MV-T valuations and the ‘uplift windfall’ – three years on

Comment22 Oct 2020Andy Garratt

The reclassification of registered providers as private organisations three years ago introduced an opportunity to revalue many homes through MV-T, unlocking further capacity. Savills’ Andy Garratt looks at progress to date

Andy Garratt

Andy Garratt is director of the valuations team at Savills Affordable Housing Consultancy

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The reclassification of RPs as private organisations three years ago introduced an opportunity to revalue many homes through MV-T, unlocking further capacity. @Savills Andy Garratt looks at progress to date #UKhousing #SocialHousingFinance

In 2016 and 2017, much of the housing sector news was dominated by the reclassification of English housing associations as private organisations by the Office for National Statistics. This was important for several funding-related reasons. But there was also an unanticipated benefit from the regulatory changes made in order to demonstrate the independence of housing providers from the state.

This regulatory windfall allowed stock transfer housing associations the potential to revalue many of their homes at a higher amount. As a result, in the past two years Savills estimates that housing providers have created additional balance sheet capacity of around £3bn, with the scope for a further £1bn in other similar organisations (see chart, below). This could provide 16,000 new homes.

“There are some chinks of light in finding the funds needed for housing providers to continue to achieve their strategic aims”

How is this possible and what are the challenges housing providers need to overcome?

The Housing and Planning Act 2016 – and similar statute in Wales – removed the need for prior consent for disposal. For many stock transfer housing associations, this took away the most significant hurdle that had prevented previously transferred homes from being revalued at the higher MV-T level for loan security purposes. This is where the additional treasury capacity is created.

While this is excellent news in terms of housing providers’ business plans and their ability to work with their local authority partners and others to support the delivery of their community aims, it is just the first step. To realise the additional capacity, lenders and investors must be brought on board and robust legal due diligence is required.

Some of the challenges faced here include:

Restrictive loan covenants such as gearing ratios
Does the local market support a value uplift?
Availability of accurate data

To date, there have been around 20 successful examples of housing provider value uplift in this way. So how have the challenges been overcome?

Importance of data

A key point has been being able to use large datasets to explore the potential for value uplift accurately. For instance, applying local earnings and deprivation data across property data. This allows us to draw robust conclusions on affordability and rental growth over time that reassure lenders.

It is also important to remember that value uplift is not an opportunity in all markets – as with all valuations, this depends on local market circumstances. That said, as value uplift calculations tend to involve quite large stock portfolios – often several thousand homes – covering a number of local housing markets, it is often the case that a portion of a portfolio can see its value increased.

Also, while datasets are rarely perfect, the quality of data held by some housing providers about their homes has definitely improved in recent years, with the greater focus on active asset management.

Our experience to date has been that lenders broadly support this value uplift approach and that housing providers are therefore able to access their additional balance sheet capacity.

Potential across Britain

Although there is greater potential for value uplift in some of the more expensive housing markets in the South of England, it is by no means restricted to there. We are working with a number of housing providers in the North and the Midlands, as well as in Wales, where there has been similar regulatory change. There is scope for similar value uplift in Scotland as well.

While these are undoubtedly some of the toughest times any of us have faced, there are some chinks of light in finding the funds needed for housing providers to continue to achieve their strategic aims.

Andy Garratt, director – valuations, Savills Affordable Housing Consultancy

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