HAs race to renegotiate loans

“A survey carried out by the National Housing Federation (NHF) has revealed 78% of associations have not yet had any detailed engagement with lenders about potential changes to loans.

Next financial year, housing associations will be required to prepare their annual accounts under Financial Reporting Standard (FRS) 102.

The new rules could substantially change financial results, potentially pushing some landlords close to breaching covenants signed with lenders on issues such as the minimum level of gearing – the ratio of debt to assets.

Housing associations’ finance teams are therefore likely to attempt to modify agreements with lenders to take account of the changes – but the NHF survey of 42 landlords shows a worrying lack of progress just seven months out from the end of the financial year.

The Homes and Communities Agency (HCA) has previously warned providers will face downgrades if they breach covenants – regardless of how lenders react.

Joseph Carr, finance policy leader at the National Housing Federation (NHF), said: “Housing associations need to start having conversations as early as possible with the banks.

In a quarterly briefing sent to members, the NHF added: “This is an extremely important issue that needs to be resolved as a matter of urgency… Housing associations have raised concerns about the timescale and protracted nature of the renegotiation process to date.”

One finance director at a large landlord, who preferred not to be named, said: “We went to the banks last October and said we wanted to talk to them about it – but they have been quite slow in coming back, but we are starting to get a bit of traction.”

Accountancy firm Smith & Williamson has developed a method to produce “approximate neutrality” between previous and new covenants, following a pilot with four housing associations and a large international bank.

Jonathan Pryor, a partner at the firm, said around 10 other banks were interested in picking up the methodology.   “