Regulatory judgements: fire safety costs contribute to downgrade for medium-sized landlord

News30.03.221.00 PM by IH reporters

A medium-sized housing association has seen its financial viability rating downgraded in part due to the impact of fire safety costs, while three landlords have been upgraded in the latest round of regulatory judgements.

Picture: Hiran Perera

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A medium-sized housing association has seen its financial viability rating downgraded in part due to the impact of fire safety costs #UKhousing

In a judgement published this morning, Paragon Asra (PA) Housing, which owns and manages more than 23,000 homes across the Midlands, London and the South East, went from V1 to V2 after increased investment in its stock, such as fire safety work, led to pressure on its finances.

The V2 rating means PA is still compliant with the English regulator’s financial viability requirements, but it needs to manage risks to ensure it remains compliant.

The Regulator of Social Housing (RSH) said it was assured that the landlord’s financial plans are “consistent with, and support, its financial strategy”.

“PA has an adequately funded business plan with sufficient security in place,” it said.

However, it said that PA’s increasing investment in its existing homes, including a programme of spending on remedial fire safety works between 2022 and 2024, puts “significant pressure” on interest cover performance.

The regulator said PA has sought waivers from its lenders to mitigate the risk of covenant breaches.

“While these are now in place, in order to remain compliant with its interest cover covenant, PA continues to have some reliance on forecast sales surpluses in 2023,” the RSH said.

PA maintained its G1 grade for governance, with the regulator stating that its governance arrangements “enable it to adequately control the organisation and to continue meeting its objectives”.

PA said its fire safety costs mainly relate to a small number of blocks where major remediation work is required and said it is working to mitigate this cost through government grant and liaising with the original contractors.

Simon Hatchman, executive director of resources at PA Housing, said: “We were fully prepared for this outcome, which reflects our proactive decision to push ahead with comprehensive fire safety works to our customers’ homes. As a team, we have been very conscious that ensuring work is carried out as soon as possible [and] has short-term financial implications, but our customers’ safety is our top priority.

“Despite the unprecedented challenges currently facing PA Housing and all housing providers, we remain committed to doubling our housebuilding to a total of 6,000 new affordable homes by 2030. Wherever possible, these much-needed homes will be for social rent.”

The RSH added: “H21 has enhanced oversight of its key risks, including by strengthening its internal controls assurance framework, and has been engaging with the regulator in a transparent manner. It has introduced new processes to ensure data integrity and accuracy on board reporting and implemented additional controls to help ensure compliance with requirements relating to rents and service charges”.

Bruce Moore, chief executive of H21, said: “I would like to thank everyone across the organisation for their hard work to get us back to the highest regulatory standard of G1/V1. This positions us well to continue to develop and grow on strong foundations.”

In a separate judgement, Shropshire-based Connexus was also upgraded to a G1 for governance, while its viability was regraded from V2 to V1.

The 10,000-home landlord was previously hit with a G2/V2 rating in 2018 after a whistleblower raised concerns about historical “procurement and probity” issues. It retained this rating in October 2019, despite breaching the Home Standard. The regulator said it also needed to improve its health and safety compliance.

But following an IDA, the RSH today returned the landlord to full compliance. Connexus, which was formed in 2017 through a merger, has “strengthened its internal controls and improved board reporting and oversight of its key risks, including landlord health and safety”, the regulator concluded.

This has included introducing new processes to “ensure data integrity around health and safety compliance reporting”. The landlord also reduced its development and sales programme, which means it has no reliance on sales to meet its covenants, the RSH said.

A transfer of engagements was also completed a year ago which simplified the group to one registered provider, the regulator added.

Richard Woolley, chief executive of Connexus, said: “We’re proud of the improvements we’ve made and it’s great to see our new and more robust ways of working recognised with the highest level of compliance rating.”

Kent-based Golding Homes also returned to the highest level of compliance – G1/V1 – after previous problems.

The 8,300-home association was downgraded to G2 last May after breaching the Home Standard. The breach was due to leaving more than 100 high-risk fire safety actions outstanding for months.

Golding Homes was also handed a severe maladministration judgement by the Housing Ombudsman last September after a resident had to wait seven years for repairs in a home they deemed “uninhabitable”.

In an IDA published today, the regulator said it has “assurance that Golding Homes has strengthened its compliance and risk frameworks, including its controls and reporting systems”.

The report added: “It has improved the integrity of its property data and enhanced board oversight of health and safety compliance. The board and executive have been refreshed, supporting closer alignment of leadership skills with the delivery of Golding Homes’ strategy.”

Stephanie Goad, chief executive of Golding Homes, who started the job last month, said: “We’ve used the difficult situation we encountered two years ago as a catalyst to deliver change at pace. We’re pleased that after a rigorous assessment the regulator has returned Golding Homes to G1, the top rating for governance.”

Also today, a string of landlords had their existing G1/V1 grades confirmed in strapline judgments. These included giant landlord Places for People and 38,000-home LiveWest.

The others were: B3 Living, Bournville Village Trust, Citizen, EMH Group, Housing Solutions, Southway Housing Trust, Unity Housing Association, and Westward Housing Group.