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

The Regulator of Social Housing (RSH) has downgraded Moat Homes after it sold older people’s homes to a for-profit provider.

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The Regulator of Social Housing has downgraded Moat Homes after it sold older people’s homes to a for-profit provider #ukhousing @moat-homes

Moat’s governance rating drops to G2 following sale of 26 homes to for-profit provider #ukhousing

The 20,000-home association saw its rating for governance drop from G1 to G2, meaning it is still compliant with the regulator’s standards but needs to improve its governance.

According to the regulator, Moat sold 26 homes for older people to a for-profit provider of social housing.

Before deregulation measures brought in last year, housing associations had to ask the regulator for permission to sell homes outside the sector.


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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."

Regulatory judgements published on 14 November 2018

Provider Governance Viability Explanation
Accent Group G1 V1 No change
Aldwyck Housing Group G1 V2 No change
Arches Housing G1 V1 No change
B3 Living G1 V1 No change
Bolton at Home G1 V2 No change
Bournemouth Churches Housing Association G1 V2 No change
Broadland Housing Association G1 V2 No change
Cheshire Peaks & Plains Housing Trust G1 V1 No change
Colne Housing Society G1 V1 No change
Community Housing Group G1 V2 No change
Curo Group G1 V1 No change
Durham Aged Mineworkers' Homes Association G2 V1 Governance downgrade
English Rural Housing Association G1 V1 No change
Estuary Housing Association G1 V2 No change
ForViva Group G1 V1 No change
Gateway Housing Association G1 V1 No change
Housing Solutions G1 V1 No change
Howard Cottage Housing Association G2 V1 No change
Leeds and Yorkshire Housing Association G2 V1 No change
Look Ahead Care and Support G1 V1 No change
Moat Homes G2 V1 Governance downgrade
Network Homes G1 V2 No change
North Devon Homes G1 V1 No change
Ocean Housing Group G1 V2 No change
Origin Housing G1 V2 No change
Peabody Trust G1 V2 No change - changed basis for governance and viability grades
Pickering and Ferens Homes G1 V1 No change
Places for People Group G1 V1 No change
Plus Dane Housing G1 V1 No change
Poplar Housing and Regeneration Community Association G1 V2 No change
Regenda G1 V1 No change
Richmond Housing Partnership G1 V1 No change
Salix Homes G1 V2 No change
Shepherds Bush Housing Association G1 V2 Viability downgrade
Southern Housing Group G1 V1 No change
Torus 62 G1 V1 No change
Tuntum Housing Association G1 V2 No change
WATMOS Community Homes G1 V2 Viability downgrade
West Kent Housing Association G1 V1 No change
WM Housing Group G1 V1 No change
Yorkshire Housing G1 V1 No change

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.

Jargon-busting: some regulatory terms and what they mean

Jargon-busting: some regulatory terms and what they mean
  • Co-regulation: this means boards are responsible for deciding how to meet the regulator’s standards – the regulator does not prescribe how to do this
  • Gradings under review list: a public list of providers under investigation who are at risk of being judged non-compliant with regulatory standards
  • In-depth assessment: a planned inspection, in which the regulator assesses a providers viability, governance and approach to value for money
  • Narrative regulatory judgement: a detailed explanation of the reasons behind a regulatory judgement. Narrative judgements are published where a providers’ viability or governance ratings have changed, or where RSH has particular issues or concerns.
  • Reactive engagement: refers to the regulator reacting to complaints or allegations about a provider and taking action
  • Stability check: an annual assessment of all providers owning 1,000 social homes or more. RSH uses accounts and statistical return data to check for any changes in a providers’ risk profile.
  • Strapline regulatory judgement: where a provider is meeting the standards, and its governance or viability ratings have not changed since its previous judgement, the regulator does not publish a full judgement explaining its reasons for the gradings. Instead it just publishes the gradings themselves, in a ‘strapline’.

 

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