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The way a housing association's housing stock is valued determines the funding available to it from the private sector, and will play a key part in deciding its share of the Communities Plan billions.

Associations looking to maximise their borrowing potential must choose the most appropriate basis of valuation for their properties.

Although in many cases, a lender will stipulate the basis or bases of valuation that are acceptable, lenders' requirements do differ in this respect and associations can decide which to use.

The two most common bases used to determine the value of housing properties as loan security are market value subject to the existing tenancies, or "MV-T" and existing use value for social housing, or "EUV-SH".

MV-T is the amount the properties would sell for today, with all the existing tenants in place, to a buyer who is not necessarily a registered social landlord. It assumes that the properties will gradually move from being let at affordable rents to being let at market rents, and that any properties that become empty can be sold on the open market with vacant possession.

EUV-SH is the highest price that another RSL would pay for a portfolio of social housing properties. It assumes that the properties will continue to be let as affordable housing, and that any that become empty are re-let as affordable housing. No sales on the open market are assumed, but sales under the right to buy or similar provisions can be included.

It's also important to remember that the method chosen will affect the asset cover ratio, a margin required by the lender to compensate for possible falls in the value of assets. With MV-T, the asset cover ratio is higher because of the increased exposure to market forces.

The method of valuation that will give the most favourable borrowing arrangement depends on where the stock is located and what open market values are in that area

The basis that will give the most favourable borrowing arrangement will depend principally on where in the country the stock is and what open market values are in that area, for both sale and rent.

Since there is more variation in open market values across the country than in affordable rental levels, MV-T valuations will show greater disparity between regions than those on an EUV-SH basis, and allow borrowers to gain a more significant advantage according to their location.

For instance, in a hypothetical area of the South-east where the average property value, calculated using EUV-SH, was 拢35,000, the maximum loan amount at an asset cover ratio of 115% would be 拢30,435. In another hypothetical area, this time in the North-west, an average property value of 拢25,000 would secure a maximum loan of 拢21,739. The amount of debt available in the former area is 40% higher than in the latter using EUV-SH.

But the difference rises to 100% if an MV-T valuation is used because the gap between open market values and affordable rents is so much wider in the South-east.

On the stock in the South-east, where average property value calculated using MV-T is 拢90,000, the maximum loan available at an asset cover ratio of 125% would be 拢90,000; in the North-west, with an average property value of 拢45,000, the maximum loan would be 拢36,000.

However, other factors are likely to feature in any borrowing decision (see "Which valuation is for you?", below).