Landlords have been issued a warning after a fall in interest rates caused more calls from investors to put up cash or security as part of swap deals.
The Homes and Communities Agency’s (HCA) quarterly survey of 255 large housing associations in England revealed that landlords’ mark-to-market exposure rose from £1.1 billion in September, to £1.9 billion in December.1
The excess collateral is the amount held as collateral over and above the exposed, and for landlords, this almost halved from £992m in September, to £520m in December, causing concern about landlords’ ability to cover cash calls.1
Currently, a total of 47 housing associations in England use derivatives to swap variable interest rates for less unstable, fixed rates. Under these mark-to-market deals, landlords must put up cash or security at short notice if rates fall.
The HCA says: “This quarter’s increase in exposure has significantly eroded the excess collateral and providers must continue to monitor their position with regard to potential calls for increased collateral.”
The HCA is now seeking reassurance that the 47 associations can meet cash calls in the future, and is also “monitoring a small number of providers” more carefully as a result.1
Asra Housing Group, who control 14,000 homes, struggled to meet a multi-million pound margin call related to derivatives, although it has now resolved the problem. The HCA is considering if Asra is non-compliant with their regulations as a consequence.
The HCA did say, however, that the £520m of excess collateral reported by 33 providers, “does provide some assurance that these providers are able to withstand a degree of future interest fluctuations.”1