Regulator warns associations of ‘No Deal’ risks

Six key areas identified as in need of address as clock runs down to a ‘disorderly’ Brexit.

Brexit

With associations already stress testing over fears of a rent settlement shift post Brexit, the Regulator for Social Housing (RSH) warns of real risks to the sector in event of ‘No Deal’.

Six key areas are identified as in need of address by associations as the clock runs down to a ‘disorderly’ departure.

A sector wide letter from RSH shows those areas to be:
• A deteriorating housing market
• Interest, inflation and currency risk
• Access to finance
• Availability of labour
• Access to materials and components
• Access to data

RSH chief executive Fiona McGregor said the areas had been identified based on analysis and contacts with registered providers.

MacGregor said that “in the current context” RSH expects associations to have identified the risks to which their businesses would be exposed; stress-tested their business plans to reflect these; and identified specific, deliverable and timely mitigations to ensure viability is maintained with tenants and assets are protected.

The Bank of England’s worst-case scenario released in November indicated inflation could rise to 6.5% – which would mark a rise from about 2% and be the highest level since 1991.

Currently, associations’ rents are falling by 1% every year after the 10-year rent settlement was torn up despite promises rents would increase by the Consumer Price Index (CPI) measure of inflation plus 1%.

The present government has since pledged to return to the CPI plus 1% from 2020.

But associations fear that a post-Brexit – specifically No-Deal – inflation hike would see this threatened.

Associations that operate predominantly in London and the South East are regarded as most at risk given their high exposure to market sales and tendency to fund large development programmes with debt.

Mitigation measures have meant some associations holding back more liquidity than their financial stress-tests have suggested given the enhanced layer of uncertainty in the markets.

A downturn is also seen as making it harder for associations to access loans from banks and secure terms that are sufficiently long enough during the instability.

Credit ratings agency Standard & Poor’s (S&P) has said it will downgrade half the housing associations it rates given a No-Deal.

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