Finance Policy Advisory Group – April 2018 update

Anne Southern, Corporate Services Director at Arcon Housing Group, updates on the latest Finance Policy Advisory Group meeting

27 April 2018

The Federation’s Finance Policy Advisory Group (FPAG) holds quarterly meetings to discuss emerging issues that have an impact on the sector.

The group’s latest meeting took place alongside the Housing Finance Conference at Liverpool, and was the first meeting with our new chair in post, Waqar Ahmed from L&Q.

Bond markets

With several members of the group having recently been out to the bond market, we discussed whether investors are feeling more nervous about working with the sector.

Members noted that bond issues are currently less likely to be oversubscribed, which could be down to a variety of reasons including perceived political risk.

With six major investors owning the majority of the debt, some felt that it might be worth considering other sources of funding, including European and American markets.

Tower block valuations

Anne Johnson from Savills and Richard Petty from JLL updated members on recent developments on continuing valuation issues for tower blocks in the wake of the Grenfell Tower tragedy.

While the Hackitt Review interim report has been published, until the final detailed report comes out in May there remains uncertainty among valuers who are currently only be able to work with tower blocks on a case by case basis.

Valuers are therefore continuing to use ‘abnormal uncertainty’ clauses, though a gradual softening of use of these clauses is expected for medium-rise blocks.

Members were concerned that year-end valuations will be low and possibly even negative.

The small number of providers in the sector holding properties at valuation may be particularly affected by this.

Existing Use Value for Social Housing

Anne and Richard also detailed progress on the proposed changes to the Existing Use Value for Social Housing (EUV-SH) and the possibility of introducing a new valuation of Market Value – Social Housing (MV-SH), which would reflect the uplift in valuation derived from the sale of social housing between associations.

Ground rents

John Bryant, Policy Leader at the Federation, summarised the Government’s consultation on preventing the abuse of ground rents by developers.

Proposals include banning the sale of new properties on a leasehold basis with some exceptions, including shared ownership properties. In addition, any ground rents on leasehold properties would be on a peppercorn basis.

The Federation hopes the proposals would prevent developers from being able to outbid housing associations for sites as they would no longer be able to charge high ground rents to offset their initial purchase price. Members had mixed feelings about the proposals, given that only a minority of developers have abused the system.

EU audit reforms

Phil Cliftlands from BDO explained the impact of EU audit reforms in relation to public interest entities, which is any organisation holding listed debt, and therefore affects a growing number of housing associations. Some members are already feeling the effect of these changes when going out to tender for services provided by audit firms.

Members also discussed:

  • research the Federation is currently undertaking to increase the number of audit firms who would engage with the sector
  • an update on changes to the Financial Forecast Return (FFR) and on the Regulator for Social Housing’s current review of all four returns it collects
  • the new guarantee scheme for small and medium-sized developers
  • a request from members for the Federation to provide guidance on the General Data Protection Regulation (GDPR).

To find out more about the issues discussed at this meeting, please get in touch with Will Jeffwitz.