The impact of the credit crunch was clearly intensifying when we surveyed senior housing executives early last year. In August 2008, 78% thought the squeeze on liquidity had affected the sector, whilst in March 2009, this has risen to 96%. Now without exception, all housing organisations believe they have been affected.

In our first report, less than a third were experiencing difficulties when renewing existing facilities. In the last two surveys this has increased to 46% and then to 52%.

The vast majority (93%) of those currently experiencing difficulties cite increased margins, however we also detected that more associations were experiencing problems in relation to covenant cover and security. In contrast to the commercial sector, while margins have increased, generally banks have continued to lend to the social housing sector and, compared to March 2009 fewer are now reporting that banks are reluctant to lend.

Which areas have you experienced difficulties with lenders either in renewing existing facilities or securing funding for new schemes?

Despite funding being the biggest concern, only 4% said they had actually refinanced as a direct result of the credit crunch. However, with four out of ten claiming to have recently considered alternatives to traditional banking sources, this low figure may have more to do with difficulties faced with securing new facilities, rather than a lack of need or requirement. Of those associations which have reviewed alternative funding to traditional banking sources, the most popular to be considered (58%) were corporate bonds.

"We suspect that many respondents have still to fully test the market, with fixed rate loans still being in place. Our own experience is that lending criteria at banks has hardened dramatically. The time of low margin money is over for some time to come. However in fairly stark comparison to the commercial property sector, banks have continued to remain active in the sector."
Keith Ward, Baker Tilly, Director - Social Housing

Perception of peers

One of the most worrying results from the survey in March last year was the finding that 94% of associations thought other housing associations would experience significant funding problems in the next 12 months. Though this time around the figure has fallen slightly to 88%, it is still much higher than 18 months ago.

Do you expect to see other Housing Associations having significant financial difficulties in the next 12 months?

"Although down from 94% at March 2009, a staggering 88% still expect fellow associations to have financial difficulties in 2010. Not only that, 27% expect over 10% of associations to be affected, which is a frightening prospect if it were to become a reality. These results are perhaps surprising as the TSA has cited concern for a relatively few cases. This may be a case of perception not mirroring reality - although the TSA disclosures probably explain the slight reduction from 30% in our last survey."
Peter Howard, Baker Tilly, Partner - Social Housing

Rent reductions and impact on tenants

Despite respondents not predicting an economic recovery until 2011, interestingly the number expecting a significant effect of rent arrears and bad debts fell. In March 2009 81% were expecting a significant effect of rent arrears and bad debts, but by November 2009 62% said they were not experiencing a significant effect. Only a third (34%) said the potential rental decrease expected next year based on the projected deflation rate will have an impact.

Supporting the view that the housing sector has to date largely been shielded from the worst effects of the recession, only 14% of respondents said the credit crunch had affected their ability to service tenants.

"It is surprising that 34% see no effect of the reduction in rents on their organisations. Presumably they are already sufficiently profitable to withstand the impact, or will be using their reserves. Perhaps this reflects some degree of complacency that the impact of a reduction in rent will not be long term."
Peter Lunio, Baker Tilly, Director - Social Housing

Commercial developments pick up

Back in early 2009, more than two thirds of associations said that they were no longer pursuing commercial opportunities to help fund social housing projects. This has now fallen to 42% - a proportion more consistent with 2008 levels. This illustrates that there is now growing recognition of the need to look to commercial opportunities to help fund social housing projects. It also ties in with previous findings concerning the expected reduction in the levels of government priority and funding.

Interestingly, only 28% of respondents are considering developing properties for sale, which compares to 22% at the start of 2009 and 46% a year earlier. This may demonstrate the deteriorating expectations of the property market six months ago and a slight recovery in expectations of an improving market in the short to medium term.