Regulator writes to housing associations with no-deal Brexit warning

With just 43 days until Brexit and no deal yet agreed by parliament, the default position is a no-deal exit, should MPs be unable to agree on a deal or an extension to the deadline.

In her letter, available below, Ms MacGregor told associations planning “effective mitigations” to the risks is likely what requires the most board level attention as these “are often more challenging than the process of identifying key exposures”.

She said associations should “inform the regulator as soon as possible” if they realise the risks are enough to threaten their businesses.

The letter said the threat of a “sudden housing market downturn” would provide the “greatest financial impact”. She noted Bank of England projections which suggest a fall in house prices of up to 33%.

“Falling house and land values would reduce profitability and potentially crystallise impairments, while lower transaction volumes would increase working capital requirements and decrease cashflow,” she wrote. She said valuations of properties used as security for loans could also be hit.

Ms MacGregor also warned of shortages of materials key products such as boilers, lift components and district heating systems which are sourced from the EU and “not readily stockpiled”. “This could result in some major repairs taking longer than usual to complete,” she wrote.

She also warned housing associations may be unable to access their own data if it is located outside the UK or in cloud-based data storage.

“As part of their stress-testing and scenario planning, it may be necessary for providers to establish where all key data is held,” she wrote.

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Access to finance was also cited, with Ms MacGregor noting that banks may become “more risk averse”. She said this could “have severe effects” on providers looking to arrange new facilities and may restrict development ambitions in the long term.

Shortages of labour – particularly in construction and care – were also cited with a warning that inflation in labour costs may outstrip general inflation and therefore rental income.

She noted the Bank of England’s scenarios of inflation of up to 6.25% and an increase in base rate interest to 5.5%. Some housing providers have built rents not being allowed to increase at inflation into their stress testing – although Ms MacGregor did not mention this as a possibility.

She added that despite the risk, she believes providers can “successfully manage” the impact “with appropriate preparation and effective mitigations in place”.

A spokesperson for the Ministry for Housing, Communities and Local Government said: “Leaving the EU with a deal remains our top priority, but as a responsible government we’re planning for every eventuality, including no deal.

“Housing association boards should be planning sensibly for all scenarios. We have published extensive advice on the steps that businesses and citizens may need to take to prepare for Brexit.”