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Associations stress-test over fear rent settlement will change post-Brexit

Housing associations are stress-testing for the possibility that the government will renege on a promise to allow plus-inflation rent increases after Brexit, they have told Inside Housing.

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Picture: Getty
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Housing associations are stress-testing for the possibility that the government will renege on a promise to allow rents to increase after Brexit #ukhousing

The Bank of England’s worst-case scenario for a “disorderly” Brexit, released in November last year, said that inflation could rise to 6.5%, which would mark a rise from about 2% and be the highest level since 1991.

Currently, housing associations’ rents are falling by 1% every year, thanks to a surprise policy introduced by then-chancellor George Osborne at a time when associations had been promised rents would increase by the Consumer Price Index (CPI) measure of inflation plus 1%.

The government has since pledged to return to the CPI plus 1% regime from 2020 but associations fear that a post-Brexit inflation hike could cause this to change.


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Lee Cartwright, UK head of housing at accountants Mazars, told Inside Housing: “There has been precedent for abandoning a rent settlement midway through. Are we really safe to assume that if CPI was say 8%, that rents could rise by 9%?

“I’ve seen organisations stress-testing that, saying even if their main cost drivers go up – their CPI assumption in their long-term financial plan is 8% – they won’t model that figure for the rent release. They’ll use a lower figure or at least stress-test a lower figure.”

If inflation were to rise after Brexit, Mr Cartwright said, this could lead to immediate cost increases for housing associations that may not be accompanied by rent increases.

Paul Hackett, chief executive of Optivo, told Inside Housing: “That is one of the scenarios we’re looking at. What we’re looking at is a period of sustained differential inflation between our costs and our income.

“We’ll look at a variety of different scenarios and see what impact that has on development capacity. If we apply assumptions in relation to higher-cost inflation and income inflation, what that does is reduce our ability to approve new schemes.”

Brian Cronin, chief executive of Your Housing Group, added: “We stress-test loads and loads of scenarios, but our central theme for Brexit is an initial hit of interest rates going up with no cost benefit coming through because it’s too quick, then potentially the rents stabilising and not going up.”

He also said, however, that he thought if the economy went into recession, costs for housing associations would go down.

Click her to read more on Brexit

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