MANY HOMEOWNERS face the risk of losing their home because of the effects of the credit crunch, but are housing association tenants completely insulated from the crisis? For the first time ever, an English housing association became insolvent late last year suggesting that they are not protected from the crisis.

Paul Kennedy

Ujima, a "black-led" association with around 5,000 homes, presented a winding-up petition to court saying it was unable to meet its debts as they fell due.

The banks faced a dilemma. Lending to associations was not supposed to be the "subprime" end of the market; this was supposed to be the closest thing to risk-free lending. The banks have lists of homes that they could claim back to get their money back.

However, the prospect of taking over social housing would have provoked a political storm and drawn attention to weakness in their loan books which could threaten them by undermining confidence in the markets.

The Fitch credit rating agency warns that some UK mortgage lenders are likely to have ratings downgraded because on continuing falls in prices.

In this case Ujima's £1 billion assets were handed over to the giant London and Quadrant Group, which has given no commitment to retain Ujima's black community focus.

It is not clear what would happen if a really big association runs into trouble.

Council tenants, faced with the possibility of their homes being handed over to a housing association, should take this experience as a warning when they are told about associations' ability to borrow to do repairs, or are given assurances about local accountability.

Ujima seems to have hit the rocks because of grandiose but badly managed growth plans combining with the decline in the property market and the difficulty of raising money from panicky banks.

The government's plans to increase the amount of affordable housing are based on pushing associations to borrow in order to build more. Any fall in property prices must be a risk for organisations that buy up land for future development.

Traditionally, associations have benefited from cheap borrowing rates because they were seen as safe; small wonder that the Council of Mortgage Lenders has spoken of an "upward pressure" on interest rates for associations.

It would be foolish to rule out the possibility of another collapse but, short of this, housing associations will have less to spend on repairs and services for their tenants.

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