Twenty large social housing providers have financial viability “regraded” amid “significant economic challenges facing sector”

The Regulator of Social Housing's first round of annual stability checks has seen the financial viability ratings of 20 out of 27 housing providers owning more than 1,000 homes “regraded” to reflect their diminished ability to weather adverse economic conditions.

All 27 providers comply with the financial viability standard, but 20 have been "regraded" from 'V1' to 'V2', the regulator said.

The regulator describes providers with a V1 grade as meeting its viability requirements and having the financial capacity to deal with a "wide range of adverse scenarios". Firms with a V2 rating also meet RSH's viability requirements but are described as having the capacity to deal with a "reasonable range" of adverse scenarios.

They also need to "manage material risks to ensure continued compliance" under the regulator's criteria.

Announcing the rating changes today (15 November), the RSH said the results are in line with expectations amid the sector's current economic challenges.

Higher inflation and borrowing costs, as well as a weakening housing market, "are putting greater pressure on providers' financial headroom" as they continue to invest in new homes and carry out safety, decarbonisation and repair works, the regulator said.

The RSH regulates more than 200 social housing providers holding property portfolios with more than 1,000 homes.

Its stability checks, which are conducted annually, focus on providers' financial resilience and consider changes to their risk profile, including external economic factors beyond their control. The results of the checks published today are based on data submitted in June 2022.

The regulator noted that it is aware that some providers are considering their strategic priorities and are reworking plans to take account of more recent economic changes. RSH expects that strategic decisions made by providers' Boards will be reflected in future data submissions.

Jonathan Walters, Deputy Chief Executive of RSH, said: "The results of our first round of stability checks reflect the significant economic challenges facing the sector.

"Against this backdrop, we have seen a substantial number of providers moving to V2 grades. These providers continue to comply with our financial viability standard and the sector remains in a strong financial position overall.

"It is crucial that all providers maintain a strategic approach to risk management and focus on their key objectives: investing in new and existing homes and providing quality services for their tenants."

The regulator will publish the results of the remaining stability checks "over the next few months".

Commenting on the RSH’s decisions, Gemma Bell, partner at law firm Devonshires, said: “The regrading from V1 to V2 of 20 registered providers gives a stark message that registered providers are facing turbulent times in light of the current economic climate. Providers have already been re-examining their strategic plans in light of challenging economic conditions, and the impending rent cap announcements look likely to worsen this position.

“We are already seeing unprecedented levels of RPs looking at joint ventures and mergers as a solution to enable them to continue to deliver their strategic objectives and we expect this to increase further as the economic picture worsens. Never before has it been more important for providers to be considering what they can realistically achieve and challenging themselves on the best way to achieve this, whilst ensuring the non-negotiables of delivering safe, decent homes and good quality services for residents.”

Adam Carey