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Cool heads are needed as associations restructure debt to prepare for Brexit
Some housing associations are looking to refinance ahead of Brexit, but now is the time to remain calm, writes Sam McGrady
When social housing providers raise concerns about the impact of Brexit, it’s fair to say they will receive less attention from national newspaper editors than the bosses of major car manufacturers. Whether it’s Toyota or Jaguar Land Rover, you can be sure their take on Brexit will make the headlines.
Yet, if the worst-case scenario of a no-deal Brexit does materialise, I’ve no doubt it will be the poorest in society who will be most affected, not least the tenants of social landlords. In my view these voices need to be heard as well.
Brexit uncertainty is topping the risk registers of many of the housing professionals I speak to. However, the impact it is having on their mitigation strategies is less likely to excite the major news organisations.
“If the worst-case scenario of a no-deal Brexit does materialise, I’ve no doubt it will be the poorest in society who will be most affected.”
Evidence from the frontline suggests many providers are getting on top of this issue now – and topping up their available liquidity, in some cases where they don’t have to.
Expect the best, but prepare for the worst as they say.
In fact, a quarter of the people we spoke to for a recent survey of 20 chief executives said they were restructuring debt as part of their Brexit preparations.
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If a no deal Brexit becomes more likely, I would anticipate more providers following suit.
This matters for reasons beyond housing association balance sheets – because it’s largely borrowed money which builds the affordable homes the country so badly needs.
Both the availability of loans, and how much that lending costs, are major factors in how many homes get built.
In the manufacturing sector, it seems Brexit uncertainty has acted as a brake on borrowing to fund capital investment.
Lenders are more than happy to lend to organisations less impacted by the vagaries of economic cycles. And for registered providers, good deals are still available.
“Cool heads are needed to exploit opportunities when you need to borrow more, renegotiate existing loans or there’s a chance to improve the structure of your loan book.”
Institutional investors, especially pension and insurance funds, are quite prepared to lend to social housing providers right now.
Registered providers can still easily secure competitive rates of 3.5% from these lenders.
While I wouldn’t describe this as a Brexit dividend exactly, it certainly hasn’t harmed providers’ ability to borrow, and at good rates, so far.
The important thing is for providers not to panic or worry unnecessarily. Instead, cool heads are needed to exploit opportunities when you need to borrow more, renegotiate existing loans or there’s a chance to improve the structure of your loan book.
And while a precautionary approach is sensible, providers still face major risks as a direct result of Brexit, and considerable uncertainty. As do we all, in my view.
“The important thing is for providers not to panic or worry unnecessarily.”
Being able to secure the finance now for future uncommitted development won’t help providers if Brexit results in a spike in the cost of raw materials to build homes, or construction labour shortages.
And if the housing market crashes (one possible scenario the governor of the Bank of England has suggested in the event of no-deal), cross-subsidy strategies would be thrown into chaos if market sales took a nose-dive.
Geopolitical tensions aside, Brexit is making general business planning a lot more difficult. How can we plan anything with so much uncertainty?
The stakes remain high, even if for now providers’ borrowing situation appears favourable.
Sam McGrady, director, David Tolson Partnership
