Research and analysis

Quarterly survey for Q3 (October to December) 2019 to 2020 - Summary

Published 27 February 2020

Applies to England

Introduction

This quarterly survey report is based on regulatory returns from 216 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 2019 to 31 December 2019.

RSH 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 summarised below.

The sector remains financially strong with access to sufficient finance:

• £22.5 billion of undrawn facilities are in place. Debt facilities total nearly £102 billion.
• Cash balances total £5.1 billion; this is forecast to reduce over the next 12 months to £3.3 billion as cash is used to fund planned capital expenditure.
• New finance of £3.7 billion was agreed in the quarter, including £2.1 billion from capital markets and £1.5 billion from banks.
• Loan repayments of £1.4 billion were made in the quarter.
• Cash interest cover, excluding current asset sales, was 129% in the quarter to December 2019 against a forecast of 116%. Interest cover is forecast to average 128% over the next 12 months as expenditure on capitalised repairs and maintenance is expected to increase.
• Providers making use of free-standing derivatives reported mark-to-market exposure of £2.3 billion, a 12% decrease since September, 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.

Performance in the quarter reflects some challenges with regards to sales receipts and margins. However, this has not destabilised the sector’s overall strong financial position:

• Including both current and fixed asset sales, total sale receipts were £1.4 billion in the quarter, generating surpluses of £0.4 billion. In aggregate, asset sale receipts were 12% below the forecast made in September.
• Investment in housing supply was £3.5 billion in the quarter to December 2019, the highest amount recorded since the data was first collected in 2015. This was below the total forecast expenditure for the quarter of £4.1 billion, but in excess of the £3.1 billion forecast on contractually committed schemes.
• During the quarter 4,150 affordable home ownership units were developed, and 3,826 were sold. The number of unsold units increased by 4%, to reach 6,943 at the end of December. Half of the unsold AHO units were held by 17 providers.
• During the quarter there was a 10% decrease in the number of AHO units unsold for more than six months, which numbered 2,353 at the end of December. This reflects the high level of sales in the quarter ending December 2019.
• Margins on AHO sales averaged 21.3% in the quarter, the lowest rate achieved in the last three years.
• During the quarter 1,554 market sale units were developed and 1,213 were sold. The number of unsold properties increased by 14% to 2,537, the highest level recorded since the data was first collected in June 2014. Half of the total unsold market sale units were held by six providers.
• The number of market sale properties unsold for more than six months increased by 16% to 1,028. This reflects a drop in market sales in the quarter to December 2019 when compared to the previous quarter.
• The sector’s spending on capitalised major repairs in the quarter was around £508m, 18% below forecast. The main reasons for variances relate to delays in repair programmes and the re-profiling of planned works.

Forecasts for the next 12 months indicate that the sector is planning to increase its development and housing market exposure, and its investment in existing stock. There is some flexibility in these plans:

• Forecast capital expenditure over the next 12 months will be supported by drawing additional debt of £5.3 billion, use of £2.0 billion of cash reserves, and grant funding of £1.9 billion.
• Over the 12-month forecast period, expected investment in new housing supply is £16.9 billion, of which £11.0 billion is contractually committed. In the 12 months to December 2019 total investment in new supply was £12.6 billion.
• In the 12 months to December 2020, the sector is forecasting £5.4 billion worth of current asset sales and £1.6 billion of fixed asset sales. By comparison, in the 12 months to December 2019, current asset sales were £3.5 billion and fixed asset sales were £1.8 billion.
• Development of for-sale properties (both AHO and market sale) is forecast to continue to increase. In the next 18 months, including committed and uncommitted development, plans include the completion of 33,953 AHO units and 12,063 market sale properties. This compares to 23,075 AHO units and 8,309 market sale properties developed in the last 18 months.
• In the 12 months to December 2019, capitalised expenditure on repairs and maintenance was £2.0 billion. In the 12 months to December 2020 the sector is forecasting capitalised repairs and maintenance expenditure of £2.4 billion.

Regulatory expectations

PRPs are expected to manage their resources effectively to ensure that their viability is maintained. The regulator continues to follow up cases where financial indicators such as interest cover are weak to ensure that PRPs are managing their risks effectively. The regulator also continues to monitor developments in the housing market closely and engage with providers with significant exposures to market and AHO sales. PRP boards should be aware of the flexibility in their plans, and deploy it as necessary.

Before contractually committing to development spending, the regulator expects PRP boards to: carefully consider market conditions; model cashflows and viability impacts and stress-test these using a range of economic assumptions; and ensure that access to any external finance required is in place. This is particularly important where housing market exposure is involved. The regulator expects providers to have contingency plans in place for market and AHO sales falling short of forecasts.

The regulator also expects PRP boards to ensure that its properties are in a good state of repair and meet all applicable statutory health and safety requirements.

Key risks faced by the sector are considered in the Sector Risk Profile published annually by the regulator. Boards of PRPs are expected to be actively engaged in responding to emerging risks.