Research and analysis

Quarterly survey for Q4 (January to March) 2021 to 2022 Summary

Published 26 May 2022

Applies to England

Introduction

1 - This quarterly survey report is based on regulatory returns from 205 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 January 2022 to 31 March 2022.

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 - Increase in outturn loan repayments, before a forecast reduction in the year - Aggregate liquidity remains strong

• £118.7 billion total facilities in place at the end of March, up from £117.0 billion in December.
• New finance of £3.9 billion agreed in the quarter and £12.5 billion agreed in the year. 54% of new facilities agreed in the quarter were from bank loans.
• Loan repayments of £1.7 billion made during the quarter, compared to average of £1.4 billion in previous three quarters. Repayments forecast to reduce to an average of £0.6 billion over the next four quarters.
• Total cash and undrawn facilities total £36.4 billion; sufficient to cover forecast expenditure on interest costs (£3.5 billion), loan repayments (£2.3 billion) and net development (£15.7 billion) for the next year.
• Large reduction in mark-to-market (MTM) exposure on derivatives, down to £1.3 billion, following a sharp increase in swap rates.

Performance in the quarter

Interest cover and income collection indicators remain robust - Capitalised major repairs outturn spend is the highest on record

• £771 million capitalised major repairs expenditure in the quarter; 8% below forecast, but a 38% increase on the previous quarter. Providers reported this mainly consisted of catch-up works delayed from previous quarters, and some inflationary price increases.
• Cash interest cover (excluding current asset sales) of 124% in the quarter, compared to forecast of 84% and 12-month average of 128%.
• Increase in interest cover compared to forecast is due to net cashflows from operating activities excluding sales being £0.2 billion above forecast, and capitalised major repairs being £0.1 billion below forecasts.
• Value of debt repayable over the next two years is £4.8 billion (2021: £7.1 billion), with long-term debt continuing to account for most of the sector’s borrowing with 82% of debt due for repayment in over five years.
• From the £88.9 billion drawn debt, this comprises of 80% of fixed rate debt greater than one year (2021: 77%), with 60% of total drawn debt at rates fixed for over 10 years.
• Income collection indicators consistent with previous performance. Void losses remain above long-term averages, particularly in supported housing and care home settings.
• 49 providers (2021: 58) anticipate an impairment charge in 2021/22 accounts, and 65 providers (2021: 67) expect a joint venture or non-registered subsidiary to report a loss.

Investment in new and existing stock

Development expenditure is below both Q3 outturn and the committed amount included in forecasts.

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

• Capitalised repairs and maintenance expenditure was £2.3 billion in the 12 months to March 2022, the highest on record. Forecast expenditure to reach £3.2 billion over the next 12 months.
• £2.9 billion investment in new housing properties; 22% less than the previous quarter and 18% below forecast for contractually committed schemes.
• Development spend was £12.7 billion in the 12 months to March 2022, more than the £12.4 billion reported pre-pandemic in the year to March 2020. Forecast spend to reach £17.5 billion over the next 12 months, of which £11.5 billion is committed.
• Providers continue to report development delays due to labour and material shortages, along with planning delays.
• Large increase in market sale unit completions; up 63% on the previous quarter. AHO unit completions 6% higher than the previous quarter.

Sales

Unit sales below completions for both AHO and market sale, leading to higher unsold units. Sales are below the record numbers achieved during the Stamp Duty holiday, but above or in-line with those reported before the pandemic.

• AHO sales total 4,236 units (December: 4,198), and market sales total 1,316 units (December: 997). Total unsold AHO units increase by 6%, and market sale by 12%.
• 3% reduction in AHO units unsold for more than six months, and a 20% reduction in market sale units unsold for over six months.
• Margin on AHO sales averages 18.6% in the year to March 2022, compared to an average of 20.0% over the last three years. For market sale an average margin of 15.2% was achieved in the year, compared to the three-year average of 16.0%.
• Total asset sales of £1.8 billion achieved. Current asset sales of £1.1 billion were 15% below forecast.
• Fixed asset sales are 31% below forecast, but at £0.8 billion are the second highest ever recorded.
• At £3.3 billion, 12-month forecast fixed asset sales are the highest ever reported, as transactions between Registered Providers increase.

Operating environment

5 - The quarter to March 2022 saw the implementation of the Government’s ‘Living with COVID-19’[1] plan, with the gradual removal of all remaining coronavirus restrictions. Guidance to work from home was removed on 19 January, and the compulsory wearing of facemasks ended a week later, on 27 January. The legal requirement to self-isolate after a positive covid test was removed from 24 February, with the £500 support payment for those on low incomes also being removed from this date. Enhanced Statutory Sick Pay and Employment and Support Allowance provisions for those sick or self-isolating due to COVID-19 ended on 24 March.

