Housing Corporation says falls in sales profits could hurt some associations but most will weather the storm

Some banks are imposing tougher conditions on housing associations’ old loans when they try to take out new debt, the sector’s regulator has warned.

The Housing Corporation said associations should not be “overly relaxed” about already having loans in place. It said lenders were renegotiating terms on some old debt if associations were not meeting loan conditions when they came to borrow more money.

Housing associations will have to borrow around £400m from banks over the next year but prices charged by banks for loans have risen and the number of lenders in the market has dropped.

However the vast majority of the £5.6bn of debt associations will draw down in the next year is already arranged, the corporation's August report on developing associations said.

The corporation said the downturn could lead to more mergers between associations or a slowdown in development.

The second major risk for associations is that a fall in house prices could hit associations’ profits from shared ownership deals. Associations that cannot cover their interest payments without using their sales income are most at risk, the Housing Corporation said.

Overall, though, the corporation thought most associations could tolerate a drop in sales values of 20%. It said the "vast majority" of associations were well placed to weather the downturn.

It added there were still pockets of strong demand in the market, especially for family homes, but flats were becoming less attractive.

It said reducing management and maintenance costs was “the most significant medium-term prize”.