Research and analysis

Quarterly survey for Q2 (July to September) 2021 - Summary

Published 25 November 2021

Applies to England

Introduction

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. One provider has submitted for the first time this quarter.

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 July 2021 to 30 September 2021.

The regulator is aware of the difficulties associated with forecasting in the current climate and acknowledges that although some elements are behind forecast, overall trends in expenditure, income and development are clear.

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.

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

Total facilities and undrawn facilities increase in the quarter. Slight decrease in cash following high loan repayments. Aggregate liquidity remains strong.

• £115.3 billion total facilities in place at the end of September, up from £113.4 billion in June. £0.7 billion of this can be attributed to one provider who submitted a quarterly survey return for the first time this quarter.
• New finance of £2.9 billion agreed in the quarter; 71% of this from capital markets.
• Refinancing activity was again evident in the quarter, partially a result of Covid Corporate Financing Facilities expiring. Loan repayments were £1.5bn and loan drawdowns were £2.4bn.
• Total cash and undrawn facilities total £35.2 billion; sufficient to cover forecast expenditure on interest costs (£3.5 billion), loan repayments (£3.3 billion) and net development (£16.7 billion) for the next year.
• Mark-to-market exposure on derivatives reduced by 9% over the quarter to £1.9 billion, following an increase in swap rates.

Performance in the quarter

Interest cover and income collection indicators remain robust. Out-turn major repairs below forecast. However, projections show catch up spend throughout the year.

• Capitalised major repairs spend below forecast for the quarter, but at £479 million is 4% up on previous quarter.
• Cash interest cover (excluding current asset sales) of 158% in the quarter, compared to forecast of 116%.
• Interest cover levels in the quarter are above forecast, primarily because spend on capitalised major repairs was £0.2bn below projections.
• Net cashflows from operating activities were also above forecasts, attributable to movements in debtor and creditor balances in working capital, and a more prudent approach in forecasts due to the on-going uncertainty.
• Marginal improvement in arrears and rent collection rates since June. Slight improvement in void losses, however remain at historically high levels.

Investment in new and existing stock

Development expenditure was below the committed amount included in forecasts and lower than Q1 out-turn.

Reprofiling of costs means there is another increase in 12-month development and major repairs spend forecasts.

• £2.9 billion investment in housing properties in the quarter to September 2021; 7% less than in the previous quarter, and 32% below forecast.
• Capitalised repairs and maintenance expenditure forecast to reach £3.1 billion over the next 12 months, compared to £2.0 billion over the last 12 months.
• Development out-turn expenditure lower than forecast due to the impact of supply issues over the quarter.
• Development spend forecast to reach £18.3 billion over the next 12 months, compared to £12.1 billion over the last 12 months.
• Combined capitalised major repairs and development 12-month forecast is at a record high. However, given the current challenges experienced with delays relating to labour and material shortages, this is an area we will continue to monitor.
• Slight increase in the number of AHO units completed in the quarter. Market sale completions remain below average.
• 18-month pipeline for AHO units stands at 36,855 units and 10,691 units for market sales.

Sales

Reduction in the number of unsold properties in the quarter. AHO unit sales remain at historically high levels, although total current asset receipts were below forecast.

• AHO sales total 4,543 units (June: 4,520), and market sales total 1,250 units (June: 1,414). AHO unit sales are above pre-pandemic levels.
• 11% reduction in the number of AHO units unsold for more than six months, and 24% reduction in market sale units unsold for more than six months.
• Total asset sales of £1.6 billion achieved. At £531 million, AHO first tranche sales are the highest value ever recorded, although aggregate current asset sales are below the amount that was previously forecast.
• Fixed asset sales total £0.6 billion; 12% above the forecast for the quarter. Forecast fixed asset sales rise to £2.8 billion as transactions between Registered Providers increase.
• £5.0 billion current asset sales forecast for the 12 months to September 2022, £4.6 billion of which relates to properties where development is contractually committed.

Operating environment

The quarter to September 2021 saw the removal of the majority of remaining coronavirus restrictions, including social distancing and social contact restrictions - Government Covid response Summer 2021 roadmap.

Overall inflation, as measured by the Consumer Prices Index (CPI), increased to 3.1% in the 12 months to September 2021 Consumer price inflation, UK - Office for National Statistics. For registered providers, this figure will be used to calculate the maximum increase that can be applied to social rents from 1 April 2022, which is capped at CPI + 1%. A monthly increase in CPI of 0.3% was also recorded between August and September 2021, compared to an increase of 0.4% between the same two months of 2020.

Gross domestic product increased by an estimated 0.6% in September 2021, and is now 0.6% below the pre-pandemic level recorded in February 2020 - GDP monthly estimate, UK - Office for National Statistics.

Monthly construction output grew by 1.3% during September 2021, with both new work and repairs and maintenance experiencing increases. The level of new work was 3.5% below February 2020 (pre-pandemic) levels, whilst repair and maintenance works were 3.9% higher. Although there was an increase in monthly output, overall construction output over the quarter (July to September 2021) fell by 1.5% in comparison to the previous quarter, with both new work and repairs and maintenance works seeing reductions of 0.3% and 3.6% respectively. This is the first quarterly fall since the quarter ending June 2020 - Construction output in Great Britain - Office for National Statistics.

Construction output prices grew by 5.1% in the year to September 2021; the largest annual increase since records began in 2014. The strongest annual growth was experienced in the area of new housing works, with prices increasing by 7.5% - Construction output price indices - Office for National Statistics. Housing repairs and maintenance prices grew by 4.0% over the 12-month period.

A temporary increase in the Stamp Duty threshold to £500,000 was in place between July 2020 and the end of June 2021. Between 1 July and 30 September 2021, a transitional relief rate of £250,000 was in place and on 1 October the Stamp Duty threshold reverted back to its previous level of £125,000 - Extension of the temporary increase to the Stamp Duty Land Tax nil rate band for residential properties - GOV.UK.

UK house prices increased by 11.8% in the year to September 2021, with the average house price reaching a record high of £270,000 - UK House Price Index - Office for National Statistics. The largest annual increases were recorded in the North West (16.8%) and the East Midlands (14.7%), whilst the smallest increase was in London (2.8%).

The number of payrolled employees increased during the quarter to reach 29.2 million in September, back in line with pre-pandemic levels - Labour market overview, UK - Office for National Statistics.

The Coronavirus Job Retention Scheme, which allowed employers to claim grant towards the salary costs of furloughed workers, ended on 30 September 2021. Provisional figures show that when the scheme closed, a total of 1.14 million jobs were still being supported by the scheme - Coronavirus Job Retention Scheme statistics: 4 November 2021 - GOV.UK. At this point, the estimated annual pay for around half of furloughed employees was up to £15,000.

Providers need to remain alert and ready to respond to further changes in the operating and economic environment. They will need to ensure that risks are monitored including the potential for increasing interest rates and possible changes to coronavirus restrictions over the winter months, including the implementation of contingency plans (‘Plan B’) as set out in the Government autumn and winter plan - Guidance overview: COVID-19 Response: Autumn and Winter Plan 2021. Forecasts will need to be closely monitored and updated, and flexibility will need to be included to allow any growing risks to be effectively managed.