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HCA: lower viability ratings reflect increased development risk

The English social housing regulator has begun to increasingly issue second-grade ratings for viability as the sector steps up its development plans, it has told Inside Housing.

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Regulator says it is stepping up V2 gradings as risk appetite rises #ukhousing

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The Homes and Communities Agency (HCA) downgraded nine associations to V2 last week, one notch below its top tier V1 rating for financial viability, mainly due to an increased appetite for commercial risk to fund development.

It came just days after chair of its Regulation Committee, Julian Ashby, warned the sector it needs to take on more development risk to maintain the positive political climate of recent months.

Jonathan Walters, deputy director for performance and strategy at the HCA, said: “We were conscious that the sector’s been taking on more risk. We’ve been talking about it in our sector risk profile and we thought we needed to make sure that we were reflecting that accurately in our judgements.”

Sector figures told Inside Housing they had noticed this change of tone from the HCA, but had a mixed attitude to the approach.


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Rob Griffiths, deputy chief executive and chief financial officer at Longhurst, said: “It [V2] is certainly not something we’re expecting to get and our development programme and sales programme is quite sizeable. But the HCA are obviously doing a lot of work around reviewing those ratings so I don’t see it in a negative context if it’s reflecting an increased risk profile.”

Another finance director told Inside Housing: “We get that V2 could now be the accepted norm, but we do not want a V2 rating. V is viability, 2 is second rate to first. There’s nothing to stop you having a strong, robust development plan backed by solid financing plans, and that should allow you to maintain your V1 status.”

Andrew Kilby, executive director of finance at EMH Group, said: “If you get a V2 now, if anything goes wrong, there’s nowhere else to go, if you see what I mean.”

Paul Rickard, finance director at One Housing Group, which has had a V2 rating for some time, disagreed, saying: “We’ve never considered looking for V1 because we know that V2 reflects our development pipeline. We’ve certainly never viewed it as anything negative and no external stakeholder has viewed it as negative in any of the discussions we’ve had with them either.”

Mr Walters added: “If you’ve been made V2 because that’s where your strategy leads you because you’re taking on more sales risk to build more homes, or if it’s a conscious decision of your board, that’s not a bad thing.”

“The rider we always put on that is, you have to have the governance and the risk management up to managing the additional level of risk you’re taking on.”

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