Interest-Free Loans Could Help Homeless and Save Cities Millions

(Nicholas Iovino/CNS)

(CN) – In 2010, officials in south London extended interest free loans to hundreds of families who were facing eviction. Now, a study finds the scheme could help stem the rise of homelessness and bring down the costs of assisting those in need.

More than 320,000 homeless residents were recorded in the United Kingdom in 2018, according to a report by U.K. advocacy group Shelter.

Lewisham – an area in Greater London – had the 12th highest number of homeless people in the U.K., the report found. One in 49 residents either lived in temporary homeless shelters or on the street and nearly 25% earned less than the living wage.

Officials moved to stem the crisis by partnering with Lewisham Plus Credit Union in 2010 to launch a £85,000 loan scheme to help people who were on the brink of eviction due to financial stress.

The credit union already had existing banking relationships with Lewisham residents, as well as with those from neighboring Bromley.

In a study published Sunday in the journal Public Money & Management, researchers found the Lewisham interest-free loan scheme helped more than 300 families escape eviction proceedings.

The project also saved the city at least £1 million it would have otherwise paid towards costs of assisting the homeless, such as providing temporary shelter, according to the study funded by The British Academy.

Sheffield University professor and lead author Bill Lee said in a statement that Lewisham’s “homeless prevention loans” were vital because most banks only lend to people deemed low-risk and who have high enough incomes to pay the loan back.

“This means that tenants struggling to pay rent are often forced to turn to commercial payday lenders, who exploit the financially excluded by offering short-term loans at extremely high interest rates,” Lee said.

Lee said that the scheme – including the use of credit unions – chips away at a paradigm in which low-income residents are excluded from accessing even basic financial services, such as a bank account or credit card that helps them build credit.

Lee said credit unions are best positioned to navigate complex webs that tie together municipalities, landlords, renters and housing providers in the United Kingdom.

“Social housing providers in Britain are expected to use business management techniques to sustain their own financial position and do not appear to be in a position to establish independent means to enhance the financial security of their tenants,” Lee said.

The program also opened up access to jobs and health services for low-income residents.

“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,” Lee said. “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.”

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