Associations act over fears of soaring rent arrears due to welfare reform
Landlords pay tenants to open ‘jam jar’ accounts
Housing associations are paying tenants to open credit union accounts to protect their rental income from forthcoming welfare reforms.
By encouraging tenants to open ‘jam jar’ accounts the organisations hope to ease the impact of the universal credit, which will be phased in from October 2013.
Universal credit will combine a number of benefits, including housing benefit, into a single monthly payment direct to tenants. Social landlords - which are currently paid £14 billion in housing benefit directly - fear this could jeopardise their rental income and lead to mounting arrears if tenants fail to manage their money and pay their rent.
Incommunities is offering to open a Bradford Credit Union account for its tenants by providing them with a £10 deposit. Geraldine Howley, chief executive of Incommunities, said the offer is open to all 9,000 of its working-age tenants claiming housing benefit.
‘It will be a choice for the tenant, we are not saying they have to do this, but obviously for us the payment is ring-fenced,’ she said.
The 21,500-home housing association aims to help tenants who have difficulty accessing traditional bank accounts, because of a lack of money to open new accounts or problems with credit.
The accounts will be ‘jam jar’ accounts, meaning benefit payments will be transferred automatically into a separate ‘jar’ from which rent would be paid, thereby protecting the landlord’s income.
Ms Howley said Incommunities was also exploring the idea of offering further financial incentives to keep tenants in the credit union, such as a loyalty scheme.
Walsall Housing Group is offering to cover an £18 administration fee for tenants wishing to open a jam jar account with Walsave Credit Union.
Sunderland-based Gentoo is talking to credit unions about jam jar accounts but has yet to decide what action to take.
Emerging evidence suggests the proportion of tenants with bank accounts varies widely between landlords.
Wirral Partnership Homes surveyed 550 of its 12,400 households and found just 292 (53 per cent), had bank accounts. However London landlord Family Mosaic, which is piloting one of the Department for Work and Pensions’ direct payment demonstration projects, found 95 per cent of 600 tenants already had bank accounts.
Jam jar accounts also remove the risk that banks owed interest or overdraft charges will automatically take money from tenants’ accounts when they receive benefit payments, leaving them without sufficient funds with which to pay their rent.
Wakefield and District Housing said a number of payments on the DWP pilot project it is running had not gone through due to banks applying charges.
Credit unions are owned and democratically controlled by their members. There are 500 of them in the UK with around 1 million members. Their primary functions are savings and borrowing and they aim to help people who cannot access ordinary banking products. Unlike banks they are not-for-profit and have a strong community focus.
Jam jar accounts
Jam jar accounts are specifically designed to meet the needs of people on low incomes or with poor financial management skills.
They allow customers to split their account balance into different jars for spending, saving and bill payment and help improve budgeting through low balance alerts and automated transfers between jars.