Regulator downgrades two RPs for governance and two for viability

News14 Nov 2018Sarah Williams

The Regulator of Social Housing (RSH) has downgraded two housing associations for governance and a further two for viability, in regulatory judgements published today.

Narrative judgements were published for Moat Housing Association and Durham Aged Mineworkers’ Homes Association, which were both downgraded to G2, and Shepherds Bush Housing Group and WATMOS Community Homes, which were downgraded to V2.

A fifth narrative regulatory judgement was published for Peabody, which maintained its G1 V2 ratings, following an in-depth assessment (IDA) and changed basis for governance and viability grades.

Governance concerns included DAMHA’s approach to recruitment, assessment and renewal of its board members to ensure it has the skills required to manage its business. The IDA also showed only limited evidence that DAMHA has a systematic, risk-based approach to internal controls assurance, particularly around operation controls on health and safety.

It added that gaps in the provider’s financial reporting and stress-testing procedures need to be addressed.

Paul Mullis, chief executive of DAMHA, said: “Whilst it is important to stress that we remain compliant in governance, we accept the judgement of the Regulator of Social Housing and will be working closely with the RSH to implement its recommendations so we can return to G1 at the earliest possible opportunity. We are pleased to have once again achieved V1 for viability.”

Shepherds Bush Housing Association

Following a stability check, Shepherds Bush Housing Association (SBHA) maintained its G1 rating but was downgraded to V2 for viability, after the regulator found increased exposure to adverse changes in the housing market, and higher levels of debt, meant that it needed to manage material risks.

The RSH said: “The provider is escalating the scale of its development programme including the introduction of market sale units, which increases SBHA’s exposure to adverse changes in the housing market. To support this it is forecasting substantially increased levels of debt and is renegotiating a covenant limit to release capacity.

“In addition, SBHA’s latest business plan incorporates significant cost savings which are required to achieve forecast financial performance. Risks to the achievement of these savings further reduce the provider’s overall capacity to withstand downside risks.”

Matt Campion, chief executive of Shepherds Bush Housing Association, said: “When renewing our corporate strategy and financial models for the business we understood that building more homes increases SBHA’s exposure to market risks.

“We believe the right thing to do is to understand and manage the risk exposure rather than avoid risks and develop fewer new homes. Our board and executive team have completed detailed work around financial risks and the mitigating actions we would take in a range of scenarios.

“In July, we announced a new finance package of £190m to support delivery of our 2018-2023 corporate strategy. This includes an increase in our affordable homes building to 200 homes a year plus, for the first time, homes for market sale.

“We understood this would be assessed by the regulator in its routine annual stability check. We are reassured the regulator has identified that our financial plans are consistent with, and support, our financial strategy and we have the financial capacity to deal with a reasonable range of adverse scenarios.”

He added that the organisation recognised its efficiency programme represents “an ambitious step change”, but said that it was a conscious one.

“We know that our current costs per unit are higher than we would like and so we have put in place plans to reduce our costs accordingly.”

Watmos Community Homes

Watmos Community Homes maintained its G1 rating but was downgraded to V2, after the regulator found that while the organisation could deal with a reasonable range of adverse scenarios, it has material risks it needs to continue to manage.

The regulator said: “[Watmos] intends to increase planned maintenance expenditure and is also forecasting declining surpluses from social housing lettings. As a result, Watmos will have reduced financial capacity to deal with adverse scenarios and needs to manage cash flows to ensure continued covenant compliance.”

In a statement, Watmos said: “We understand the regulator’s V2 judgement but are confident that investing in the long-term safety and comfort of our residents living in tower block accommodation is the right priority for Watmos.

“In making its investment decisions our board was assured by the exceptional low levels of gearing we enjoy and that our projected peak debt has reduced significantly since our IDA, whilst at the same time allowing for the development of new homes.”

Peabody Trust

In the fifth narrative regulatory judgement published today, Peabody Trust maintained its existing G1 and V2 ratings, following an IDA and changed basis for viability and governance grades.

A Peabody spokesperson said: “We’re pleased with the regulator’s findings following an in-depth assessment in the summer. Our long-term investment and robust risk management means that Peabody is well placed to deliver more than ever for new and existing residents over the next few years.

“The judgement notes our capacity to deliver on our aim of starting at least 2,500 homes a year from 2022, as well as progressing with our plans for the long-term regeneration of Thamesmead.

“We’ll also be focusing on modernising and improving our services for all our residents. Since the IDA we have issued a £350m bond to help us achieve our objective of making a lasting difference in our communities.”

Further judgements

Following stability checks, the existing grades were also confirmed for the following providers in strapline regulatory judgements: