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By Alistair McIntosh, HQN CEO
“Not for the first time different indicators are pointing in wildly different directions” - Patrick Hosking , Financial Editor, The Times
That’s the election out the way. What does this mean for you? Is Brexit an exciting new dawn? Will it all go horribly wrong? Well, you’ve got to plan for all eventualities. That’s where stress testing comes in. We’ve run stress testing for over 100 landlords – including in Australia. Here are our five key points:
1. The models make it easy to run the tests
Brixx, Abovo and indeed HQN all have models that can track just about any stress you can imagine, and plot the impact against your covenants and golden rules. The technology is here to help. Let it do the legwork.
2. The best boards ask the toughest questions
Now that the models are whirring away, it’s time for the board to come into their own. Are you scanning for risks each and every day? Or are you just using the risks suggested by the Bank of England or consultants? It’s not the time for off the peg solutions - you need bespoke stress testing. What could Brexit really do to your plans for building, sales and care? When the RSH comes to call, they’ll demand to see the exam questions you’re asking yourselves. The best advice I’ve heard is to practice “chronic unease”.
3. Stress testing isn’t just for Christmas
It’s not a one off. Nothing gets my goat like folk saying things such as “we do our stress testing every spring”. That’s not how risk works! You need to be doing it throughout the year, as and when you’re looking at big decisions and/or the economy shunts. The top performers keep ahead of the curve by continuously testing what emerging risks could do to them.
4. Take a Marxist approach
“The stress testers have only interpreted the world, in various ways. The point, however, is to change it.” That’s what Karl Marx (almost) wrote. There’s no earthly point in running stress tests if you don’t use them. The RSH will want to see your early warning systems to spot risks. And they’ll want to check your Plan A and Plan B for fixing things if they go wrong. So, get these ready. Make sure they’re the right ones for you. There’s no way you can rely on selling off the family silver to make ends meet if everyone else in your area has the same bright idea.
5. Don’t let stress testing bring you to a grinding halt
We’ve seen a few associations that spooked themselves here. It’s an easy trap to fall into. They got so good at dreaming up extreme stresses that they wound up being scared of their own shadows. In fact, they could have won the Booker prize for some of the scenarios they devised. But in the end saying no became the default position. That’s not what we want to see at all. Stress testing is just a way of thinking things through before you make a decision. It’s a tool. Nothing in life is without some sort of risk. You’ve still got to fix the homes and build new ones. Use stress testing responsibly.
How can HQN help?
Why not come to our next stress testing event in London on 21 January 2020?
Here’s a sample of delegate comments from the last event we ran in November 2019:
Comments on Richard Foster, RSH speaker
“Practical straightforward talk. Honest.”
“Very informative – emphasis on board knowledge requirement and broader thinking around stress testing, both financial and non-financial.”
Comments on Housing Finance Network Lead Associate Ian Parker
“Practical. Focused. Challenging.”
“Stress testing model using our Financial Forecast Return to the RSH was very relevant.”
“Strong focus on board involvement and the need for more robust testing.”
Comments on practitioner presentation from Sue Smith, Halton Housing
“Spoke well and had much wisdom to impart.”
“Relatable and very similar to us with good delivery on risk.”
“Use of Brixx reporting function was interesting and thought provoking.”
Comments on Alistair McIntosh HQN, chair
“Lively, insightful ‘state of the union’ overview.”
“Well delivered on agenda for the day. Regulator questioning was good.”