Large housing association gets downgrade after selling homes to for-profit

Fiona MacGregor, chief executive of the RSH, said at the time that social landlords should be careful about selling off stock because of a potential public backlash.

In this case, the regulator accused Moat, which retains its V1 rating for financial viability, of having made the decision to sell the homes “solely on financial criteria”.

It said that the association had failed to adapt to the new position on regulation, where the regulator does not have to give its consent, and that its board should have had more oversight of the sale.

In its judgement, the regulator also said: “We concluded that improvements are required to ensure that key decisions of this nature are informed by a sufficiently broad range of quality information and that appropriate delegations are in place.”

It added: “Moat’s assurance that the disposal met its charitable objectives was inadequate. Although legal advice was taken in respect of the transaction, Moat did not obtain specific legal advice regarding the charitable considerations arising from the disposal.

“Due diligence of the proposed purchaser was insufficiently robust to demonstrate accountability to tenants and obligations to protect social housing assets.”

In a statement, a Moat spokesperson said that the association sold the homes in order to focus more on London and the South East.

The spokesperson added: “Moat still retains the highest financial rating of V1 and we are already having positive discussions with the regulator about what we need to do in order to return to a G1 governance rating.”

Meanwhile, the RSH also downgraded the governance rating of Durham Aged Mineworkers’ Homes Association (DAMHA), which was founded in 1898 and houses over-50s in the North East, from G1 to G2.

According to the regulator, not all board members at the 1,700-home association are “recruited and assessed on a skills basis”.

In its judgement, the regulator said: “We found only limited evidence that DAMHA has a systematic, risk-based approach to internal controls assurance.

“In particular, the board has not been receiving sufficient assurance on the operation of controls on health and safety. This compromises the robustness of DAMHA’s overall internal control framework.”

DAMHA retains its rating on financial viability and, according to the regulator, has begun work to address its governance issues.

Paul Mullis, chief executive of DAMHA, said: “Whilst it is important to stress that we remain compliant in governance, we accept the judgement of the Regulator of Social Housing and will be working closely with the regulator to implement its recommendations so we can return to G1 at the earliest possible opportunity. We are pleased to have once again achieved V1 for viability.”

Also in today’s raft of judgements, the regulator downgraded WATMOS Community Homes for financial viability, from V1 to V2. This is still a compliant rating, and the regulator does not require WATMOS to work to regain a V1.

The association was formed by a transfer of eight tenant management organisations from Walsall in 2003, as well as three more from Lambeth in 2012.

According to the regulator’s judgement, the downgrade was due to WATMOS’ plans to increase its spending on maintenance and a predicted downturn in its surpluses from social housing lettings.

The regulator added: “As a result, WATMOS will have reduced financial capacity to deal with adverse scenarios and needs to manage cash flows to ensure continued covenant compliance.”

In other narrative judgements published today, large London association Peabody saw its viability rating maintained at V2, but the basis for the judgement changed.

The regulator said: “Peabody’s stress-testing of its business plan has demonstrated that it has the financial capacity to deal with a reasonable range of exposures. It needs to manage the material risks relating to the scale and complexity of the Thamesmead regeneration, sales performance and potential for further opportunities to integrate and consolidate the group to ensure continued compliance.”

It added that it was “satisfied” the organisation has “appropriate controls and mitigations in place”.

Finally Shepherds Bush Housing Group (SBHG), which manages 5,000 homes in west London, was downgraded to V2 from V1. The judgement says: “The provider is escalating the scale of its development programme including the introduction of market sale units, which increases SBHA’s exposure to adverse changes in the housing market.

“To support this it is forecasting substantially increased levels of debt and is renegotiating a covenant limit to release capacity.”

Matt Campion, chief executive of Shepherds Bush Housing Association, said: “We are keen to play our role in solving the housing crisis by providing affordable homes. When renewing our Corporate Strategy and financial models for the business we understood that building more homes increases SBHA’s exposure to market risks.

“We believe the right thing to do is to understand and manage the risk exposure rather than avoid risks and develop fewer new homes. Our board and executive team have completed detailed work around financial risks and the mitigating actions we would be take in a range of scenarios."