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Q&A: Lending a charitable hand

Social Housing speaks to CAF Bank about the state of the housing association sector.

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Ian Mansfield CAF Bank CAF Bank

CAF Bank

A raft of housing policy changes since the UK government’s July 2015 Budget have created a number of challenges and opportunities for housing associations (HAs).

From the one per cent rent reduction to the deregulatory package, the new landscape has caused most associations in England to rethink their approach to delivering homes and services.

The changes are also impacting the financial profiles of registered providers, with unanswered questions about the impact on existing lender arrangements and relationships.

Ian Mansfield of CAF Bank tells us what he believes are the underlying trends.

HAs have typically exhibited great resilience over the years; what characteristics are lenders looking for in the current climate?

For CAF Bank, a bank focussed on the provision of banking services to the charitable sector, the important parts are a resilient business model supported by a skilled board and talented management, all of whom are committed to a clear vision of the organisation. The challenge is that the evidence of this will look very different between associations. We look for organisations where all parts of the group are ‘on message’ and working towards the same goals. For any bank, an HA’s cash resources, both current and future, will also be vital. We expect those organisations that we work with to have a clear focus on both the collection of rent and future requirements. We absolutely understand that challenges may exist, and are very happy to assist where they do, but internal oversight is absolutely crucial.

Are there lessons that RPs could learn from other charitable sectors?

In my view, the lessons are best framed as shared challenges - and some are widely experienced. From our experience working with organisations across many sectors, we appreciate that other charities can learn important lessons from RPs.
We recognise that the effective communication of impact - both social and financial - is a real challenge.
It has been interesting to see early stage development of various models within this area and I look forward to seeing those mature. This can be particularly challenging for RPs given the larger cashflows involved, the requirement to build resources and the difference between accounting profit and available resources. In my view, the changes to FRS 102 and the new SORP, which will increase the headline value of the underlying assets, will not reduce this hurdle.
Recruitment, particularly at board level, is another area that is extremely important. The demise of Kid’s Company has shown the need to have a board that can hold management to account.
This is vital for both the benefit of the board and the management team. We see the use of targeted recruitment, skills audits and genuine reflection as best practice in this area.
The best RPs and charities recognise when they are good but continue to strive to be better.

With that in mind, how important is governance from a funder’s perspective?

Governance is incredibly important. Within a relationship which could last in excess of 25 years, individual personalities will come and go. Both the funder and the association should understand the values, structures and governance of the other party. For us, this is about understanding that the board of our client is focussed on its strategic goals and has the necessary measures and processes to assess performance against these. A CAF advisor recently wrote an article on the importance of governance reviews and the ‘red flags’ for boards to look out for (visit www.cafonline.org/socialhousing for this and other news and views).

What are the key challenges facing smaller HAs in today’s market?

Specific challenges, I think, are very dependent on the location, business model and ambitions of the housing association. For example, those operating in Scotland tend to have greater access to grant but face significant building challenges. We have seen evidence that forecasting both the immediate and long-term effects of the Right to Buy regime has had a particular impact on urban associations where land prices are inflating and availability is low. This is likely to be further compounded by a potential drive to provide alternatives to rented social housing within new developments. For some associations, particularly rural-based ones who wish to continue to develop, we often see lack of suitable land as a real constraint.
However, there are also some broader challenges. These are often centred on making strategic decisions as to the next stage in the organisation’s lifecycle - be it merger, to continue developing or to concentrate on housing management. For senior managers and boards, the relatively turbulent financial climate means that old assumptions may have to be revisited and multiple scenarios planned. All of this takes significant time and commitment in organisations which operate on a very lean business model.

Where are the greatest opportunities for the sector?

Any period of turbulence is likely to also create opportunities. We have seen great examples of smaller associations acquiring stock from larger neighbours where they can be more effective and community focussed. We believe that good governance leads to an understanding of SWOT factors, which in turn should drive the strategy of individual associations. Clearly the changes to the pattern of grant provide a real opportunity for those associations who can provide a shared ownership product.

How would you describe today’s funding market for small associations?

Variable would be a fair summary. We have seen recent tenders where multiple attractive offers were received and others where RSLs struggled to gain any interest. Larger associations have a wider range of funding options to support their growth, due to the size of their funding need, for example via the bond markets. In contrast, a typical smaller housing association cannot access this market. It is heavily reliant on the more traditional funding route, which over the past few years has seen upheaval within the market. In some cases, this can be attributed to variance in the quality of the propositions, but it is often about the time spent preparing with funders. As a bank, we like to work closely with an organisation prior to tender receipt and to understand its motivations. We truly believe that all associations are unique bodies and should be treated as such.

What does a good relationship between a lender and an HA look like?

Crucially, it should be a mutually respectful and trusting relationship and preferably one with multiple touchpoints on both sides. We embrace the opportunity to work with associations which are keen to ensure that we understand their business model and that they understand our position. We believe the best relationships develop over time and are centred on mutual respect between organisations. This is often demonstrated by the exchange of clear, robust information and the lender understanding what makes the RP tick.

What does CAF bring to the sector?

CAF Bank brings two key qualities.
Firstly, as a bank focussed on serving the not-for-profit sector, we bring a completely different ethical stance. CAF Bank has served the charitable sector for 30 years and is trusted by donors and charities with over £1bn of deposits.
We are driven by a social purpose and are owned by the Charities Aid Foundation (CAF) - a UK registered charity, number 268369, whose mission is to motivate society to give more effectively, helping to transform lives and communities globally.
Secondly, CAF Bank brings a traditional approach to banking.
This is based upon a desire to know and understand our customers and to build relationships. We meet our customers in person and understand that building a relationship takes time. Our senior management team is engaged with our lending proposition and there is a clear understanding that RPs need partnerships, not transactions. In a turbulent time, we focus on the fundamentals and aim to support associations over the longer-term.

If you have plans to build a new development or renovate existing stock, call our charity loan experts now for a free consultation on 03000 123 444 or find further information by visiting www.cafonline.org/loans

*CAF Bank is owned by a charity and we lend to charitable organisations. We can help bridge a funding gap, provide capital to make major plans a reality, or simply support your cash flow so you can focus on what’s important: your mission.

CAF Bank

Ian Mansfield biography:
Ian Mansfield, head of lending at CAF Bank, is responsible for the credit assessment function within the organisation.
His focus is to enhance access to credit facilities for UK charitable and other not-for-profit organisations, working to ensure that CAF Bank’s offering is competitive and suitable for each sector it serves.
His approach to lending is built on 29 years’ experience in banking, having previously worked in the retail banking sector dealing with SMEs and charitable organisations.

CAF Bank

 

 

 

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