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Landlords need a Healthy Stream of Income
This article is an external press release originally published on the Landlord News website, which has now been migrated to the Just Landlords blog.
A Government quango has expressed that housing associations should be regulated more attentively; in a bid to protect social housing tenants from the extra financial risks their landlords are taking.
The Homes and Communities Agency (HCA) proposed stricter rules for landlords’ corporate structures and borrowings. The proposition arrives after the UK’s biggest social landlord saved a large housing association based in Liverpool, Cosmopolitan Housing Group, who fell into financial turmoil.
After months of disputing with creditors, Cosmopolitan has been taken over by Sanctuary Group.
Landlords need a Healthy Stream of Income
Social landlords have become more involved in complicated business recently, from developing new properties for sale at market prices, to purchasing private letting firms. They have also been borrowing large sums, frequently by issuing bonds.
This movement is somewhat fuelled by social landlords’ need to make a healthy stream of income, replacing Government grants. These allowances have been significantly cut since the Coalition Government came into power.
Regardless of the record profits they made last year, credit rating agency Moody’s reduced the ratings of some housing associations in February, placing them under review for additional downgrades. They noted the troubles faced with finding a rescue for Cosmopolitan.
Moody’s says: “Recent developments suggest the Government could become more selective in protecting housing association.”1
Chief Executive of the Housing Finance Corporation, a housing association funder, Piers Williamson, says: “After Cosmopolitan, investors will ask more questions about risk and differentiate between individual landlords more. They are pretty acute at spotting risk and that is evident on the increasingly varying price levels that landlords pay for debt.”1
Deputy Director of Regulation at the HCA, Jonathan Walters, comments: “[The proposals are] about maintaining investor confidence in the long-term value of the assets. If housing associations take too much risk on to their core balance sheets then they may end up paying more for their debt, investors have been clear about that. We’re saying that providers need to think better and harder about how they hold their assets.”1
The HCA plans to enforce rules that will boost their board members’ independence, to reduce conflicts of interest.
They are also attempting to allow companies to make a profit from buying and selling social housing properties for the first time.
The Government changed the law two years ago, to permit profitmaking firms to become accredited social landlords, however, just 20 have signed up since. Of these, none have been allowed to buy existing housing association or council homes.
The HCA’s proposals are at discussion stage, and a full consultation will follow in the autumn.
1 http://www.ft.com/cms/s/0/2ce099f0-a075-11e2-88b6-00144feabdc0.html#axzz3RLuRveeO
