Research and analysis

Quarterly survey for Q2 (June to September 2018) - Summary

Published 26 November 2018

Applies to England

Introduction

This quarterly survey report is based on regulatory returns from 229 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 July 2018 to 30 September 2018.

The regulator reviews each PRP’s quarterly survey. It considers a range of indicators and follows up with PRP staff in all 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

The quarterly survey findings are:

• New finance of £2.2 billion was agreed in the quarter; £1.3 billion from banks and £0.8 billion from capital markets.
• Loan repayments were £0.5 billion in the quarter.
• The sector remains financially strong with access to sufficient finance: £18.6 billion of undrawn facilities are in place. Debt facilities now total over £90 billion.
• Cash balances total £6.6 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 exceeded expectations. Cash interest cover excluding current asset sales was 165%, compared to a forecast 140% for the quarter.
• Total sale receipts of £1.3 billion in the quarter were 7% below the forecast of £1.4 billion made in June.
• In the 12 months to September 2019 the sector is forecasting £6.4 billion of sales receipts. By comparison, in the 12 months to September 2018 total sales were £5.3 billion.
• Investment in housing supply was £2.6 billion in the quarter to 30 September 2018; in June 2018 the forecasted contractually committed spend for the quarter was £3.1 billion.
• Over the 12 month forecast period expected investment in new housing supply is £15.5 billion of which £10.6 billion is contractually committed. In the 12 months to September 2018 total investment in new supply was £10.8 billion.
• Around 3,200 Affordable Home ownership AHO units were developed in the quarter and 3.300 were sold. There was no material change in the number of unsold units. However, the number of units unsold for more than six months was 1,400, a 39% increase on the previous quarter.
• Around 1,100 market sale units were developed in the quarter and 1,000 sold. There was a 7% increase in unsold properties. Properties unsold for more than six months increased by 33% to 757.
• 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 30,000 AHO units and 13,000 market sale properties. This compares to 17,700 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 £1.9 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

In October 2018 the RSH published its annual Sector Risk Profile. It describes PRPs’ board’s role in ensuring that an effective risk management framework is adhered to. This framework should make certain that the PRP is financially viable and able to meet its social objectives in a range of different circumstances.

The publication notes that health and safety, reputational and sales risks are increasing in importance. It reflected on the need for PRPs to undertake challenging stress testing covering the crystallisation of multiple risks from a macro-economic shock or wider market downturn.

The macro-economic data for the quarter to September presents a fairly stable position. Construction industry output (ONS) grew by 2.1% in the quarter to September compared to 0.8% in the previous quarter. The Consumer Prices Index (ONS) rose by 2.4% in the year to September 2018 (year to June 2018: 2.4%).

However, housing market data (ONS) shows a softening of the market in some areas. There was no change in the average house price in England for the month of September. Prices increased by 3.0% in the year to September 2018. London house prices fell 0.3% for the year, whilst prices in all other regions increased.

In the last six months the annual increase in average house prices has been in the range of 2.7% to 3.1%. This is the lowest level of average annual increases since 2013. Although sales registrations data for the quarter to September is not yet complete, the available information indicates that sales volumes are also lower than in recent years.

The economy is in a period of considerable uncertainty as the date of Britain’s exit from the European Union nears. For the sector, this only increases the importance that PRP boards continue to demonstrate the fundamentals of sound risk management.