Research and analysis

Quarterly survey for Q3 (October to December) 2018 to 2019 - Summary

Published 25 February 2019

Applies to England

Introduction

This quarterly survey report is based on regulatory returns from 225 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 October 2018 to 31 December 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.

The quarterly survey findings are:

• New finance of £3.6 billion was agreed in the quarter; £2.1 billion from banks and £1.4 billion from capital markets.
• Loan repayments were £1.1 billion in the quarter.
• The sector remains financially strong with access to sufficient finance: £19.3 billion of undrawn facilities are in place. Debt facilities now total over £95 billion.
• Cash balances total £6.6 billion; this is forecast to reduce in the next 12 months to £4.2 billion as cash is used to fund planned capital expenditure.
• Operational financial performance exceeded expectations. Cash interest cover, excluding current asset sales, was 138% compared to a forecast of 132% for the quarter.
• Total sale receipts of £1.3 billion in the quarter were consistent with the forecast of £1.3 billion made in September.
• In the 12 months to December 2019 the sector is forecasting £6.1 billion of sales receipts. By comparison, in the 12 months to December 2018 total sales were £5.4 billion.
• Investment in housing supply was £3.3 billion in the quarter to 31 December 2018, consistent with the September forecast contractually committed spend for the quarter of £3.3 billion.
• Over the 12-month forecast period expected investment in new housing supply is £15.0 billion, of which £10.2 billion is contractually committed. In the 12 months to December 2018 total investment in new supply was £11.3 billion.
• 4,076 Affordable Home Ownership units were developed in the quarter and 3,303 were sold. There was an 18% increase in the number of unsold units, amounting to 5,438 at the end of December. During the quarter the number of AHO units unsold for more than six months decreased by 5% to 1,350 at the end of December.
• 1,317 market sale units were developed in the quarter and 1,036 sold. The number of unsold properties increased by 18% to 1,755. The number of properties unsold for more than six months reduced to 697.
• The increase in the number of unsold units, both low-cost home ownership and market sale, reflects an increase in the number of units being developed. 5,393 units were acquired or developed during the quarter compared to an average of 4,051 units per quarter over the last three years.
• 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 13,100 market sale properties. This compares to 19,300 AHO units and 6,700 market sale properties developed in the last 18 months.
• Providers making use of free-standing derivatives reported mark-to-market exposure of £2.1 billion, a £0.1 billion increase on the previous quarter reflecting a decrease 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 during the quarter.

Key metrics for the period covered include the following:

• The average house price in England increased by 2.3% in the year to December 2018 - UK House Price Index England – Office for National Statistics. This is the lowest level of average annual increases since 2013. The lowest annual growth was seen in the North East, where there was a reduction in average prices of 1.0%. In London prices fell by 0.6% over the year, and in all other areas prices increased.
• The Consumer Prices Index) rose by 2.1% in the year to December 2018 (year to September 2018: 2.4%) - Consumer price inflation, UK – Office for National Statistics. This is the lowest annual increase since January 2017, easing the pressure on costs.
• Construction Output Index figures for all construction showed that costs increased by 2.7% in the year to December 2018 - Construction output price indices – Office for National Statistics.

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, including challenging stress testing covering the crystallisation of multiple risks from a macro-economic shock or wider market downturn.