While this may not have been the result that the majority of the sector wanted, the UK has voted to leave the EU, and we now face a period of uncertainty while we wait to see the outcome in terms of who will lead the Government and how they will manage the transition.
This must be done as smoothly as possible. The months ahead are going to be unpredictable, the Government will need to ensure that it is focussed on maintaining stability to reassure the population, the markets and businesses while a new relationship with the EU is established.
Providers of Social Housing have had to cope with a number of shocks to their business plans over the last 12 months, the 1% rent cut for four years having the most significant impact to date, taking a considerable chunk out of any contingencies held within plans. The reaction of sector funders to the EU referendum result could produce a further negative impact and result in higher funding costs for Social Housing Providers as funders re-evaluate credit risk and seek to pass on their increased costs of capital.
The impact on business plans will need to be robustly modelled particularly for those with higher proportions of variable debt. Stress testing should have already identified the key actions (such as deferring development, reducing expenditure, maximising liquidity and managing working capital) which RPs can call upon if necessary during this potentially turbulent period. Boards and Executives will need to monitor the position closely to ensure that prompt action is taken where necessary. Strong communication with key stakeholders including tenants, employees, customers, suppliers and funders will also be critical, in playing our part to help lessen the inevitable slowing down of the economy (even if this is only short term) and the knock on impacts of this.
It will be interesting to see what happens to sources of funding. The European Investment Bank (EIB) which has an exposure to the sector of £2.58bn through The Housing Finance Corporation and with £580m agreed directly with providers has recently reassured borrowers that existing social housing loans would not be at risk of a ‘call in’ on Brexit. The priority of the UK sector for future funding from this major funder must, however, now be open to question. The impact on house prices and potentially on housing property valuations could also have implications for the borrowing capacity of providers.
Care and support providers will need to consider the potential reduction in the availability of EU care and support workers and the impact that this may have on wage costs. This is an area where services have been subject to severe downward pressure in terms of revenue funding and increased running costs will be likely to see further services closing and further withdrawal from the care and support sector.
The answers to many of these questions we will not know immediately, but the need to model and plan the implications of these scenarios, is something that all providers should be doing now, if you’ve not already done so.