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Housing association ruled non-compliant after safety issues and loan covenant breach

A 5,000-home housing association has been deemed non-compliant with regulatory standards after multiple safety issues were uncovered across its stock and it breached one of its loan covenants.

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Housing association ruled non-compliant after safety issues and loan covenant breach #ukhousing

.@RSHEngland publishes 11 regulatory judgements #ukhousing

One housing association non-compliant, another downgraded and two return to top ratings in latest round of regulatory judgements #ukhousing

Cheshire Peaks & Plains Housing Trust, which has stock across Cheshire and Derbyshire, has been handed a ‘G3/V1’ grading by the Regulator of Social Housing (RSH) – indicating governance issues “of serious regulatory concern”.

Among 10 other regulatory judgements published today – all based on assessments carried out before the coronavirus crisis hit the UK – 16,400-home Yorkshire Housing was downgraded from G1/V1 to G2/V2.

Tower Hamlets Community Housing (THCH) and Manningham Housing Association both received governance upgrades to G1 – the highest possible rating.

Peaks & Plains “failed to identify that the formal consent of one of its lenders was required for the securitisation of a property to another body”, the RSH said in its judgement.

The association “only became aware of the covenant breach when it was alerted to it by the lender”, the judgement added.

It was subsequently granted waiver letters, but the RSH said it had still “failed to safeguard its social housing assets” as required by regulatory standards.

In December, the RSH issued a regulatory notice announcing that Peaks & Plains had breached the Home Standard for failing to carry out checks or actions on fire, electrical, asbestos, gas and water safety.

Today’s regulatory judgement said the covenant breach and safety problems “demonstrate serious weaknesses in the operation of [Peaks & Plains’] internal controls and assurance framework”.

It added that the landlord has “demonstrated its commitment to putting things right” and “been open and transparent with the regulator”.

John Hudson, chair of Peaks & Plains, said: “Improvements are ongoing as part of a robust action plan, with the clear aim of restoring and enhancing the governance standard the trust is better known for.

“We’ll continue to work closely with the regulator to improve the trust’s position as quickly, responsibly and as considerately as possible in the interest of all of our residents.”


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At G2/V2, Yorkshire Housing is still compliant with RSH standards but “needs to improve some aspects of its governance arrangements” and “manage material risks” to its financial viability, its regulatory judgement said.

An in-depth assessment (IDA) by the regulator “found weaknesses in elements of [Yorkshire Housing’s] financial reporting” relating to the performance of its commercial subsidiary, YH Residential, and its overall development programme.

The association’s stress-testing “does not sufficiently demonstrate the financial impact of the range of risks to which it is exposed” and it must develop “early warning triggers and mitigation strategies” to help the board, the judgement added.

Yorkshire Housing – which is one of Homes England’s strategic partners – intends to build 5,040 homes by 2026.

This programme “demonstrates an increase in scale, increases its debt burden and reduces its free security in future years”, the RSH said, reducing its “capacity and flexibility to cope with downside risk” while its increasing sales activity further exposes the association to the housing market.

The RSH has regraded several housing associations with large development programmes from V1 to V2 over the past two years.

Nick Atkin, chief executive of Yorkshire Housing, said: “Yorkshire Housing welcomes the feedback from the RSH.

“We have a clear plan in place to respond to the IDA findings and deliver the changes required by the end of the year.

“Ahead of the IDA, work was already under way to modernise our finance systems and improve our financial reporting.”

TCHH, which owns around 3,200 homes, has returned to the top governance grading, having previously been upgraded from G3 to G2 in December 2018.

It was ruled non-compliant in 2016 over site acquisition and procurement issues at two major development sites.

“On the basis of an IDA carried out in January 2020, the regulator now has additional assurance that THCH’s governance arrangements are sufficient to maintain compliance with regulatory requirements,” today’s judgement said.

The association has “refreshed its board so that the skills and experience of board members are now better aligned with the risks associated” with its strategy, the RSH added.

However, THCH’s financial viability grading has stayed at V2 because of increased high-rise fire safety costs that have “significantly reduced” its “ability to manage further adverse scenarios”.

BME housing association Manningham, which owns around 1,400 homes in Bradford, has also returned to G1, having previously been upgraded from a non-compliant governance grading in December 2018.

It has retained its top V1 grading for financial viability.

Lee Bloomfield, chief executive of Manningham, said that the judgement was “testament to what can be achieved when the board and staff work together for the benefit of our customers and the long-term future of the association”.

Of the other regulatory judgements published today, Clarion, L&Q, Aster, Rooftop, Arches Housing and Rosebery have kept their G1/V1 gradings, while East End Homes has stayed at G1/V2.

Regulatory judgements published on 25 March 2020

ProviderGovernanceViabilityExplanation
Arches HousingG1V1No change to grades
Aster GroupG1V1No change to grades
Cheshire Peaks & Plains Housing TrustG3V1Governance downgrade
Clarion Housing GroupG1V1No change to grades
East End HomesG1V2No change to grades
London & Quadrant Housing TrustG1V1No change to grades
Manningham Housing AssociationG1V1Governance upgrade
Rooftop Housing GroupG1V1No change to grades
Rosebery Housing AssociationG1V1No change to grades
Tower Hamlets Community HousingG1V2Governance upgrade
Yorkshire HousingG2V2Governance and viability downgrade

Regulatory judgements in England explained

The Regulator of Social Housing publishes regulatory judgements for all providers owning 1,000 or more social housing homes.

These judgements set out whether the provider is complying with the regulator’s governance and financial viability standards.

The regulator carries out an assessment either through a scheduled in-depth assessment, or reactive engagement (in which the regulator acts following information about a provider).

It then awards the provider a rating from one to four for financial viability (V) and a separate rating from one to four for governance (G).

Providers must score two or higher in both categories to be judged as complying with the standards.

As providers have increasingly taken on more risk to cross-subsidise social and affordable housing delivery through market-facing activity, the regulator has changed a number of associations’ viability ratings from V1 to V2.

The regulator often categorises this kind of regulatory action as ‘regrades’ rather than downgrades. Click here to read more.

 

Key to ratings:

V1/G1: Compliant

V2/G2: Compliant

V3/G3: Non-compliant and intensive regulatory engagement needed

V4/G4: Non-complaint, serious failures, leading to either intensive regulatory engagement or the use of enforcement powers

 

Rating straplines in full:

Governance ratings:

G1: The provider meets our governance requirements.

G2: The provider meets our governance requirements but needs to improve some aspects of its governance arrangements to support continued compliance.

G3: The provider does not meet our governance requirements. There are issues of serious regulatory concern and in agreement with us the provider is working to improve its position.

G4: The provider does not meet our governance requirements. There are issues of serious regulatory concern and the provider is subject to regulatory intervention or enforcement action.

 

Financial viability ratings:

V1: The provider meets our viability requirements and has the financial capacity to deal with a wide range of adverse scenarios.

V2: 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.

V3: The provider does not meet our viability requirements. There are issues of serious regulatory concern and, in agreement with us, the provider is working to improve its position.

V4: The provider does not meet our viability requirements. There are issues of serious regulatory concern and the provider is subject to regulatory intervention or enforcement action.

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