29 February 2012 | By Carl Brown, Inside Housing

A financial crisis faced by a large Dutch housing association is a warning for the United Kingdom’s social housing sector, according to experts.

Vestia, an 89,000-home Dutch housing association, has reportedly lost £2.1 billion in an interest rate swap deal which went wrong. Under interest rate swap deals associations try to secure lower interest rates by swapping their current rates with those held by investors or banks. In return, the association has to put up security at short notice if rates fall.

According to Dutch media reports, Vestia took out swaps to try and secure cheaper borrowing for loans that did not exist yet.

It gambled that interest rates would not fall, but when they did they realised they did not have enough security to cover the losses.

Under the Dutch social housing system, which has no national regulator, associations instead contribute to a mutual rescue fund – meaning four other Dutch associations could also be affected.

James Tickell, director of consultancy Campbell Tickell, said the case is a warning for the English sector as associations are expected to borrow and take on more risk to fund development programmes.

He said: ‘This has to be an instructive set of events for UK housing associations as they enter a new era of risk, higher borrowing, and lighter touch regulation. Boards need to be conclusively on top of the risk and complexity of the treasury operations.’

Howard Webb, director of consultancy Sector, added: ‘The read across here is what will the Homes and Communities Agency [regulatory committee] will be able to do if a big housing association finds itself in financial difficulties not necessarily because of exposure to derivative cash calls but, for example to build for sale.’

However, other sector figures were reluctant to draw comparisons.

Julian Ashby, chair of the Homes and Communities Agency regulation committee which will take over economic regulation of social landlords from 1 April, said the regulator would be aware of any associations attempting to do the same thing as Vestia through its quarterly survey of housing associations.

He said: ‘We keep track of volume of interest rate swaps and exposure.’

Joseph Carr, finance policy leader at the National Housing Federation, agreed. He also said the sector had learned its lesson from December 2008 when falls in interest rates led to cash calls on associations of tens of millions of pounds.

A spokesperson for Vestia said the association had taken out a £1.25 billion loan from the rescue fund and that it would sell homes and, on the request of the Dutch government, reduce its reliance on derivatives.

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