Peaks and Plains Housing Trust, which has stock across Cheshire and Derbyshire, has been given a G3/V1 grading by the Regulator of Social Housing (RSH) following governance issues “of serious regulatory concern”.
And Yorkshire Housing gets a governance downgrade in the latest regulatory judgements all based on assessments carried out before the Coronavirus crisis hit the UK.
Yorkshire Housing is acknowledged as continuing to meet the requirements on governance set out in the Governance and Financial Viability Standard but is assessed as “needing to improve” aspects of its governance arrangements to ensure continued compliance.
On the basis of an In Depth Assessment, RSH concludes that Yorkshire Housing needs to make improvements to reporting on the financial performance of its commercial subsidiary.
The Regulator has also identified weaknesses in Yorkshire Housing’s stress testing which does not “sufficiently demonstrate” the financial impact of the range of risks to which is it exposed.
The report recognises Yorkshire Housing has assurance that Yorkshire Housing meets the requirements of the viability element of the Governance and Financial Viability Standard – but it has material financial risks it needs to manage.
RSH says that the associations planned development programme demonstrates an increase in scale, increases its debt burden and reduces its free security in future years.
But these factors reduce Yorkshire Housing’s capacity and flexibility to cope with downside risk and require on-going management to ensure continued compliance.
Yorkshire Housing, the report finds, has a material investment in its commercial subsidiary that generates significant income from an increasing sales programme.
“This exposes the association to a range of market conditions and means that it is susceptible to the crystallisation of a series of housing market and economic risks”, RSH states.
“This requires on-going management to ensure continued loan covenant compliance and access to sufficient liquidity within the group”, it added.
Nick Atkin, Yorkshire Housing’s CEO confirms that the organisation have a “clear plan” in place to deliver the changes required by the end of the year.
“Ahead of the IDA, work was already underway to modernise our finance systems and improve our financial reporting.
“This is part of a business-wide transformation programme to digitise many of our systems. We are continuing to progress this work which addresses many of the points reflected in the Regulatory Judgement.
“Our financial viability remains compliant but has been regraded to V2 to reflect our extensive growth and investment plans.
“This is an increasingly commonplace position where housing associations are scaling up their development plans to build more much-needed homes at the time of a housing crisis.
“This will be incredibly important to aid the impending economic recovery after the COVID-19 pandemic.
“We are working closely with the RSH to make all the improvements needed. Yorkshire Housing has ambitious plans for the future and this will ensure we continue to build on our strong foundations.”
According to reports, Peaks and 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 association “only became aware of the covenant breach when it was alerted to it by the lender”, RSH said.
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.
John Hudson, Chair of Peaks and Plains Housing Trust said: “Following self-notification to the Regulator for Social Housing, we have been preparing for a reclassification.
“In July 2019, we notified the Regulator of two main compliance and governance issues. The first related to a breach of the Home Standard as noted in the Regulatory Notice published in December 2019.
“In addition, the Trust reported a loan breach in July 2019, which the funders described as technical. This was rectified as soon as it was identified, and to the satisfaction of both our funders.
“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.”
Tower Hamlets Community Homes (THCH) 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,” RSH said.
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”.
Manningham Housing, 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.
As outlined in the update, various associations have received a confirmation of existing grades – including L&Q – with G1/V1 ratings reaffirmed.
L&Q Group Chief Executive David Montague said: “Nobody at L&Q under-estimates the challenge we face in dealing with Coronavirus, and the tough decisions we need to make.
“However, this judgement confirms that we face the crisis from a position of financial strength and with strong governance arrangements in place to make the best decisions for our residents.
“Although this assessment took place before the scale of the crisis became known, it provides confirmation internally and reassurance to the outside world that L&Q is among the best placed organisations to work through the challenges ahead.
He added: “L&Q has a long history of being able to adapt and succeed in a crisis, and this is no different.
“We will make all necessary short-term adjustments to provide critical services, support our most vulnerable residents, and protect jobs.
“In the longer term, our commitment to working with partners and building the quality homes that people need remains undiminished.”