Six housing associations get downgrades in latest regulatory judgements

“We continue to rigorously stress test our business plan to ensure our ongoing financial viability, which is supported by very strong liquidity, low gearing and assets of £3bn, of which over £1bn are unencumbered.

“With less than 40% of the development pipeline in contract and a strong focus on increasing delivery through regeneration, Catalyst has considerable control over the timing and scale of our programme and can recalibrate as required in changing circumstances.”

The RSH said a major increase in investment by 7,700-home Irwell Valley Homes in fire safety work for existing stock was the reason why it had downgraded the Greater Manchester landlord to V2. The regulator said this investment an expected increase in work over the next two to three years would weaken Irwell’s financial performance. Like Catalyst, Irwell’s loan covenant compliance will not be affected and the association scored a G1 rating for governance.

Raven Housing Trust, which manages around 6,100 homes in the South East, also had its viability rating downgraded due to increased fire safety costs.

The regulator said Raven had an adequately funded business plan and sufficient security, but is facing increased stock investment costs, including in relation to building safety.

“These increased costs have a material impact on the group’s key financial metrics, weakening its interest cover position in the short term,” the regulator said.

Raven’s development programme, which will see it build 330 homes for social or affordable rent, 207 shared ownership homes and 209 units for market sale over the next six years, also “gives rise to risks and exposures”, the judgement added.

In terms of governance, Raven has maintained its G1 grading and the RSH said “there is no evidence to indicate a change to our current governance grading”.

“Demands on the sector have rarely been greater and Raven is increasing its investment to meet those demands”

Jonathan Higgs, chief executive at Raven, said: “We welcome the regulator’s judgement that Raven remains compliant with their expectations and that we have the financial capacity to deal with adverse scenarios.

“Demands on the sector have rarely been greater and Raven is increasing its investment to meet those demands. We are determined to make our financial capacity work as hard as possible for the benefit of our residents and their communities.

“The regulator recognises that we are in a position of financial strength to respond to the challenges the sector faces over the coming months, including the potential for housing market volatility and the ongoing impact on rent revenues arising from COVID-19.”

BPHA was another landlord to receive a top rating for governance but to be downgraded for financial viability. The RSH said that while the 20,000-home landlord, which has homes across the East Midlands, had the financial capacity to manage material risks, its increased investment in existing homes had weakened its interest cover position.

It also said that its additional investment in existing homes would mean the association would become more reliant on funds raised through the sale of private homes, and this would reduce its capacity to deal with adverse events.

Julian Pearce, BPHA’s chief financial officer, said: “During a year which has seen significant disruption and economic uncertainty, we remain committed to the delivery of our corporate strategy, providing affordable, safe homes for our customers.

“The impact of COVID-19 and Brexit will present ongoing challenges, but we are confident, in this our 30^th year, that we will continue to provide homes well into the future for those who need them”

“Through our tight financial controls, exceptional governance and robust approach to risk management, the regulator is assured that we will continue to support our financial strategy.

“The impact of COVID-19 and Brexit will present ongoing challenges, but we are confident, in this our 30^th year, that we will continue to provide homes well into the future for those who need them.”

North Devon Homes, the 3,300-home landlord based in Devon, was also marked down on financial viability, with the RSH saying that its underlying performance was weak and it increasingly relied on receipts from open market sale.

The 26,800-home Your Housing Group (YHG) also saw its financial viability downgraded to V2, while its governance grading remained G2.

The narrative judgement said the downgrade came after a review by the association of its 30-year planned investment programme, which forecast that the group would have to significantly increase the level of asset management spend to address an historic investment backlog and major works and health and safety compliance priorities.

The RSH added that while YHG, which has properties across the North West, Yorkshire and the Midlands, had agreed its covenants to provide sufficient headroom, this increase in asset management spend as well as its increased development spend would lead to a material increase in debt, of which YHG may need to access more finance. The judgement also concluded that YHG’s investment plan included a need to save significant costs and if YHG doesn’t achieve this, it will need additional funding.

“It also found that the board had not demonstrated it had ensured effective use of resources in line with its objectives and charitable status”

On governance, the regulator said a lack of clarity about the landlord’s strategy and material shifts, as well as several abortive projects and schemes, had limited the board’s ability to measure performance. It also found that the board had not demonstrated it had ensured effective use of resources in line with its objectives and charitable status.

YHG has now developed a governance improvement plan and action plan to address weaknesses identified in its approach to asset management. It has also reviewed its approach to business planning and improved its stress testing, the judgement said.

Hastoe Housing Association, which manages more than 7,500 properties in the south of England, had its financial viability rating upgraded from V2 to V1, while maintaining its G1 governance rating.

The upgrade came after Hastoe reduced its development programme, following a previous assessment by the RSH that found the landlord had “greater exposure to sales risk and an increased debt burden”.

Hastoe has reduced its forecast exposure to market and shared ownership sales, and has consequently reduced its forecast borrowing requirement.

The housing association now intends to deliver 397 new affordable homes and nine units for open market sale over the next five years.

“There are inherent risks associated with Reside’s business model due to the nature and terms of its lease obligations”

Reside, which manages approximately 1,450 units, most of which it leases, had its governance rating upgraded from G2 to G1.

In 2018, the RSH downgraded Reside, which provides housing to people with learning difficulties, mental health problems or acquired brain injuries, after highlighting concerns “with oversight of health and safety compliance, lease management and its approach to stress testing required improvement”.

In its latest judgement, the regulator said Reside had revised its health and safety policies and practices, improved its lease management approach, and aligned stress testing to the principal risks facing the business.

Reside has also “strengthened its internal control assurance framework through the appointment of internal auditors and the establishment of a risk-based internal audit plan”, the regulator said.

The landlord has maintained its V2 grading, as the RSH said there are “inherent risks associated with Reside’s business model due to the nature and terms of its lease obligations”.

Diane French, CEO at Reside, said: “As a small provider, we were pleased to receive a compliant rating from the regulator following our first assessment two years ago. We have since worked very hard to make the improvements in our action plan and are thrilled with the new top-tier rating. I’d like to thank everyone at Reside for their dedication and commitment to achieving this fantastic result.”