Simon Dow, interim Chair at the Regulator of Social Housing has told housing associations that they must carry out stress-testing and prepare for worst-case Brexit scenarios.
Speaking at the Social Housing Conference, Mr Dow referenced the recent Bank of England’s predictions for what would happen to the economy in the case of a “disorderly Brexit”.
Projected worst-case scenario Brexit figures released by the Bank of England indicate GDP falling by 8%, unemployment almost doubling to 7.5%, inflation soaring to 6.5%, house prices falling by up to 30% and interest rates rising to 5.5%.
Mr Dow said: “These are scenarios, they’re not predictions or forecasts. We do not make predictions or forecasts, and we are not a political organisation.
“But it makes complete sense for us to remind you - not, I’m sure, that most of you need reminding - that providers must be stress-testing for Brexit and ensuring that they have the mitigation strategies in place that they can implement in the event the scenario becomes reality.”
Although the advice might appear to be a little too late as the country’s largest housing associations have already been working hard drawing up contingency plans for a no-deal Brexit to ensure they are protected.
Speaking to Inside Housing several housing association leaders discussed how they had already 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.
David Montague, chief executive of London and Quadrant Housing Trust (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.
Paul Hackett, chief executive of Optivo and chair of the G15 group of large London landlords also indicated that they had been stress-testing their business against the Bank of England’s worst-case scenario.
To lessen the potential impact a no-deal Brexit would have on the future of associations and due to concerns over labour, access to finance and increased material costs driven by a falling pound some have held back more liquidity than their financial stress-tests have suggested.
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.
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.”
The comments from housing association leaders come at the same time of news that housing association Housing Solutions have also secured a £50m revolving credit facility (RCF) to insure against Brexit.
The 7,500-home association took out the facility, which will last five years and can be drawn down and repaid as it likes over that time, as an “insurance policy”, it said.
Andrew Robertson, finance and resources director at Housing Solutions, said: “The RCF gives us a potential cash bridge in the event that capital markets got tighter or pricing got more expensive, what with Brexit going on at the moment.
“We may not be using it on day one. It’s there as an insurance policy. Obviously, we have to pay commitment fees while it’s undrawn, but we think that’s sensible.”
Housing Solutions already has a £30m facility with another bank but with increased uncertainty and the association’s growing development programme, it decided to secure the extra cash.