Quarterly survey for Q1 (April to June) 2021 to 2022 - Summary
Published 3 September 2021
Applies to England
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Introduction
1 - This quarterly survey report is based on regulatory returns from 209 private registered providers and PRP groups who own or manage more than 1,000 homes.
2 - The survey provides a regular source of information regarding the financial health of PRPs, in particular with regards to their liquidity position. The quarterly survey returns summarised in this report cover the period from 1 April 2021 to 30 June 2021.
3 - The Regulator of Social Housing is aware of the difficulties associated with forecasting in the current climate and acknowledges that although not all elements of the forecast are being met overall trends in expenditure, income and development are clear.
4 - The regulator continues to review each PRP’s quarterly survey. It considers a range of indicators and follows up with PRP staff in cases where a risk to the 12-month liquidity position is identified. We have assurance that all respondents are taking appropriate action to secure sufficient funding well in advance of need.
Summary
Liquidity
Total facilities and undrawn facilities increase in the quarter. Slight decrease in cash following high loan repayments. Aggregate liquidity remains strong.
- £113.4 billion total facilities in place at the end of June, up from £113.0 billion in March.
- New finance of £2.4 billion agreed in the quarter; 78% of this from capital markets.
- Available cash balances reduce from £7.4 billion to £6.5 billion, following loan repayments of £1.7 billion in the quarter.
- Total cash and undrawn facilities total £34.5 billion; sufficient to cover forecast expenditure on interest costs (£3.4 billion), loan repayments (£3.9 billion) and net development (£15.9 billion) for the next year.
- Mark-to-market (MTM) exposure on derivatives remained constant over the quarter at £2.0 billion, with the 15-year swap rate reducing in the quarter.
Performance in the quarter
Interest cover and income collection indicators remain robust. Out-turn major repairs below forecast but show a strong start to the financial year.
- Major repairs spend below forecast for the quarter, but at £459 million is the highest quarter one figure ever recorded.
- Cash interest cover (excluding current asset sales) of 102% in the quarter, compared to forecast of 99%.
- Interest cover is driven by net cashflows from operating activities being £0.2 billion below forecast, offset by a reduction in major repairs expenditure of £0.2 billion.
- Reductions in net cashflows are attributed to movements in debtor and creditor balances, and increased repair costs from catch-up works after the third national lockdown.
- Slight deterioration in arrears and rent collection rates since previous quarter, although they are consistent with seasonal trends. Improvement in void losses since March, but these remain at historically high levels.
Investment in new and existing stock
Increase in development expenditure compared with previous quarter. However, out-turn development spend was significantly below the March forecast.
12-month development and major repairs spend forecasts increased again and both exceed pre-pandemic levels.
- £3.1 billion investment in housing properties in the quarter to June 2021; an 11% increase from the previous quarter, however 30% lower than forecast.
- 25% decrease in market sale units completed compared to previous quarter, and 14% decrease in AHO units completed in the quarter.
- 18-month pipeline for AHO units stands at 35,327 units and 11,526 units for market sales.
- Capitalised repairs and maintenance expenditure forecast to reach £2.9 billion over the next 12 months, compared to £1.8 billion over the last 12 months.
Sales
Reduction in the number of unsold properties in the quarter. Sales have decreased, following the highest level ever recorded in March 2021, although still above forecast.
- AHO sales totalled 4,520 units (March: 4,555), and market sales totalled 1,414 units (March: 1,684). AHO sales remain steady, however market sales have dropped in the quarter.
- 3% increase in the number of AHO units unsold for more than six months, and 15% reduction in market sale units unsold for more than six months.
- Total asset sales of £1.7 billion achieved; 11% lower than previous quarter but 9% higher than forecast.
- Fixed asset sales 44% above the quarter forecast, totalling £0.6 billion.
- £4.6 billion current asset sales forecast for the 12 months to June 2022, £4.2 billion of which relate to properties where development is contractually committed.
Operating environment
5 - The quarter to June 2021 saw the gradual easing of lockdown restrictions in England, with restrictions lifted in July [footnote 1].
6 - Gross domestic product grew by an estimated 1.0% in June 2021, the fifth consecutive month of growth, however still 2.2% below the pre-pandemic level recorded in February 2020 [footnote 2]. The Bank of England expects GDP to recover further over the remainder of the year, reaching its pre-coronavirus levels by the end of the year [footnote 3], although growth is forecast to slow towards more normal rates after 2021.
7 - Construction output fell by 1.3% in June 2021 for a third consecutive month, the largest decline since December 2020 [footnote 4]. This is due to a decline in repair and maintenance (4.2%) offset by a small increase in new work (0.5%). Total construction output in June 2021 was 0.3% below the pre-pandemic amount recorded in February 2020, while new work was 2.1% below this level.
8 - A combination of external factors including the pandemic, the end of the Brexit transition period and an increase in demand has driven up prices for essential materials in the construction sector and caused supply shortages [footnote 5]. Materials such as cement, timber and steel have longer delivery lead times, resulting in delays to development sites [footnote 6]. Labour has also been in short supply due to the departure of European construction workers.
9 - Overall inflation, as measured by the Consumer Prices Index, increased by 2.5% in the 12 months to June 2021 [footnote 7]. A monthly increase in CPI of 0.5% between May and June 2021 was also recorded, compared to 0.1% recorded between the same two months of 2020.
10 - A temporary increase in the Stamp Duty threshold to £500,000 has been in place since July 2020 until the end of June 2021, and further transitional relief of £250,000 will remain in place until the end of September [footnote 8]. From October 2021 the nil rate band will return to the standard amount of £125,000.
11 - UK house prices have increased by 13.2% in the year to June 2021, the largest annual increase over the past five years . The biggest annual increases have been seen in the North West (18.6%) and Yorkshire and the Humber (15.8%), while the smallest increases were in London (6.3%) and the South East (10.5%).
12 - Estimates from the Office for National Statistics indicate that the UK unemployment rate decreased in the quarter to June 2021; a reduction of 0.2 percentage points compared to the previous quarter, although still 0.8 percentage points higher than the pre-pandemic levels recorded between December 2019 and February 2020 . Universal Credit claimants have been at their lowest level since the start of the coronavirus pandemic, with 1.2 million new claimants in April 2020 down to 130,000 in April 2021 .
13 - The Coronavirus Job Retention Scheme, which allows employers to claim grants to cover the salary costs of furloughed workers, will continue until 30 September 2021 . Employees will continue to receive 80% of their usual wages throughout the remainder of the scheme, although employers will be required to contribute towards this from July.
14 - As the country begins to emerge out of lockdown, providers will need to remain alert and ready to respond to further changes in the operating and economic environment. Forecasts will need to be closely monitored and updated as the economy re-opens, and flexibility will need to be included to allow any increasing risks to be effectively managed.