Drastic Downgrade to Be Experienced by UK Housing

April 18, 2011 / Russell Legato, Residential Property Analyst

A new international accounting standard is expected to “blow a gaping hole in housing association balance sheets” according to Great Britain’s National Housing Federation.

Drastic Downgrade to Be Experienced by UK Housing

The new standard mandates a change in accounting and IT systems and demands huge training costs from housing associations.

One expected effect from it is that it would downgrade asset values of the housing associations to as low as £1B ($1.6B) and it would cause wild fluctuations in housing associations’ income statements.

Just to bring bookkeeping in compliance with the new rule, associations that manage 30,000 homes are expected to face a £530,000 ($862,761) bill while smaller associations with 3,000 units are expected to face a £121,750 ($198,191) bill.

Another expected effect from the new standard is that it will prompt lenders (who lent billions during the credit boom) to change their terms and conditions to housing landlords, who are worried that they may not be able to raise future financing to fund new developments if they breach covenants today.

The Accounting Standards Board (ASB) believes otherwise and said that the transition will actually cost less than expected and that it will also give landlords significant benefits. A report from consultancy BDO said that the changes from the new standard will make it easier for the firms to prepare accounts and will reduce the burden of reporting for the subsidiaries of the associations.

The new standard will not be implemented until 2015 but the associations are lobbying hard today to amend the rules ahead of a consultation period that would end on April 30 this year.


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