Research and analysis

Quarterly survey for Q1 (April to June) 2023 to 2024 - Summary (accessible version)

Published 7 September 2023

Applies to England

Introduction

1 - This quarterly survey report is based on regulatory returns from 202 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 regard to their liquidity position. The quarterly survey returns summarised in this report cover the period from 1 April 2023 to 30 June 2023.

3 - 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, or there is an increasing exposure to risks from activities carried out within non-registered entities. Further assurance may also be required on covenant compliance.

4 - From the data presented in this report it is evident that the sector is experiencing the effects of ongoing economic challenges and is in a weaker financial position now than it was 12 months ago. Forecasts for investment in existing stock have been continuing to increase, and the fact that actual expenditure is failing to keep pace with forecasts suggest that there is a growing backlog of investment. In general, we have assurance that PRPs are taking appropriate action to manage risks as they arise, however there is increasing evidence that providers are already making choices between investment priorities and deploying mitigations such as reducing uncommitted development or obtaining loan covenant waivers. This will mean that capacity to manage further additional costs will be limited.

5 - We will continue to monitor and engage with individual providers as necessary and reflect findings in regulatory judgements where appropriate. With the passing of the Social Housing (Regulation) Act into law and subsequent increased focus on consumer issues that will follow, boards must ensure that they maintain strong and effective control over financial performance.

6 - Figures have been rounded to the nearest £billion to one decimal place. This can result in rounding differences in totals and percentages as the individual returns are denominated in £000s.

Summary

Liquidity

Liquidity remains strong, however cash balances are the lowest in over eight years

• £123.9 billion total facilities in place at the end of June, up from £123.1 billion in March.
• New finance of £1.8 billion agreed in the quarter compared to three-year average of £2.9 billion per quarter.
• 57% of new finance relates to new bank facilities, the majority of which are revolving credit facilities.
• Loan repayments of £0.5 billion made during the quarter; the lowest in almost five years. Repayments expected to remain low - £2.0 billion forecast over the next 12 months.
• Total cash and undrawn facilities total £33.8 billion; sufficient to cover forecast expenditure on interest costs (£4.8 billion), loan repayments (£2.0 billion) and net development (£14.5 billion) for the next year.
• At £4.6 billion, cash levels are the lowest in over eight years. Forecasts show this reducing further; reaching £3.0 billion by June 2024.
• Mark-to-market (MTM) exposure on derivatives remains low, with current gross exposure of £0.1 billion, down from £0.4 billion in March; lowest level in eight years.

Performance in the quarter

A further reduction in 12-month outturn cash interest cover which remains at historically low levels – quarterly cash interest cover falls due to low net cashflows

Income collection indicators stable however marginally worse than comparative Q1 2022/23 figures

• £1.8 billion total repairs and maintenance spend in the quarter; £1.1 billion relating to revenue works and £0.7 billion relating to capital works.
• Revenue repairs and maintenance works were 3% higher than forecast, and 6% below expenditure in the previous quarter.
• 47% of providers reported delays or changes to repairs and maintenance programmes during the quarter. Around 15% of the sector report continuing high demand for damp and mould works.
• Cash interest cover in the quarter fell to 51% - the lowest level on record. Net cashflows reduced, in part due to payment of year-end accruals and annual invoices such as insurance.
• Aggregate cash interest cover (excluding all sales) for the year to June 2023 was 78%, the lowest ever recorded. Interest cover for the year to June 2024 is forecast to increase slightly to 83%.
• Interest payable is forecast to reach £4.3 billion over the next 12 months, compared to an actual figure of £3.6 billion over the previous 12 months.
• Income collection indicators generally following seasonal trends. Void performance is consistent with Q1 2022/23; arrears and rent collection are marginally worse.

Investment in new and existing stock

Market sale unit completions at lowest level since pandemic and below the three-year average – AHO completions remain in line with three-year average - Market sales pipeline remains at lowest level in eight years

12-month major repairs spend forecasts remain high as building safety and energy efficiency works are carried out

• Expenditure on capitalised repairs totalled £669 million in the quarter; 17% below forecast but the highest Q1 spend on record.
• 12-month expenditure on capitalised repairs totalled £2.8 billion. A further £3.7 billion investment is forecast over the next 12 months, the highest forecast on record.
• £3.7 billion invested in new housing properties in the quarter; 3% below the forecast for contractually committed schemes.
• Development expenditure forecast remains in line with last quarter to reach £16.8 billion over the next 12 months, of which £11.4 billion is committed.
• AHO completions at 4,193 (March: 5,305) are in line with the three-year average but market sale completions at 798 (March: 1,476) are the lowest level achieved since quarter one 2020/21.
• 18-month pipeline for AHO units stands at 34,938 units. Market sale pipeline remains in line with previous quarter at 7,807 units; the lowest in eight years.

