Research and analysis

Quarterly Survey for Q4 (January to March) 2018 to 2019 - Summary

Published 3 June 2019

Applies to England

Introduction

This quarterly survey report is based on regulatory returns from 221 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 January 2019 to 31 March 2019.

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 £4.5 billion was agreed in the quarter, including £2.3 billion from capital markets and £2.1 billion from banks. This is the highest amount of new finance arranged in a single quarter on record.

• Loan repayments of £1.3 billion were made in the quarter.

• In the year to March 2019 total new facilities, including refinancing, amounted to £13.5 billion, also the highest amount on record.

• The sector remains financially strong with access to sufficient finance: £20.8 billion of undrawn facilities are in place. Debt facilities now total over £97 billion.

• £4.2 billion (5.4%) of drawn debt is repayable within the next two years (2018: £3.4 billion, 4.8%).

• 76% of drawn debt is at interest rates fixed for over 12 months (2018: 73%).

• Cash balances total £6.1 billion; this is forecast to reduce in the next 12 months to £4.1 billion as cash is used to fund planned capital expenditure.

• Cash interest cover, excluding current asset sales, was 151% in the 12 months to March 2019. For the 12 months ending March 2020, cash interest cover is forecast to be 128%.

• Including both current and fixed asset sales, total sale receipts were £1.5 billion in the quarter. This was slightly below the forecast of £1.6 billion made in December.

• In the 12 months to March 2020 the sector is forecasting £6.2 billion of sales receipts. By comparison, in the 12 months to March 2019 total sales were £5.3 billion.

• Investment in housing supply was £3.1 billion in the quarter to 31 March 2019, slightly lower than the December forecast contractually committed spend for the quarter of £3.3 billion.

• Over the 12 month forecast period, expected investment in new housing supply is £14.9 billion, of which £10.5 billion is contractually committed. In the 12 months to March 2019 total investment in new supply was £11.8 billion.

• During the quarter, 4,817 Affordable Home Ownership units were developed, 118 units were converted to AHO from other tenures and 3,448 units were sold. There was a 27% increase in the number of unsold units, amounting to 6,924 at the end of March; the highest level in almost ten years. Half of the unsold AHO units were held by 17 providers.

• The number of AHO units unsold for more than six months increased by 2% over the quarter to reach 1,371 at the end of March.

• During the quarter, 1,550 market sale units were developed, 1,263 were sold and 109 units were converted from market sale to other tenures. The number of unsold properties increased by 10% to 1,933; the highest level recorded since the data was first collected in June 2014. The number of properties unsold for more than six months reduced by 9% to 637. Over half of the total unsold market sale units are held by six providers.

• 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. The 6,367 completions in the quarter are the highest since the Regulator began to collect this data in June 2014.

• 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 31,901 AHO units and 13,783 market sale properties. This compares to 21,490 AHO units and 7,344 market sale properties developed in the last 18 months.

• Providers making use of free-standing derivatives reported mark-to-market exposure of £2.2 billion, a 7% 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.

• Investment in, or lending to, non-registered subsidiaries, special purpose vehicles or joint venture entities amounts to £8.0 billion, almost half of which is held by three providers.

• Total impairment charges expected in 2019 accounts amount to £73 million, one-third of which is attributable to three providers.

• Income collection data continues to show a stable performance, consistent with seasonal trends.

Operating environment

The activity reported in this quarterly survey took place in what was expected to be the last quarter before the UK’s exit from the European Union. At a headline level, the economic operating environment for PRPs generally remained stable. Key metrics for the period covered include the following:

• The average house price in England increased by 1.1% in the year to March 2019 according to UK House Price Index England – Office for National Statistics. London experienced the lowest annual growth, with prices falling by 1.9% over the year. There were also reductions in annual prices in the North East of 0.8%, and in the South East of 0.4%. All other areas experienced an increase in prices over the 12 month period.

• The Consumer Prices Index rose by 1.9% in the year to March 2019 (year to December 2018: 2.1%) according to Consumer price inflation, UK - Office for National Statistics. The annual increase in CPI has been below 2% since January, lower than any annual increase experienced during 2018.

• Construction Output Price Index figures for all construction showed that costs increased by 2.8% in the year to March 2019, according to Construction output prices indices – Office for National Statistics.

The survey results suggest that the sector is in a robust position to respond to any uncertainty and changes in the wider economic environment. The key risks faced by the sector are considered in the Sector Risk Profile published annually by the RSH. We will continue to monitor key market trends and to seek assurance that boards of PRPs are actively engaged in responding to emerging risks.