Banks ready to slam door on housing giant

Major financial institutions are ready to tear up loan deals worth hundreds of millions of pounds with Glasgow Housing Association (GHA), Scotland on Sunday can reveal today.

Such a move would force GHA to either pay up to 150m more in interest or scrap some of its pledges to its 100,000 tenants and homeowners.

Banks will have the right to pull the plug by the end of the month if, as expected, the landlord is effectively taken over by its watchdog, the Scottish Housing Regulator (SHR).

Scotland on Sunday's sister paper, The Scotsman, yesterday revealed that senior members of the ruling board of GHA were ready to quit rather than face what would amount to a government takeover.

Scotland on Sunday understands that the landlord, which has run all of Glasgow's former council houses since 2003, will be deemed to have defaulted on its 725m credit line if it is subject to "statutory intervention" by the SHR. This is despite GHA being in good financial health.

The regulator has been circling GHA managers for some years but has been reluctant to take formal action, partly because of the financial consequences of it doing so.

There is understood to be deep unhappiness about the way GHA is run both in Labour-run Glasgow City Council and the SNP Scottish Government.

The regulator is scheduled to publish an audit of GHA's performance by the end of this month. However, it is already understood to have briefed private-sector funders on its preliminary findings, telling bankers that it is prepared to take the strongest possible action against the association.

The regulator has told banking sources that it believes GHA has lost its "direction" just six years after taking over nearly 80,000 council homes in the flagship housing stock transfer of the old Labour-Liberal Democrat coalition.

Watchdogs concede GHA has made progress in improving service to its tenants, who number among the poorest people in Scotland. However, there is longstanding frustration that GHA has failed to break itself up into smaller and more manageable units, as many tenants want.

Some of GHA's critics were last night angry at suggestions that banks would use the association's political weakness – and management failings – as an excuse to squeeze more money out of Glasgow tenants.

A spokesman for the Glasgow and West of Scotland Forum of Housing Associations, a group that represents smaller community-based social landlords, said: "There is no problem with GHA's financial footing and cash flows – that is not why the regulator should take action – and the suggestion that intervention will plunge the entire social housing movement in Scotland into crisis is crass and wilful scaremongering.

"'It was the failure of regulation which allowed banks themselves to get so out of control, so they are the last people who should be making comment on the Scottish Housing Regulator's efforts to address the shortcomings of GHA.

"The banks do not, mercifully, regulate Scotland's social housing or determine policy."

GHA itself would not be drawn on what banks may or may not do if the regulator takes formal action, most likely putting government placemen on its ruling board.

The association's chairwoman, Sandra Forsythe, issued a statement saying: "It would be inappropriate to speculate on what the report might say at this stage since the audit is not yet complete. But I can say with hand on heart that GHA's main priority is – and always has been – to protect the best interests of tenants and to deliver on the promises that were made to them at the ballot for stock transfer.

"We expect the regulator's report will be fair and will reflect the positive feedback we have received from our tenants on the massive service improvements we have made since the 2007 inspection from a financially stable position."

GHA, meanwhile, earlier this month declared that it was meeting most of the pledges it made to its tenants when it took over homes. It has kept rent down to inflation and says it is on track to complete its proposed 1.3bn programme to modernise all its homes by 2013.

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