Sales

Both AHO and market sales at lowest level since the pandemic, however margins have increased slightly for both tenures this quarter. Unsold AHO units at highest level in almost three years.

Non-social housing sales income at lowest level in eight years and a 65% drop from previous quarter

• AHO sales totalled 3,720 units (March: 4,033) and market sales totalled 675 units (March: 1,496); the lowest level achieved since the same quarter of 2020/21. Both amounts are also below the three-year average.
• Total unsold AHO units of 7,670 (March: 7,407) is above the three-year average and the highest level in almost three years. Total market sale unsold units totalled 1,334 (March: 1,124).
• Providers reporting main reasons for delays due to overrunning of development handovers, contractor insolvencies, and rising interest rates and cost-of-living pressures impacting affordability.
• Margins on AHO sales are 19.3% in the quarter (March: 18.4%). Market sale achieved margins of 14.7% (March: 14.1%).
• Current asset sales totalled £0.7 billion; 30% below forecast. Non-social housing sales income of £233 million is the lowest in eight years, and a 65% drop from previous quarter (March: £670 million).
• Fixed asset sales totalled £0.5 billion and are forecast to reach £5.1 billion over the next 12 months. This includes £3.0 billion bulk sales, mainly between PRPs.

Operating environment

7 - The quarter to June 2023 was a challenging period for PRPs, bringing inflationary pressures as well as economic and operational challenges to the housing sector. An improvement on the April 2023 forecast was mainly due to falling energy prices, however inflation remains high weighing on economic activity ^{[footnote 1]}. PRPs continue to face increasing pressure on resources and demand to invest in both new and existing stock. The credit rating agency Moody’s expects a rise in merger activity to offset the number of issues facing the sector ^{[footnote 2]}.

8 - UK Gross domestic product (GDP) grew by 0.2% in the quarter to June 2023, following a monthly increase of 0.5% between May and June. Monthly GDP is now estimated to be 0.8% above the pre-coronavirus levels recorded in February 2020 ^{[footnote 3]}. A recent report from the International Monetary Fund ^{[footnote 4]} projects that the economy will grow by 0.4% over the year, a contrast to April’s forecast where a recession and a contraction of 3% on the economy was predicted.

9 - Overall inflation, as measured by the Consumer Prices Index, was 7.9% in the 12 months to June 2023 ^{[footnote 5]}. Annual inflation peaked at 11.1% in October 2022 and, apart from an increase in February, has been decreasing since then. The Bank of England is forecasting inflation to fall to 5.0% by the end of 2023, and to reach the 2% UK target by early 2025 ^{[footnote 6]}, thus price increases will continue although to a lesser extent. Post quarter-end, annual inflation reduced further to 6.8%, the lowest level since February 2022.

10 - During the quarter the Bank of England announced further increases in interest rates. Base rate rose from 4.5% in May to 5.00% on 22 June. Post quarter-end, a further increase to 5.25% was announced on 3 August, bringing the rate to its highest level in over 15 years, and the 14th consecutive increase since December 2021 ^{[footnote 7]}.

11 - The average interest rate for a typical 5-year mortgage stood at 4.95% at the end of June. Rates peaked at 5.61% in October 2022, and had been reducing gradually, however since May 2023 rates started to rise again with a large increase in June ^{[footnote 8]}. Mortgage approvals for house purchases reached 54,700 in June, an increase on the 51,100 in May, and the highest level since October 2022 ^{[footnote 9]}. However, this remains below the monthly average of 62,700 during 2022.

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1. World Economic Outlook Update, July 2023: Near-Term Resilience, Persistent Challenges (imf.org) ↩

2. Inside Housing - News - Moody’s expects mergers to continue to offset impact of rising costs and high interest rates ↩

3. GDP monthly estimate, UK - Office for National Statistics (ons.gov.uk) ↩

4. World Economic Outlook Update, July 2023: Near-Term Resilience, Persistent Challenges (imf.org) ↩

5. Consumer price inflation, UK - Office for National Statistics ↩

6. Monetary Policy Report - August 2023 - Bank of England ↩

7. Bank Rate increased to 5.25% - August 2023 - Bank of England ↩

8. Quoted household interest rates - a visual summary of our data - Bank of England ↩

9. Money and Credit - June 2023 - Bank of England. ↩