Research and analysis

Quarterly survey for Q1 (April to June) 2018 to 2019 - Summary

Published 7 September 2018

Applies to England

Introduction

This quarterly survey report is based on regulatory returns from 230 private registered providers and PRP groups who own or manage more than 1,000 homes.

The survey provides a regular source of information regarding the financial health of PRPs, in particular with regard to their liquidity position. The quarterly survey returns summarised in this report cover the period from 1 April 2018 to 30 June 2018. Where any information received through the quarterly survey indicates a potential concern, this is followed up with providers.

Summary

The quarterly survey findings are:

• New finance of £3.2 billion was agreed in the quarter; £1.0 billion from banks and £2.2 billion from capital markets. The latter included several large bond issues.
• This included an element of refinancing existing loans. Loan repayments were £1.0 billion in the quarter.
• The sector remains financially strong with access to sufficient finance: £18.3 billion of undrawn facilities are in place. Debt facilities now total over £90 billion.
• Cash balances total £6.1 billion; this is forecast to reduce in the next 12 months to £4.3 billion as cash is used to fund planned capital expenditure.
• Operational financial performance was in line with expectations. Cash interest cover excluding current asset sales was 144% for the quarter.
• Total sale receipts of £1.3 billion in the quarter were below the forecast of £1.6 billion made in March.
• In the 12 months to June 2019 the sector is forecasting £6.2 billion of sales receipts. By comparison, in the 12 months to June 2018 total sales were £5.1 billion.
• Investment in housing supply was £2.8 billion in the quarter to 30 June 2018; in March 2018 the forecasted contractually committed spend for the quarter was £2.9 billion.
• Over the 12 month forecast period expected investment in new housing supply is £14.9 billion of which £10.1 billion is contractually committed. In the 12 months to June 2018 total investment in new supply was £10.5 billion.
• Around 2,900 Affordable Home ownership units were developed in the quarter and 2,800 were sold; unsold units increased by 6%. The level of development reported in the quarter to June 2018 was an 18% increase on the same quarter a year ago.
• Around 900 market sale units were developed and sold in the quarter. This was a decrease on the number developed in the previous quarter and the same quarter a year ago. Unsold units decreased by 4%.
• Relative to current activity levels, the sector intends to increase development of for-sale properties (both AHO and market sale). In the next 18 months, including committed and uncommitted development, plans include the completion of 28,000 AHO units and 13,000 market sale properties. This compares to 18,000 AHO units and 6,500 market sale properties developed in the last 18 months.
• Providers making use of free standing derivatives reported mark-to-market exposure of £2.0 billion, a decrease on the previous quarter reflecting an increase in swap rates at the quarter end. In aggregate providers continue to have headroom on available collateral on MTM exposures.
• Income collection data continues to show a stable performance consistent with seasonal trends.

Operating environment

At a headline level the economic operating environment for PRPs generally remained stable in the quarter.

Key metrics for the period covered include the following:

• A headline increase of 0.3% in average house prices in England for the month of June. In the year to June, there was an increase of 2.7% (HM Land Registry).
• In the quarter ending June 2018, output in the construction industry grew by 0.9% compared to March 2018, recovering from a 0.8% fall in the previous quarter. The increase in construction output was driven by a 2.7% increase in repair and maintenance work, with all new work remaining flat (ONS).
• The Consumer Prices Index (CPI) rose by 2.4% in the year to June 2018, below the 2.5% growth for the year to March 2018 (ONS). Forecasters currently predict that inflation will be at 2.2% for the year ending December 2018 and 2.1% for the year ending December 2019 (HM Treasury).
• Latest estimates show that average weekly earnings (not adjusted for price inflation) increased by 2.7% excluding bonuses, and by 2.4% including bonuses, compared with a year earlier (ONS).
• Interim Construction Output Index (OPI) figures for all construction showed that costs increased by 3.4% in the year to June 2018 (ONS).

The survey results suggest that the sector is in a robust position to respond to any uncertainty and changes in the wider economic environment. The key risks faced by the sector are considered in the Sector Risk Profile published annually by the RSH. We will continue to monitor key market trends and to seek assurance that boards of PRPs are actively engaged in responding to emerging risks.