Research and analysis

Quarterly survey for Q4 (January to March) 2020 to 2021 - Summary

Published 27 May 2021

Applies to England

Introduction

1 - This quarterly survey report is based on regulatory returns from 215 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 regard to their liquidity position. The quarterly survey returns summarised in this report cover the period from 1 January 2021 to 31 March 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 - The quarter to March 2021 saw the implementation of a third countrywide lockdown in England in response to the coronavirus pandemic. The lockdown came into effect on 6 January 2021, and the first restrictions began to be eased on 8 March.

Summary

5 - The position reported at the end of the quarter showed that the sector remains financially strong with access to sufficient finance:

• Debt facilities of £113 billion were in place at the end of March, of which £27.8 billion was undrawn.
• Undrawn facilities have increased by £5.9 billion since the start of the financial year but decreased by 3% in the quarter. This was due to £1.0 billion of undrawn Covid Corporate Financing Facility expiring in March, from a total of £2.9 billion arranged through the scheme by providers.
• Available cash balances increased by £0.4 billion during the quarter to reach £7.4 billion at the end of March.
• New finance of £3.1 billion was agreed in the quarter, including £1.2 billion from capital markets and £1.9 billion from banks. Total new finance agreed in the year amounted to £15.1 billion, the highest ever recorded. This compares to the £10.4 billion recorded in 2019/20.
• Mark-to-market exposure decreased by 21% over the quarter, reflecting a large increase in swap rates. In aggregate, providers with free-standing derivatives continue to have headroom available.

6 - Performance in the quarter continues to reflect some of the challenges arising from the coronavirus pandemic. However, this has not destabilised the sector’s overall strong financial position:

• Cash interest cover, excluding current asset sales, was 126% in the quarter to March 2021, higher than the forecast of 90% made in December.
• The improvement in interest cover was a result of net cashflows from operating activities being £295 million (21%) higher than forecast, and capitalised repairs and maintenance expenditure being £55 million lower than forecast.
• Expenditure on capitalised repairs and maintenance in the quarter amounted to £580 million (December: £455 million). Providers have reported ongoing delays as a result of lockdown restrictions; despite this, outturn spend was more in line with levels seen before the start of the coronavirus pandemic.
• Investment in housing supply was £2.8 billion in the quarter to March 2021; an 18% reduction compared to the previous quarter. Expenditure was below both the total forecast for the quarter of £4.2 billion, and the £3.3 billion forecast for contractually committed schemes. Providers have reported general scheme delays, and a slowdown in works attributable to the latest lockdown and ongoing enhanced safety measures on sites.
• Including both current and fixed asset sales, total sale receipts were £1.9 billion in the quarter; the highest total recorded since the data was first collected in 2009. At £5.9 billion, total sales for the year are also the highest ever recorded, although the overall margin stood at 24% compared to 30% in both 2019/20 and 2018/19.
• During the quarter 4,453 affordable home ownership units were developed and 4,555 were sold.
• The total number of unsold AHO units reduced from 7,634 in December to 7,369 at the end of March. Units unsold for more than six months reduced by 21% during the quarter, reaching 2,351 at the end of March.
• During the quarter 1,560 market sale units were developed and 1,684 were sold; the highest number of sales recorded since the data was first collected in 2014.
• The number of unsold market sale units decreased by 13% over the quarter, from 2,194 in December to 1,901 in March. The number of units unsold for over six months decreased by 30% to 886.
• The reduction in the number of unsold AHO units and market sale units is due to both a high volume of sales, and a large number of transfers to rental tenures. The 148 units converted from AHO and 164 units converted from market sale are the highest numbers recorded since the data was first collected in 2014.
• Total sales of both AHO and market sale units in the year to March 2021 are the highest ever recorded. Following an initial large reduction during the spring 2020 lockdown, sales have recovered over the year to reach a total of 15,006 AHO units and 5,316 market sale units.
• A total of 14,435 AHO units and 4,407 market sale units have been acquired or developed in the year to March 2021, compared to a total of 15,871 AHO units and 6,252 market sale units in 2019/20.
• Mean arrears, void rent loss and rent collection rates initially deteriorated at the start of the coronavirus pandemic, although performances in income collection and tenant arrears have improved in the quarter. Void losses improved only slightly, remaining at higher levels than previous years.

