The homelessness prevention scheme helped to save the local authority over a £1m, which it would have spent on looking after the tenants, and also saved housing associations the cost of evictions and lost arrears.
Written by Prof Bill Lee from the Management School of the University of Sheffield and Liam Carlisle, credit control and deputy manager at Lewisham Credit Union, the study examines the impact of the initiative, which was funded by two local councils.
In 2010, Lewisham Council provided initial funding of £85,000 for the homeless prevention loan scheme, administered by LPCU. The funding was used to help Lewisham tenants to clear rent arrears with an interest-free loan, to prevent eviction and homelessness.
Two years later, Bromley Council allocated funding to the scehem which saw 178 families obtain loans totalling £289,350.
Prof Lee learned of the initiative during a visit to LPCU, which prompted him to researching a paper on credit unions in different countries. He is working on the project with Mr Carlisle, who has been involved in credit unions for over 30 years, having previously served as a local councillor and money adviser for Citizens Advice.
Like many other credit unions, Lewisham offers a Save as You Borrow (SAYB) loan, which enables new members to borrow up to £2,000, subject to income and affordability. The repayments made over the term of the loan include a savings element, which the member agrees to leave in the account until the loan is repaid.
Currently, Lewisham Credit Union has over 12,000 members, 4,800 of whom (40%) are residents of housing associations. According to the report, around 60% of the credit union’s members who are social housing tenants joined by applying for a SAYB loan that did not require prior savings.
It is in this context that the homeless prevention initiative was started in 2010, backed by £85,000 in funding from Lewisham Council; this saw 109 families receive a homeless prevention loan.
Only 20 of these loans – 16% of the total – went unpaid and were written off as bad debts, which was recovered by LPCU from the council funding. Since then, losses have been relatively small. Only £71,000 – 12% of the total budget – has been written off over the nine years, amounting to around £7,500 a year shared between two local authorities in Lewisham and Bromley.
Mr Carlisle said most of those who secured a loan remain loyal members to the credit union.
“While the scheme protected the recipients from homelessness by helping them to address their short-term financial problems, it also opened up loans and savings facilities to them, helping them to save, and establish a credit record,” said Prof Lee.
LPCU initially charged an administrative fee of £100, which has increased to £125, for each homeless prevention loan, which means the scheme has brought a marginal increase to its income. The fee is taken out of the local authority funding.
As of 2019, the homelessness prevention loans charge a 1% interest. So, if someone wanted a loan of £1,000 to be paid from their child benefit at £100 a month over two years, the total interest paid for the period would be £60.
Mr Carlisle says credit union needs the interest from the loans to serve more people during an acute housing crisis.
This year, Lewisham Council has awarded an additional £125,000 for the scheme, which should allow it to run for another five years.
Another 31 families have been helped in the first five months of 2019. Since the start of the service, over 900 other credit union members and non members have received informal advice from the credit union without having to borrow money. They were referred to other support organisations or their own housing associations.
Matt Bland, head of policy at the Association of British Credit Unions (Abcul), said: “The report demonstrates the powerful impact that partnership between local government and credit unions can have.
“An investment of just £85,000 has seen savings of £1.1m for the council and an unquantifiable amount for the families involved. The report is timely as concern continues to grow at the housing crisis in which we find ourselves as a country. This is just one of the areas in which credit unions partnering with key institutions in the community can unlock value and create virtuous circles where everyone wins.”
Prof Lee added: “Schemes like this could be rolled out across the country, as many credit unions have high levels of skills in helping vulnerable people manage their very limited finances.
“However, such schemes need to be underwritten by local authorities or central government, so that credit unions do not carry the burden of loss if people on low incomes are not able to repay the loans.”
Mr Carlisle points out that credit unions enjoy the backing of Archbishop Justin Welby, actor and activist Michael Sheen and MoneySavingExpert.com creator Martin Lewis.
He says the Archbishop’s support for credit unions in 2013 and his criticism of the payday lenders has created ‘a Welby Effect’ within the sector. “This scheme resonates with Michael Sheen’s campaigns against high-cost lenders in the UK and his call for Fair Credit for All,” he said.