CEO WhatsApp group lists year-end and covenant compliance among coronavirus concerns
A WhatsApp group of nearly 190 housing association and ALMO chief executives has flagged the potential impact on account qualification and covenant compliance as a key area of financial concern amid the coronavirus pandemic.
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Consultancy Campbell Tickell, which set up the group two weeks ago, published the latest digest of the issues discussed by chief executives yesterday evening.
The report said that some are concerned about accounts being qualified by auditors, with “potential issue[s] with covenant compliance”.
It added: “[This] will depend on materiality of any physical testing needed; [organisations] that run annual valuations or have homes for sale [are] more vulnerable.”
Among other key financial concerns, the group highlighted rent arrears, with a “high proportion seen as potentially irrecoverable”, and whether to furlough staff for whom there is currently no meaningful work available.
Group members also shared further details of stress-testing approaches being adopted with regard to the loss of rent income, including in some cases the inclusion of a ‘rent holiday’ option.
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The report listed various assumptions for stress-testing being applied by different organisations, including:
- Direct payments (including Universal Credit) drop 50 per cent; direct debits drop 25 per cent for three months or longer; 50 per cent of increased debt not to be recovered
- Steady housing benefit income, self-payments not received for 10 weeks; 100% of this bad debt, no income from voids for a year, no income from new developments for a year
- 50 per cent housing benefit income loss, 30 per cent loss on rest, for a year
- 50 per cent loss of rent, for six months, no recovery
- Three, six, nine and 12-month scenarios
- Resurgence of virus at least once in next 18 months
On the question of whether they would postpone rent increases, which become possible from today (1 April) with the end of the government’s four-year rent cut, most chief executives answered ‘no’, but said they are looking to support residents though flexible approaches. There was also a suggestion to put the increased funds from the rent rise into hardship funds and community grants.
Other approaches in the group included the use of the terms “rent deferment” and “rent flexibility” rather than rent holiday, “as the term is misleading”, and a suggestion that it may be better to set up a discretionary hardship fund.
On the question of furloughing staff, the digest noted that “some will… some won’t, others [will do so as a] last resort.” Some chief executives said that they are working out logistics and expect to introduce it in future.
The report said that commercial arms are “particularly likely to be furloughed”, with questions also raised over whether housing associations would meet the criteria for the government job retention scheme.
Increase in Right to Buy applications
One impact of the lockdown for some providers has been an increase in Right to Buy and Right to Acquire applications “as people are using their time to plan long-term investments”.
The digest noted that this creates issues because “statutory deadlines for valuations and inspections persist while they cannot be carried out”.
It added: “[Sales] are at risk due to surveyors not able to value and mortgage lenders not able to progress approvals.”
And it cited a suggestion to suspend Right to Buy “so as not to lose more social housing during the pandemic”.
Alongside financial concerns, other key issues included how to protect staff mental health, the potential for deprivation of communities to intensify as a result of the outbreak, and how feasible it will be to continue to operate sheltered accommodation and care homes if systems such as lifts and alarm systems cannot be serviced.
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