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Steve Douglas is chief executive of St Mungo’s
The English social housing regulator has changed a number of associations’ viability ratings from V1 to V2. Steve Douglas explains why this is a good thing
Steve Douglas is chief executive of St Mungo’s
The English social housing regulator has published a number of regulatory judgements with a viability judgement of ‘V2’ (see full list below).
Far from this being necessarily a judgement on inadequate financial control, it is more a reflection of a maturity in approach from the regulator.
It is a recognition that the sector is operating in an uncertain, complex and risk-associated environment and that there are pressures on associations’ finances through a whole host of external factors, as well as the change of the housing association business model to be more market cyclical.
“It is a reflection of a maturity in approach from the regulator.”
A few years ago we passed the tipping point of the proportion of a housing association’s balance sheet that is financed through public subsidy.
Each year that the sector develops more homes of all types, that proportion of private borrowing and self-generated finance will increase.
If you are an association that is increasing your development programme, or a transfer association just hitting peak debt and refreshing your business plan, or you are sticking with essential care or supported housing services – that bring social return, but marginal profitability – then you are putting your balance sheet to work.
“Each year that the sector develops more homes of all types, the proportion of self-generated finance will increase.”
Sweating your assets was a phrase that was used a few years ago. And that’s a good thing in my view.
A V2 judgement is a compliant judgement. The tagline makes it clear: “The provider meets our viability requirements. It has the financial capacity to deal with a reasonable range of adverse scenarios but needs to manage material risks to ensure continued compliance.”
The grading to watch is the combination of the governance ‘G’ grade, alongside the viability ‘V’ grade.
A G1/V2 is an acknowledgement that an association has exposures but that its governance understands the risks and is able to demonstrate that it is managing them effectively.
“Financial institutions put a premium on the governance of an organisation.”
Financial institutions get it, and while their preference will always be that associations create and then sit on a cash pile of reserves to mitigate any risk, they increasingly understand the business of the sector and so put a premium on the governance of an organisation when pricing loans.
Any organisation that has raised bond finance will be acutely aware of the interest that is shown in the quality of the board and executive team.
The regulator likewise will continue to place a premium on the quality of the governance of associations.
I expect the in-depth assessment approach to be even more rigorous in testing an organisation’s consideration of adverse scenarios and its strategies for dealing with them, should they materialise.
As a mature sector, we should be comfortable with G1/V2, where we know that the G1 grade is a reflection of a board’s ability to govern effectively and manage risks appropriately. That is the challenge for our governance.
Steve Douglas, co-chief executive, Altair
Latest HCA judgements in full
Provider | Governance rating | Viability rating | Details |
Accent Group | G1 | V1 | No change |
Acis Group | G1 | V2 | Viability regrade – V1 to V2 |
Aldwyck Housing Group | G1 | V2 | No change |
Brunelcare | G1 | V1 | No change |
Calico Homes | G1 | V1 | No change |
Catalyst Housing | G1 | V1 | No change |
Christian Action (Enfield) Housing Association | G1 | V2 | Viability regrade – V1 to V2 |
Coast and Country Housing | G1 | V1 | No change |
County Durham Housing Group | G1 | V2 | Governance upgrade |
Cross Keys Homes | G1 | V1 | No change |
East End Homes | G1 | V2 | Viability regrade – V1 to V2 |
Eden Housing Association | G1 | V2 | Viability regrade – V1 to V2 |
Equity Housing Group | G1 | V1 | No change |
Estuary Housing Association | G1 | V2 | No change |
Gateway Housing Association | G1 | V1 | No change |
Gloucester City Homes | G1 | V2 | No change |
GreenSquare Group | G1 | V2 | Viability regrade – V1 to V2 |
Halton Housing Trust | G1 | V1 | No change |
Hanover Housing Association | G1 | V1 | No change |
Havebury Housing Partnership | G1 | V1 | No change |
Home Group | G1 | V1 | No change |
Housing & Care 21 | G1 | V1 | No change |
Hundred Houses Society | G2 | V2 | No change |
Hyde Housing Association | G1 | V2 | Viability regrade – V1 to V2 |
Leeds and Yorkshire Housing Association | G1 | V1 | No change |
Leeds Federated Housing Association | G1 | V1 | No change |
Manningham Housing Association | G3 | V2 | Viability regrade – V1 to V2 |
Merlin Housing Society | G1 | V1 | No change |
Moat Homes | G1 | V1 | No change |
Mosscare St. Vincent Housing Group | G1 | V1 | Merger |
Mount Green Housing Association | G1 | V2 | No change |
Newlon Housing Trust | G1 | V1 | No change |
Peabody Trust | G1 | V2 | Viability regrade – V1 to V2 |
Progress Housing Group | G1 | V1 | No change |
Railway Housing Association and Benefit Fund | G1 | V1 | No change |
Salix Homes | G1 | V2 | No change |
Saxon Weald Homes | G1 | V1 | No change |
South Lakes Housing | G1 | V1 | No change |
Southern Housing Group | G1 | V1 | No change |
Trent and Dove Housing | G1 | V1 | No change |
Watford Community Housing | G1 | V1 | No change |
Weaver Vale Housing Trust | G1 | V1 | No change |
West Kent Housing Association | G1 | V1 | No change |
Together Housing Group | G1 | V1 | Governance upgrade |
Wrekin Housing Group | G2 | V2 | Viability regrade – V1 to V2 |
Golden Lane Housing | G1 | V1 | No change |