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Sector draws up contingency plans for no-deal Brexit
The country’s largest housing associations are putting in place contingency plans to protect the future of their organisations if the UK leaves the European Union without a deal in March.
Several housing association bosses have told Inside Housing that they have stress-tested their business models against a no-deal Brexit scenario, with many stating that development plans would take a hit if the UK and the EU were unable to reach an agreement.
The comments from housing association leaders come as Homes England revealed earlier this week that it had begun drawing up contingency plans around labour supply and materials in the case of a no-deal.
Paul Hackett, chief executive of Optivo and chair of the G15 group of large London landlords, told Inside Housing the company had been stress-testing its business against the Bank of England’s worst-case scenario, which would see house prices fall by 35%.
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Mr Hackett said while all of the organisation’s contractually committed developments were protected, the stress-testing the organisation had done suggested a no-deal scenario could see its ongoing development pipeline reduced by up to 25%.
Jeanne Harrison, a vice-president at ratings agency Moody’s, which provides credit ratings to a number of housing associations, said margins would be “squeezed” due to cost inflation and lower house prices despite rising demand for social housing.
She said grants may also decrease due to public spending pressures.
“Housing associations that operate predominantly in London and the South East would be most at risk because they have the highest exposure to market sales and tend to fund their large development programmes with debt,” she said.
David Montague, chief executive of L&Q, said the business had “thrown everything” at its financial model as part of its scenario planning but would have to think about its future commitments if a worst-case scenario took place.
He urged the government to be “bold and decisive”, and foster a new type of partnership and risk-sharing with the sector.
Mr Hackett said associations would need grant to rise to 50% of build costs on socially rented properties if house prices dropped by a third. He added that this would need to be increased further if shared ownership was removed from business plans due to pressures in the housing market.
To mitigate the impact a no-deal Brexit would have on the future of associations, some have held back more liquidity than their financial stress-tests have suggested.
A finance director of a large housing association that has held back liquidity told Inside Housing: “One of the reasons we held back more liquidity is because of the enhanced layer of uncertainty at the moment in the markets.”
There are also concerns around what impact leaving the EU without a deal would have on labour, access to finance and increased material costs driven by a falling pound.
Peter Denton, finance director of Hyde, said: “If our exchange rate tanks, that will hit construction costs because there’s a lot of purchasing from abroad.”
He added that a downturn could make it harder for associations to access loans from banks and secure terms that are sufficiently long enough during the instability.
BeFirst, Barking and Dagenham Council’s regeneration arm, will factor contractors’ no-deal Brexit readiness in terms of labour and materials supply into their current procurement activity.
The regeneration arm has also opened up some of its land earmarked for future development as places contractors can stockpile materials in the short term.
Piers Williamson, chief executive of The Housing Finance Corporation, said associations were doing what they could “to ride out a very choppy period in the market”.
He added: “If, miraculously, we get through this and there’s an answer, there will be a pretty big bounce. There is a lot of suppressed demand in the market.”
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Sector draws up contingency plans for no-deal Brexit The country’s largest housing associations are putting in place contingency plans to protect the future of their organisations
How would the sector cope with a no-deal Brexit? As uncertainty around Brexit mounts and a no-deal looms, Inside Housing asks what it could mean for the housing sector
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