Research and analysis

Quarterly survey for Q3 (October to December) 2021 - Summary

Published 22 February 2022

Applies to England

Introduction

1 - This quarterly survey report is based on regulatory returns from 206 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 regards to their liquidity position. The quarterly survey returns summarised in this report cover the period from 1 October 2021 to 31 December 2021.

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. We have assurance that all respondents are taking appropriate action to secure sufficient funding well in advance of need.

4 - 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 available cash balances increased in the quarter - Reduction in outturn loan repayments, before a forecast increase in quarter four - Aggregate liquidity remains strong.

• £117.0 billion total facilities in place at the end of December, up from £115.3 billion in September.
• New finance of £3.3 billion agreed in the quarter; 53% of this from capital markets.
• Loan repayments of £1.0 billion made during the quarter, compared to average of £1.6 billion in previous three quarters. Repayments forecast to increase to £1.9 billion in quarter four.
• Total cash and undrawn facilities total £35.2 billion; sufficient to cover forecast expenditure on interest costs (£3.6 billion), loan repayments (£3.1 billion) and net development (£16.1 billion) for the next year.
• Mark-to-market exposure on derivatives reduced by 1% over the quarter to £1.8 billion, despite swap rates reducing.

Performance in the quarter

Interest cover and income collection indicators remain robust - Capitalised major repairs remain below forecast, although an increase on the previous quarter

• £561 million capitalised major repairs expenditure in the quarter; 25% below forecast, but a 17% increase on the previous quarter and over 20% higher than average quarterly spend over the previous three years.
• Cash interest cover (excluding current asset sales) of 126% in the quarter, compared to forecast of 100% and 12-month average of 128%.
• Increase in interest cover compared to forecast is almost entirely due to capitalised major repairs being £0.2bn below forecasts.
• Aggregate net cashflows from operating activities consistent with forecasts. Increased costs and high demand for repairs reported by some providers, offset by other providers experiencing delays to programmed works.
• Income collection indicators consistent with previous performance. Void losses remain above long-term averages, particularly in supported housing and care home settings.

Investment in new and existing stock

Development expenditure was in line with the committed amount included in forecasts and higher than Q2 outturn

12-month development and major repairs spend forecasts remain high as delayed works are reprofiled into future periods.

• £3.8 billion investment in housing properties in the quarter to December 2021, the highest level on record. This is 31% higher than in the previous quarter, and 23% below forecast.
• Capitalised repairs and maintenance expenditure forecast to reach £3.2 billion over the next 12 months, compared to £2.1 billion over the last 12 months.
• Development spend forecast to reach £18.0 billion over the next 12 months, compared to £12.5 billion over the last 12 months.
• Despite record spend on development, providers continue to report delays due to labour and material shortages along with S106 and planning delays.
• AHO units completed remain strong with an increase on previous quarter. Market sale completions decreased in the quarter to below 1,000 units for the first time since the beginning of the pandemic.
• 18-month pipeline for AHO units stands at 37,208 units and 11,198 units for market sales.

Sales

AHO unit sales have fallen marginally behind the number of completions for the first time since the start of the pandemic - However, market unit sales continue to exceed completions.

• AHO sales total 4,198 units (September: 4,543), and market sales total 997 units (September: 1,250). AHO unit sales remain above pre-pandemic levels, however market unit sales saw the largest reduction over the last 18 months.
• 5% increase in the number of AHO units unsold for more than six months, and 12% increase in market sale units unsold for more than six months.
• Total asset sales of £2.0 billion achieved. Current asset sales of £1.0 billion were 13% below forecast.
• Fixed asset sales total £1.0 billion; 18% above the forecast for the quarter.
• At £3.2 billion, 12-month forecast fixed asset sales are the highest ever reported, as transactions between Registered Providers increase.
• £4.9 billion current asset sales forecast for the 12 months to December 2022, £4.6 billion of which relates to properties where development is contractually committed.

Operating environment

5 - The quarter to December 2021 saw the government announce the introduction of the Plan B measures, as set out in the Government autumn and winter plan, against the Omicron variant. This included compulsory face coverings in most public indoor venues, mandatory use of the NHS Covid Pass in certain settings, and the return to working from home guidelines.

6 - On 16 December 2021 the Bank of England raised the base rate to 0.25% for the first time in three years, and a further increase was made on 3 February to 0.5%, due to growing concerns over inflation.

7 - Overall inflation, as measured by the Consumer Prices Index, increased to 5.4% in the 12 months to December 2021, up from 5.1% in November. This is the highest CPI 12-month inflation rate seen in the National Statistic data series, with inflation levels at a 30-year high ^{[footnote 1]}. However, with energy prices set to rise this spring, it is predicted inflation levels may reach this level again.

8 - Gross domestic product fell by 0.2% in December 2021 to equal its pre-pandemic level recorded in February 2020. This follows an increase in the previous month which saw levels rise above the pre-pandemic level for the first time by 0.7%.

9 - Monthly construction output grew by 3.5% during November 2021; the [largest monthly increase seen in construction output growth since March 2021)[https://www.ons.gov.uk/businessindustryandtrade/constructionindustry/bulletins/constructionoutputingreatbritain/november2021]. December 2021 saw the monthly construction output also increase by 2.0%, which solely came from a rise in new work of 3.5%, whilst repair and maintenance saw a decrease of 0.7% in the month. The level of construction output in December 2021 was 0.3% above February 2020 (pre-pandemic) levels, whilst repair and maintenance works were 4.5% above the pre-pandemic levels. Alongside the monthly increase in output, construction output also rose 1.0% in the quarter (October to December 2021). Similar increases were seen in both new work and repairs and maintenance works of 1.1% and 0.8% respectively.

10 - Construction output prices grew by 6.2% in the year to December 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 9.9%. Housing repairs and maintenance prices grew by 5.2% over the 12-month period.

11 - On 1 October the Stamp Duty threshold reverted back to its previous level of £125,000, due to the cessation of the temporary increase to the Stamp Duty Land Tax nil rate band.

12 - UK house prices increased by 10.8% in the year to December 2021, with the average house price reaching a record high of £275,000; £27,000 higher than the same period of 2020. The largest annual increases were recorded in the South West (13.6%) and the South East (12.6%), whilst the smallest increase was in London (5.5%). In the three months to the end of November, house prices grew at the fastest pace in 15 years, reflecting the lack of homes, a strong job market and low borrowing costs in the quarter .

13 - The number of payrolled employees increased during the quarter to reach 29.5 million in December, back in line with pre-pandemic levels, with all regions now above the February 2020 level. This followed the termination of the Coronavirus Job Retention Scheme on 30 September 2021 .

14 - 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, the rising pressures on repairs and build costs, and changes to the market affecting the supply of labour and materials. 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.

1. Note the highest inflation last recorded with reference to the historical modelled data series was in March 1992 at 7.1% ↩