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Associations warned over house price exposure post-Brexit
Housing associations have been told to keep an “iron grip” on their financial position following last week’s referendum, as experts warn of volatility in the housing market.
Inside Housing research carried out earlier this year found 21% of 62 housing associations had not ‘stress tested’ their organisation against a fall in house prices.
Credit agency Standard & Poor’s warned of “a correction in the UK’s highly-valued housing market” as it downgraded the country’s credit rating this week. financial services firm KPMG predicted house price falls of 5% in the UK, and possibly more in London, with transaction volumes “deflated” until next spring.
Adam Challis, head of residential research at JLL, predicted a “modest down-tick in prices”. Richard Donnell, insight director at Hometrack, predicted a five to 10% fall in transaction rates in London as buyers pause amid the market uncertainty.
Jonathan Walters, deputy director of strategy and performance at the Homes and Communities Agency, said: “I suspect everyone will be reviewing their plans.
“We have been saying for some time that a downturn would come and associations should be testing business plans against that. It’s quite worrying that some of these numbers [Inside Housing research on stress-testing] don’t reflect what we’ve been hearing.
“We are absolutely of the view that providers need to be testing against not just price falls, but volume [of sales] as well. In 2008, the real thing that killed people was the drying up of volume.”
Inside Housing’s survey found 27.4% have only stress-tested against a 10% drop, with around 30% testing against a 30% drop in property values.
Matthew Bailes, former regulation director at the Homes and Communities Agency (HCA) and chief executive of Paradigm, said: “Associations need to keep very, very close tabs on what’s going on with existing sales and have an absolutely iron grip on things like covenant compliance.
“The question isn’t just about what happens if house prices fall, but what happens if you can’t sell housing for any reasonable price.”
According to Inside Housing’s survey, just one landlord thought a Brexit vote would be the most likely cause of a fall in UK house prices. Around 50% thought there would not be a house price drop until at least six years’ time.
Elizabeth Froude, financial director at Genesis, said in the event of a 20-30% dip in house prices, the association had plans to convert houses developed for sale to rented properties for two years.
She said social landlords were more insulated than house builders against the effects of a property crash.
“We develop stock with the view to keep it in the long-term, whereas house builders have a very short window with which they have to dispose of their stock,” she added.
Sue Harvey, a director at Campbell Tickell, said housing associations that had “beefed up” the number of homes they develop for sale should be “dusting off their stress tests”.
