Regulator downgrades two housing associations

The Regulator of Social Housing (RSH) has issued viability rating downgrades to two more housing associations.

RSH has today reduced the viability grading of 9,000-home Aspire Housing and 3,200-home Staffordshire-based Honeycomb Housing. The pair have had their grading lowered from the top ‘V1’ score to ‘V2’ which means they still comply with the regulatory standard but “need[s] to manage material risks to ensure continued compliance.”

The downgrades follow 48 associations receiving downgrades to V2 before Christmas, with RSH warning about the sector’s lowered capacity to deal with risk due to reduced interest cover, which compares earnings to interest payments and is used as a measure of financial capacity.

RSH said Aspire Housing, which is based in Newcastle-under-Lyme, had “weaknesses in financial planning and risk control” which have meant its board was “not fully sighted on the financial exposures associated with a loss-making subsidiary.” It said this has now been resolved, but at an unspecified cost to the organisation. It also said Aspire has committed to funding on net zero works outside of its business plan which needed the agreement of lenders.

It said: “Aspire has an adequately funded business plan and sufficient security in place, however Aspire’s interest cover position is reduced as it is investing in its stock, and funding the closedown of a subsidiary.

“Delivery of these two factors, in conjunction with economic uncertainty in relation to inflation and interest rates, means that Aspire’s capacity to respond to adverse events is reduced.”

Aspire has plans to build 970 homes over the next five years.

RSH said Honeycomb meanwhile “is increasing investment in its existing homes.”

It said: “Delivering this investment, coupled with the current economic uncertainty in relation to wider inflation and interest rates, reduces Honeycomb’s capacity to respond to adverse events.” The organisations is planning to build 280 homes by 2029.

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The RSH global accounts of housing associations published yesterday shows associations have increased development and existing stock spend and are expected to increase it further.

However it shows balance sheet headroom has tightened, with interest falling 24 percentage points to 128% and overall operating margins dropping to 20%, the lowest figure for 11 years.

RSH warned in November housing associations’ ability to manage risk will be reduced as interest cover falls further next year.

RSH downgraded the viability of 48 housing associations in three batches before Christmas. This included downgrades for 19 large providers in November, including big developers Clarion, L&Q, Home Group, Places for People and Sovereign .