letter. After the fourth week, or when arrears hit £250, it sent a notice seeking possession. ‘Letters have the lowest response rate,’ says Thomas. ‘The standard letters often make mistakes, they lie unopened, go to the back of the drawer or in the bin. Letters saying we will serve a notice are the worst because it is jargon that people don’t understand.’

He realised that their letters were competing for attention with the likes of Littlewoods reps paying weekly visits. Even though tenants can lose their homes if they don’t pay their rent, they would still pay the catalogue debt first. Thomas decided to find out more about private sector debt collection. A visit to Britannia Building Society and training from the Institute of Credit Management was an eye-opener. ‘The private sector persuades and cajoles people to pay them before other debts. But their attitude is that they want to keep their customers. To shift to a more customer-focused approach we have recruited people from the credit control business, like banking.’

Thomas realised he had to chase the money not resort to court action. Under the old system officers spent 20 per cent of their time preparing papers for court, but the cash was not at the county court. They now spend that time on the phone to tenants the minute a payment is missed. He restructured the whole process.

There are three teams of officers dealing with rent. One handles day-to-day collections. They phone a tenant immediately a rent payment is missed to discuss payment. If another payment is missed they call again and again until the problem is solved. Another team is responsible for monitoring new tenants – or customers as Thomas calls them. They make sure customers know the rules, have all housing benefit forms ready and monitor payment for three months to ensure the customer develops ‘good habits’. If a customer is refusing to pay they are passed on to the legal team. They give the tenant a final opportunity to pay before court action starts. Notices are not served at a fixed level of arrears but only if all other means have failed.

In many cases the money is with the council’s housing benefit department. Like most social landlords, Notting Hill was sending out eviction notices so that tenants could force the housing benefit department to prioritise a tenant’s claim. This makes a mockery of the deterrent argument for possession action.

Tenants would phone up in a state of shock having received a possession notice, only to be told it was just a formality to get the housing benefit paid. The courts are not keen on being used in this way either.

Thomas decided not to take court action at all if housing benefit was at fault. ‘One of the key things is distinguishing between can’t pay and won’t pay. With court action we would sometimes get large housing benefit settlements before an eviction. But if it is housing benefit we shouldn’t be dealing with it at that stage. We need the local authority to recognise that we’re not serving notices. We have negotiated with key boroughs so that they prioritise people who are eight weeks in arrears.’

In exceptional cases Thomas will agree to write off all or part of a debt. ‘We can look at deals. If they have got £2,000 of arrears and we are only going to get £5 over 30 years, if they come up with £1,000 we might match it. But we only accept sources of money that won’t contribute to further debt. It’s best if they can borrow from family. Mostly we offer economic write-offs.

‘For example, a debt could be written off if there was a mental health issue and the tenant did not claim housing benefit for a period that cannot now be backdated. We will only pay this if there is no other way of recovering the debt. If someone is going to stay put but has £2,000 arrears on account it is difficult to motivate them. If those factors come together we will consider a write off.’

Other innovations include a variety of payment mechanisms. Tenants can pay online with a debit card, at the post office, by direct debit, standing order and over the phone with a debit card. The association is expanding its independent debt advice arrangement with Catholic Housing Aid Society to all tenants. And the association organises a quarterly prize draw for all tenants who have a clear account or are paying their arrears regularly.

So when do they take court action? Thomas is only interested in going to court if the tenant won’t pay. They only ask for outright possession orders. And they are hoping the courts will see that their cases are only listed if there is a real reason to evict. Since the new process started the legal budget has fallen by 70 per cent. Possession action has dropped dramatically. In the three years preceding 2003 it served 2,000 notices of intent to seek possession a year. In 2003/04 that dropped to 665. In 2003/04 it was granted 107 possession orders, a mix of outright and suspended. Previously it was averaging over 600 a year. Actual evictions are 43 but Thomas expects that to reduce as the policy filters through.

Will tenants think the association has gone soft? ‘I think it will be the opposite. They think we are getting tougher because we are nagging them so early. One or two have complained about the phone calls. But if someone hasn’t paid their rent we are within our rights to speak to them.’