Regulator urges landlords to identify and mitigate risks

The Regulator of Social Housing has urged landlords to strengthen risk management as viability risks rise, driven by higher borrowing costs and demands for better housing. Despite resilience in the sector, some landlords face intense financial pressures, especially in urban areas. Boards must prioritise tenant safety and carefully manage finances to navigate these challenges.

The Regulator of Social Housing has set out the main risks facing the sector and warned landlords that robust systems should be put in place to deal with them. Its annual sector risk profile report shows that viability risks have intensified over the last year, and social landlords are facing significant and competing pressures to deliver both more and better social homes against a backdrop of higher borrowing costs. It says that though the sector remains resilient overall, many landlords have less capacity to deal with new challenges. This requires more active management from boards, with less margin for error in decision making.

The report says: “It is a fundamental responsibility of all landlords to ensure that tenants are safe in their homes. They must prioritise essential safety work, including issues with cladding on high-rise buildings, and tackle other issues like damp and mould. It is absolutely critical that landlords continue to be well run and financially viable, so they can carry out this important safety work, identify issues before they happen, and build new homes for people on waiting lists.”

London and other urban areas are experiencing the most acute financial pressures particularly where large numbers of flats need building safety works. These challenges are expected to persist for the foreseeable future, as social housing undergoes a long-term shift, with higher borrowing costs and an ongoing need to maintain and invest in tenants’ existing homes and build much needed new homes for the future.

Fiona MacGregor, Chief Executive at RSH, said: “Most housing associations are investing record amounts in new and existing homes without threatening their financial viability. However, some individual landlords face particular pressures, and we expect those to sustain for some time before the position eases. There is very little margin for error, and it is absolutely critical that landlords are well run, with robust systems for identifying and mitigating risks. Boards must maintain a real clarity of purpose to successfully navigate these competing demands while remaining financially viable.”

For the first time since 2009, the cost of servicing debt for private registered providers (PRPs) exceeded net earnings last year. In aggregate terms, forecast sector interest cover over the next five years is just 111%.

RSH has a range of tools – including inspections, yearly stability checks and quarterly surveys – to identify emerging risks and work with landlords to mitigate these as far as possible.

RSH has already identified a number of individual landlords who were not financially viable and who have since merged with others to protect tenants’ homes and lenders’ capital. It expects that more individual landlords will fail to meet the outcomes in its economic standards over the coming months, as this challenging environment continues.

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