7 - Forecasts for the next 12 months indicate that performance and plans are continuing to return towards levels seen before the coronavirus pandemic.

• For the 12 months to March 2022 the sector has forecast capitalised repairs and maintenance expenditure of £2.7 billion; an increase on the £2.6 billion 12-month forecast made in the previous quarter, and on the £2.4 billion forecast from December 2019.
• Over the 12-month forecast period, expected investment in new housing supply is projected to be £16.9 billion, of which £10.9 billion is contractually committed. Projected spend is now in line with the last pre-coronavirus 12-month forecast of £16.9 billion from December 2019.
• For the 12 months to March 2022, the sector has forecast £4.4 billion worth of current asset sales and £2.4 billion worth of fixed asset sales. Forecast current asset sales remain below the levels expected before the start of the coronavirus pandemic (December 2019 12-month forecast: £5.4 billion).

Operating environment

8 - The quarter to March 2021 saw the implementation of a third countrywide lockdown in England in response to the coronavirus pandemic. Unlike during the lockdown of spring 2020, construction works, non-essential repairs and house moves were all permitted to continue, provided these were carried out in accordance with government safety guidance. The lockdown came into effect on 6 January 2021, and the first restrictions began to be eased on 8 March.

9 - Gross domestic product grew by an estimated 2.1% in March 2021 GDP monthly estimate, UK - Office for National Statistics, leaving it 5.9% below the pre-pandemic level recorded in February 2020. The Bank of England expects GDP to recover to pre-coronavirus levels by the end of the year Bank of England Monetary Policy Report May 2021, although growth is forecast to slow after 2021.

10 - Construction output grew by 5.8% in March 2021 Construction output in Great Britain: March 2021, new orders and Construction Output Price Indices, January to March 2021 - Office for National Statistics, the largest monthly growth since July 2020. This includes growth in new work of 6.7%, and in repairs and maintenance of 4.4%. Total construction output in March 2021 was 2.4% higher than the pre-pandemic amount recorded in February 2020 and comprised of an increase in repairs and maintenance work of 7.7%, offset by a 0.5% reduction in new works.

11 - Overall inflation, as measured by the Consumer Prices Index (CPI), increased by 0.7% in the 12 months to March 2021 Consumer price inflation, UK - Office for National Statistics. A monthly increase in CPI of 0.3% between February and March 2021 was also recorded, compared to the negligible change recorded between the same two months of 2020.

12 - A temporary increase in the Stamp Duty threshold has been in place since July 2020 and was due to end on 31 March 2021. This deadline has now been extended until 30 June 2021, and a further transitional relief will remain in place until the end of September - Stamp Duty Land Tax - GOV.UK.

13 - UK house prices have increased by 10.2% in the year to March 2021 - UK House Price Index summary: March 2021. The biggest annual increases have been seen in Yorkshire and the Humber (14.0%) and the North East (13.7%), and the smallest increases were in London (3.7%) and the South East (7.9%).

14 - Estimates from the Office for National Statistics indicate that the UK unemployment rate stood at 4.8% in the quarter to March 2021; a reduction of 0.3 percentage points compared to the quarter to December 2020, although still 0.8 percentage points higher than the pre-pandemic levels recorded between December 2019 and February 2020 Employment in the UK - Office for National Statistics. The Bank of England forecasts unemployment to increase slightly in the quarter from April to June Bank of England Monetary Policy Report - May 2021. Between March 2020 and January 2021 the number of Universal Credit claimants increased by 98%, up to 6.0 million, and between March and November 2020 the number of social rented sector households claiming the housing element of Universal Credit increased from around 745,000 to around 1,039,000 Universal Credit statistics, 29 April 2013-14 January 2021.

15 - The Coronavirus Job Retention Scheme, which allows employers to claim grant to cover the salary costs of furloughed workers, will continue until 30 September 2021 - Changes to the Coronavirus Job Retention Scheme from July 2021. Employees will continue to receive 80% of their usual wages throughout the remainder of the scheme, although employers will be required to contribute towards this from July.

16 - As the country begins to emerge out of lockdown, providers will need to remain alert and ready to respond to further changes in the operating and economic environment. Forecasts will need to be closely monitored and updated as the economy re-opens, and flexibility will need to be included to allow any increasing risks to be effectively managed.