Sunday, 01 March 2015

Regulator concerned by ‘handful’ of associations

The social housing regulator is concerned about the financial viability of a ‘handful’ of large housing associations, but feels unable to downgrade them for fear of increasing their problems.

Julian Ashby, the chair of the Homes and Communities Agency regulation committee, yesterday told MPs the regulator cannot use its ‘statutory powers’ to intervene because doing so might trigger a repricing of a housing association’s debt, making any financial problems worse.

Mr Ashby was giving evidence to the first session of an inquiry by the communities and local government select committee on social housing regulation. He was put under pressure to explain why none of the 280 large housing associations the regulator monitors has a financial viability rating that would indicate it is in any trouble.

He said that although the regulator does have financial concerns about some landlords, it is reluctant to indicate this through the ratings system as this would probably result in the landlord breaching loan covenants with its lenders, which would then take the opportunity to reprice.

Mr Ashby identified repricing as one of three big risks facing the sector, saying around £40 billion of bank debt held by the sector is ‘underwater’, meaning it costs more to the banks than they get in return. Welfare reform and reducing grant rates are the other risks he identified.

‘If we use any of our statutory powers we are potentially putting lenders in a position where they can reprice, so we tend to be very careful about how we approach these situations, because you don’t want to make a difficult problem worse by triggering a repricing,’ he said.

He said if the regulator had concerns about the financial viability of a housing association it would suggest actions the landlord should take to avoid statutory action, or indicate problems by reducing the association’s governance rating instead of its financial viability rating.

When pressed on how many times the regulator has done this in the last 12 months, he said there were ‘probably at least 20 cases where we have been giving associations a pretty strong steer on the actions we expect them to take’, but that only a ‘handful’ of these related to financial viability.

Readers' comments (19)

  • "Arms Length"

    Not working is it?

    HAs are in the main badly run, expensive and top heavy.

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  • Sean Farley

    Exasperated, that sweeping statement needs some substantiation. (unless of course you are one of the LA Trotsky trolls on this board in which case you wont have considered any facts before writing)

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  • The sheer number of HAs nationally would tend to suggest that they are missing out on economies of scale.

    One would imagine that hundreds - maybe thousands - of back office staff roles would be redundant if there were more mergers.

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  • why as he not NAMED these RSLs then we the tenants can take action
    as they do with tenants, these RSLs are no different than any other
    body who are badly ,if it was a PLC THE STOCKMARKET would
    stop them trading. The HCA should take action as the Stockmarket would and stop all this bad Management, and if these companies are in such a bad state the Senior Management should be suspended and the Boards if need be should be given more training in Governance and fiscal policies. You have to remember that these Boards are lead by the Senior Manangement of the Company and anyone of the Board members who ask to many questions are either silenced or replaced as the are regarded as trouble makers. And fo the good name of the industry they should be NAMED AND SHAMED so they cannot do the same to other RSLs who are recruiting. And while we are on the subject many Boards rely on outside help to recruit Senior Staff this system does not always work.

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  • Usual Suspect

    I find this very disturbing, if any regulatory system is to work integrity is at its very heart. What this article suggests is that the HCA is not applying its own system honestly. which undermines its very reason for existing.

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  • Man Withabacus

    So who are the basket cases then???

    Whatever happened to regulatory transparency and consistency???

    This is a massive "own goal" for the regulator in that is has openly admitted to fudging its judgments to prevent making matters worse!

    If I were a lender to the sector I would use this as an excuse to pull down the shutters or reprice everything unless each HA client proves they are not one being artificially propped up by the HCA.

    Time for a parliamentary review of regulation as this has "global credit crunch" written all over it...

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  • Man Withabacus

    The HCA lying to the market...

    (This could even be a form of fraud given that senior executives would clearly be affected if the truth was reveleaed!)

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  • Clearly the HCA is damned if it acts and damned if it doesn't act. And also damning a load of Association's in the process. The relationship between the credit worthiness of a lender is more complex and what l find disturbing is the rush of lenders to act whole-sale to a circumstance in the few and apply that up to the many. We saw this in the credit-crunch and potentially see it here again.

    There is a risk here of pushing the HCA to action which will have massive unintended consequences for the sector.

    Better for lenders to have honest conversations with the need to re-price or encourage those lending to move towards settling their debt by moving into less restrictive bonds and the like. It has to be that Association's businesses are maintained for their tenants, staff and suppliers as far as possible.

    Personally l see this as HCA understanding only full well the implication of their decision on the industry they regulate and let's not forget the Government unwillingness to potentially bail out sector members so it really is down to find a solution unique to each Association not the sector as a whole.

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  • @ ManWithAbacus
    What would you do if you were in Mr Ashby's shoes? Lie to the committee? Go public on an RPs difficulties and give lenders the opportunity to reprice? I think that the regulator has a difficult job which it is doing quite well. Shame about grandstanding MPs as usual not understanding the diffiuclt compromises needed to operate in the real world.

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  • Where is the moral hazard?. There is no incentive for housing associations to take better care of finances. Why is the regulator covering up their mistakes. Even if a downgrade is not in their interest, but making the public aware is the right thing to do.

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