In the wake of the Housing Act, RPs and their advisers have been assessing the impact of deregulation on valuations and the ability of RPs to manage their assets in a more commercial way.
Following the repeal of s133 legislation on restriction on title, we’ve been working successfully with funders, valuers and RPs in the uplift of properties from EUV valuations to MVSTT with dramatic results. In one case we were able to uplift a client’s portfolio of 5000 properties from EUV to MVSTT, increasing their borrowing capacity to £36m on the stock that transferred from a local authority under a Large Scale Voluntary Transfer (LSVT). This allowed for excess security on revaluation to be used as security on new charging.
RPs find increased valuations uplifting
It has come as a pleasant surprise for many of our clients to see the effect of the uplift on their security valuation, particularly now that the HCA requires secure funding to be in place for developments some 18 months in advance. It is also proving to be a useful tool for increased securitisation. Our challenge has been to find the simplest way to achieve this uplift, working alongside valuers, funders and the RPs themselves. We have succeeded in agreeing a methodology for revaluation exercises, enabling the uplift to be agreed, as in our recent cases, within eight weeks by utilising existing certificates of title relying on warranties from local authorities. With the removal of the S.133 certificate, there should be no requirement for further certification other than re-statement.
Factors influencing a MVSTT valuation
A security uplift for an RP can only be achieved if the relevant loan agreement allows for the alternative MV-STT valuation to be chosen. If not, a variation would need to be agreed to allow for this. It will be the case that the security-to-loan cover using an MS-STT valuation will be higher (normally around 120% to 130%) than for EUV (around 100%) but the uplift can still be significant.
Achieving a MVSTT valuation will also depend on the type of stock being valued – and its location. Although there will still be an uplift on stock concentrated in large estates, it is unlikely to achieve the higher MV-STT because of the concentration of properties hitting the market at one time, on a receiver being appointed. The receiver has to work on the basis that the mortgagee might have to sell which has to be reflected in any valuation.
By the same token, an RP selling stock in a high-value area will see a much bigger uplift: for example, an RP with a diverse portfolio in a rural area might find that its properties can be uplifted to the full MSVTT valuation, making a significant difference to their ability to borrow. This has been the case for one of our clients which has managed to achieve a 73% difference between the EUV and MSVTT valuations - impressive by anyone’s calculations.
In every case, a thorough investigation of the stock will be required to establish if there is anything that would hinder a MVSTT valuation. This is most likely if the LSVT stock has been redeveloped and where there may be other valuation limiting factors such as an unsatisfactory mortgagee exemption charge. We would need to see if there was anything in the title deeds that might prevent the property from being used for anything other than affordable housing.
Protecting tenants’ right to buy
When LSVTs first started, all RPs were standalone associations whose tenants had the right to buy. Legislation was in place to protect this right as, understandably, tenants had a valid concern that they could lose it if an RP failed and its housing stock was sold on the open market. With the removal of the S.133 restriction, there is nothing to stop an RP from selling its stock on the open market to a private investor or, indeed, from transferring its property to a non-RP subsidiary, thus removing the tenants’ right to buy at a stroke. This would be subject to a lender’s consent and the notification scheme of the HCA but there is nothing in legislation to prevent this happening.
Theoretically, the only thing from stopping a RP from doing this is the reputational damage it will cause. However, with the expectation that RPs must become more commercial, there is no legislative barrier to stop a RP from ‘sweating its assets’ to the full. In our view, legislation will be needed in the fullness of time otherwise one of the principal tenets underpinning modern housing policy, namely giving people the incentive and means to own their own property, will be damaged beyond repair.
Positives outweigh the negatives
Overall, we believe that the positives of removing the S.133 restriction significantly outweigh the negatives. In the current climate, RPs have every incentive to re-evaluate their housing stock and, as we know, there are many reasons why they might wish to rationalise their portfolios by disposing of part of their housing stock. The HCA encourages RPs to keep their portfolio under review and rationalise where necessary, ensuring that the stock they have is the right mix and in the right place. Now that RPs no longer have to seek permission from the HCA to sell their stock, coupled with their ability to achieve a market valuation, the commercial incentive to manage their portfolio more effectively is greatly enhanced.