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TAI preview: Credit where it’s due

Could housing associations start thinking about data like a commercial organisation? Cavan Doyle explains how this could support tenants.

Typically, social housing tenants may have a lower scoring credit file than those with a mortgage as their rent payments will not have been recorded on their credit file historically. This could exclude them from obtaining affordable credit, making repayments much harder to make due to higher interest rates.

According to Shelter Cymru, in 2014, repossessions for social housing tenants reached a seven-year high. Although BBC News reports that repossessions declined this year, housing associations need to consider an individual’s financial situation so they can offer the right level of support.

How other sectors use data

In banking, data is fundamental in making decisions about lending. For instance, banks may offer different products as their customers’ financial circumstances change over time – from offering current accounts through to mortgages. In insurance, data is used to determine the risk of an individual or company and the risk is translated into a price.

All lenders require proof of an individual’s ability to pay their bills to understand the risk they pose. A framework has been produced where they will share information to better understand customers. This is based on a very simple principle whereby past performance helps to predict future behaviour. If an individual has a proven record of paying their bills on time they are more likely to continue to do so, and are more likely to be offered credit. Having the ability to identify and validate customers allows lenders to protect their income and their customers by lending money to the right people, preventing fraud.

There is more data out there than ever before and lenders use this to offer the right product to the right customer. This minimises risk. Lenders closely monitor levels of arrears with certain products and change them accordingly. They manage customers by offering more appropriate products or services should their customers fall behind on payments.

Unlocking data using a commercial approach

Housing associations can apply the same methodology to make decisions on what level of support, or type of tenancy to offer. They should qualify each person to outline the level of risk they represent and manage the relationship accordingly. They can then offer relevant services to tenants such as debt advice if they are in arrears. Alternatively, if they have a good credit rating due to paying their bills on time, shared ownership and other options could be offered.

People with incomplete credit scores have difficulty being identified at the point of application for credit and so are forced to move away from mainstream lenders. This problem was highlighted recently in the 2015 Financial Inclusion Commission report, The Financial Health of the Nation, which said that those on low incomes pay a ‘poverty premium’ of £1,300 for basic necessities such as gas and electricity, mobile phones, insurance and white goods because they cannot access the cheapest deals.

Additionally, they may be at risk from legislative change such as Universal Credit as they may not be used to paying for rent directly to landlords. It is therefore important for housing associations to understand in more detail tenants’ ability to deal with such change.

Data for growth

Housing associations also need to grow sustainably by highlighting ‘at risk’ housing or supporting future house building projects as populations grow. Data can be used to understand the needs of people in the catchment area to build the right number and size of houses.

Protecting the vulnerable

To tackle the issue of vulnerability, tenants need to be recognised for their rental contributions. Experian’s Rental Exchange scheme has been developed in partnership with Big Issue Invest, to work with housing associations to tackle the financial, digital and social exclusion challenges faced by tenants in the UK.

It will incorporate a tenant’s payment history and factor it into their credit profile so they are recognised for paying rent on time, in the same way home owners are recognised for paying their mortgage. Credit providers will have more insight on tenants and will ultimately help to open up access to more affordable credit by giving them the opportunity to demonstrate credit worthiness. It also allows housing associations to work towards being smarter in using data available to them, in the same way commercial organisations do.

Cavan Doyle is a product manager at Experian managing the Rental Exchange scheme and will be speaking at TAI 2017 about effective use of data within the social housing sector.

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