In its guest blogs, NHC Supporter Ward Hadaway offers the legal perspective and some guidance on some of the social housing sector’s most pressing issues. In this edition: social housing risk profiling.
What are the main financial risks facing social housing providers?
This is one of the things which the Homes and Communities Agency (HCA) attempts to address with its Sector Risk Profile (SRP) 2017. The SRP focuses on financial risks that may cause a social housing provider to fail to comply with the regulator’s economic standards. It details the main risks facing the social housing sector and some of the actions registered providers should be taking to manage those risks.
Fundamentally, the SRP highlights how the HCA will seek assurance that boards are managing those risks effectively.
What are the risks?
The rate of policy change in the social housing sector, together with increased development activity and diversification into building for sale and other non-social housing activities, are flagged up as potential risks.
Also highlighted in the report is the potential impact of any future increase in interest rates and the resulting effect this will have on business plans and loan covenants. This is to be considered alongside the impact of rising inflation and ongoing rent cuts, which are likely to affect a registered provider’s overall business plan and delivery of forecasted cost savings.
Fiona MacGregor, Executive Director of Regulation at the HCA, says the regulator will have an “increased focus on the quality of stress testing” and wants to see “that boards have a clear idea of the early warning signs or triggers that would lead to their carefully thought through mitigation plans being put into effect”.
What must social housing boards do?
Boards of registered providers must continue to ensure that they meet the requirements of the regulator’s consumer standards, including the obligation under 1.2(b) of the Home Standard (the requirement that a registered provider must meet all applicable statutory requirements that provide for the health and safety of the occupants in their homes).
While diversified activities can support registered providers’ core activities, boards must assure themselves that this is the case and it does not come at the expense of their fundamental role. Governance structures must evolve and boards must recruit the skills required of a diversified portfolio as the sector continues to enter into a range of new commercial ventures and relationships.
It was regarded as “essential” in the SRP that registered providers stress-test a wide range of potential scenarios that are inherent to their business, particularly when it comes to potential economic risks and risks to rental income.
As the adoption of Universal Credit builds up steam, preparations are to be taken to minimise any risk of cash flow problems as tenants are switched over to the new system.
The SRP is particularly concerned that:
- the finances/cash flow of registered providers are stress-tested to ensure that mitigation plans are developed.
- whilst planned de-regulation will grant certain freedoms upon registered providers, boards are to ensure that they are in full control of decisions around constitutional changes and disposals.
- all applicable statutory requirements that provide for the health and safety of the occupants in their homes are met.
The sector is under particular scrutiny and in this climate, the HCA has a clear aim to promote a viable, efficient and well-governed social housing sector able to deliver homes that meet a range of needs.
For further information, please contact Howard Walker, PR Manager at Ward Hadaway, on 0191 204 4446 or firstname.lastname@example.org.