Associations could be exposed

“However demand for affordable homes is at an all time high – a fact recognised by the Government’s £8.4bn three-year investment programme which should raise the number of homes for rent built each year from 30,000 in 2007/08, to 45,000 by 2010/11.

“We believe that the sector overall and the vast majority of associations are well placed to weather any downturn, however, the significant levels of private finance and the increased
importance of shared ownership sales, means that some organisations could be significantly exposed.

“It is our view that this will not lead to failure or insolvency but could result in some restructuring in the market leading to new mergers, consolidations.

“The immediate concern for housing associations remains the performance of the housing market, rather than their ability to obtain finance at a reasonable price.

“From a position a year ago where there were seven active lenders all competing to offer finance at rates of 30 basis points or less above Libor (a benchmark of interest rates) we now have a situation where the number of lenders has reduced and Libor has become dislocated from the Bank of England base rate – at the current time by nearly 100 basis points.

"Associations have not seen the reductions in Bank base rate resulting in keener pricing.

“Credit committees are now taking a much tougher line in their dealings with the sector and associations should not be overly relaxed about having facilities in place unless they are certain that the conditions precedent in loan agreement are met at the point when finance is needed.