Further lowering of ratings as rising inflation hits financial capacity
The Regulator of Social Housing has lowered the financial viability ratings for 15 more housing associations, citing the balance sheet impact of rising inflation coupled with investment in improving existing stock.
The RSH today issued regulatory judgements for 59 registered providers, including 15 who had their viability rating lowered from the top score of V1 to V2.
V2 ‘means an organisation still complies with the regulatory standard but “needs to manage material risks to ensure continued compliance.”
This latest batch of downgrades brings the number of associations downgraded in the past few weeks to 34, following lowered viability ratings for 19 associations earlier this month.
The latest associations downgraded include 35,000-home Onward Homes and 21,000-home EMH Group (see list below).
In the individual judgements today, the RSH repeatedly states that inflation and rising interest costs, coupled with providers plans to invest in existing stock or development, were reducing providers’ capacity to respond to “adverse events” (see comments for each provider below).
The judgements follow the RSH warning last week that increasing interest rates and continued investment in existing stock will “inevitably result in weakened financial performance”. Its quarterly survey of providers said housing associations’ levels of interest cover - which compares earnings to interest payments and is used as a measure of financial capacity and liquidity - have “deteriorated” and will fall further over the next year.
>See also: Can HAs keep development going as the rest of the market slows?
RSH earlier this month issued viability downgrades to 19 providers including big developers Clarion, L&Q, Home Group, Places for People and Sovereign .
Jonathan Walters, deputy chief executive of RSH, said at the time: “The results of our first round of stability checks reflect the significant economic challenges facing the sector.
| Latest providers downgraded from V1 to V2 |
|---|
| Bromsgrove District Housing Trust |
| Coastline Housing |
| East Midlands Housing Group |
| Golden Lane Housing |
| Habinteg Housing Association |
| Halton Housing |
| Housing Plus Group |
| Inquilab Housing Association |
| Livin Housing |
| Onward Group |
| Plymouth Community Homes |
| Prima Housing Group |
| Rooftop Housing Group |
| Thrive Homes |
| Wakefield And District Housing |
RSH’s comments on the downgraded associaitons
Bromsgrove
Bromsgrove is continuing to develop new homes and is also increasing investment in its existing homes. This weakens its financial performance and, coupled with higher inflation and interest rate pressures in the current economic environment, reduces Bromsgrove’s capacity to respond to adverse events.
Coastline
Coastline needs to manage material exposures. It is forecasting increased stock investment and energy efficiency costs, delivery of its development programme, and is carrying a proportion of variable rate debt. These factors, together with higher inflation and interest rate pressures in the current economic environment, weaken Coastline’s interest cover position and its capacity to manage adverse events.
EMH Group
EMHG is making additional investment in its stock, including improvements in energy efficiency. In combination with the current economic uncertainty in relation to inflation and interest rates, this reduces its interest cover headroom and therefore its capacity to withstand downside risks.
Golden Lane
Golden Lane Housing has experienced a significant rise in the interest costs relating to its existing debt. Coupled with the current inflationary pressures, this has reduced the capacity within Golden Lane Housing’s business plan to deliver its development plans and to respond to further adverse events.
Habinteg
Habinteg is increasing investment in its existing homes. This investment has a material impact on the provider’s key financial metrics, weakening its interest cover position. When coupled with the current economic environment including inflationary and interest rate pressures, this reduces Habinteg’s capacity to manage a wide range of adverse events.
Halton Housing
Halton Housing is investing in its existing homes by increasing maintenance and major repairs expenditure, which weakens its financial performance. Delivering this investment, coupled with the current economic uncertainty in relation to inflation and interest rates, reduces Halton Housing’s capacity to respond to adverse events.
Housing Plus
Housing Plus has significantly increased the level of investment in its existing homes, primarily to address the government’s energy efficiency targets. The combination of rising interest costs and the additional economic uncertainty in relation to inflation, has reduced the forecast headroom on its interest cover loan covenant and the available capacity to manage adverse events.
Inquilab Housing Association
Inquilab is planning to increase investment in its existing homes, including works to improve energy efficiency. It is also continuing to develop to provide new homes. These factors, together with higher inflation and interest rate pressures in the current economic environment, reduce Inquilab’s interest cover covenant headroom and reduce its capacity to deal with downside risk.
Livin
Livin is increasing investment in its existing homes, while also continuing to develop new homes, and this weakens its financial performance. Delivering this investment, in combination with the current economic uncertainty in relation to inflation and interest rates, reduces Livin’s capacity to respond to adverse events.
Onward
Onward is investing in its stock and revising its pension arrangements and as a result, interest cover is reduced. Additional investment will also be required to achieve energy efficiency targets and delivery of these objectives, in conjunction with economic uncertainty in relation to inflation and interest rates, means that Onward’s capacity to respond to adverse events is reduced.
The regulator’s assessment of Onward’s compliance with the governance elements of the Governance and Financial Viability Standard remains unchanged. Based on the evidence gained from the Stability Check, the regulator has assurance that Onward’s governance arrangements enable it to adequately control the organisation and to continue meeting its objectives.
Plymouth Community Homes (PCH)
PCH needs to manage a range of exposures including increased costs due to ongoing investment in existing homes, a greater level of long-term debt to fund its programme of development activity and exposure to wider housing market risks from its future market sale activity. These factors, together with higher inflation and interest rate pressures in the current economic environment, weaken PCH’s financial performance and its capacity to manage adverse events.
Prima Housing Group
Prima is increasing investment in its existing homes, while continuing to develop new homes, weakening its financial performance. Delivering this investment in combination with the uncertain external operating environment reduces Prima’s capacity to respond to adverse events.
Rooftop Housing Group
Rooftop is increasing investment in its existing homes to improve energy efficiency, which puts pressure on its interest cover covenant, and it needs to secure new finance in the medium term. In the current economic environment, with uncertainty in relation to wider inflation and interest rate risks, these factors place pressure on financial performance, reducing Rooftop’s capacity to respond to adverse events.
Thrive Homes
Thrive needs to manage the material risks arising from its growth strategy including an expanded sales and development programme. It is also increasing investment in its existing homes which weakens its interest cover position and the additional investment spend means Thrive will be partially reliant on income from sales to meet interest costs. In the current economic environment, with uncertainty in relation to wider inflation and interest rate risks, these factors place pressure on financial performance, reducing Thrive’s capacity to respond to adverse events.
WDH
WDH is increasing investment in its existing homes, particularly in the areas of building safety, fire safety, and energy efficiency. WDH is also continuing to develop new homes. This activity, against a backdrop of the uncertain external operating environment, specifically high inflation and social housing rents increasing at a rate below the level of inflation, reduces WDH’s financial capacity to respond to adverse events.
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