6 - On 24 February Russia launched an invasion of neighbouring Ukraine. In response, the UK and other governments have imposed a series of economic sanctions against Russia[2]. Inflationary pressures have already been increasing globally since 2021, as countries begin to recover from the COVID-19 pandemic and the demand for goods and energy has outpaced supply. The war has led to further increases in global energy prices and shortages of certain commodities, increasing inflation and drastically reducing global growth forecasts. For the UK, the International Monetary Fund has revised its annual gross domestic product growth forecast for 2022 down by one percentage point, from the 4.7% forecast in January 2022[3] to 3.7%[4]. Forecast GDP growth in 2023 has been revised downwards from 2.3% to 1.2%.

7 - Due to concerns over inflation, on 3 February the Bank of England increased the base rate from 0.25% to 0.50%. Inflationary pressures were exacerbated by the Russian invasion of Ukraine, and further increases in base rate were announced on 17 March, taking the rate to 0.75%[5], and on 5 May to 1.00%[6].

8 - Overall inflation, as measured by the Consumer Prices Index (CPI), increased to 7.0% in the 12 months to March 2022, up from 6.2% in February[7]. This is the highest 12-month rate recorded since March 1992, when CPI was 7.1%. The Bank of England is forecasting inflation to reach around 10% this year[8], in part due to a 54% uplift in the energy price cap from 1 April[9].

9 - Gross domestic product fell by 0.1% in March, and is now 1.2% above the pre-pandemic level recorded in February 2020. Over the quarter there was an overall increase in GDP of 0.8%[10].

10 - Construction output grew by 3.8% in the quarter to March 2022. Outside of the coronavirus pandemic period, this is the strongest quarterly growth since the same quarter of 2017 (3.9%). Both new work and repairs and maintenance works increased over the quarter, by 2.8% and 5.5% respectively. At the end of March, total output was 3.7% higher than February 2020 (pre-pandemic) levels; repairs and maintenance works being 13.8% higher, although new works remaining 1.6% below the levels recorded at that date[11].

11 - Construction output prices grew by 7.3% in the year to March 2022; the largest annual increase since records began in 2014. New housing works experienced the greatest annual growth in prices, rising by 10.9%, whilst repairs and maintenance prices increased by 5.9% over the 12-month period[12].

12 - UK house prices increased by 9.8% in the year to March 2022, with the average house price reaching £278,436[13]. In England, the largest annual increase was recorded in the East Midlands (12.4%), and the smallest was in London (4.8%). All other English regions recorded an annual increase in excess of 8%.

13 - Estimates of the number of payrolled employees showed an increase during the quarter to March 2022, to a record 29.6 million[14]. The number of job vacancies during the quarter also increased to a new record of 1,288,000. The Bank of England forecasts unemployment rates to fall slightly in the near future before rising in Q4 of 2022[15]. Between March 2021 and March 2022 the number of Universal Credit claimants increased by 6%, up to 5.6 million[16], and between March and November 2021 the number of social rented sector households claiming the housing element of Universal Credit increased by 74,000 to around 1,113,000[17].

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 increasing interest rates, the rising pressures on repairs and build costs, and changes to the market affecting the supply of labour and materials. Increasing energy costs and wider inflationary pressures will need to be understood, and forecasts closely monitored and updated. Flexibility will be needed to ensure that growing risks can be effectively managed.

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[1] COVID-19 Response - Living with COVID-19.docx (publishing.service.gov.uk)

[2] Russia sanctions: guidance - GOV.UK (www.gov.uk)

[3] World Economic Outlook Update, January 2022: Rising Caseloads, A Disrupted Recovery, and Higher Inflation (imf.org)

[4] World Economic Outlook, April 2022: War Sets Back The Global Recovery (imf.org)

[5] Bank Rate increased to 0.75% - March 2022 - Bank of England

[6] Bank Rate increased to 1% - May 2022 - Bank of England

[7] Consumer price inflation, UK - Office for National Statistics

[8] Monetary Policy Report - May 2022 - Bank of England

[9] Price cap to increase by £693 from April - Ofgem

[10] GDP monthly estimate, UK - Office for National Statistics (ons.gov.uk)

[11] Construction output in Great Britain - Office for National Statistics

[12] Construction output price indices - Office for National Statistics

[13] UK House Price Index summary: March 2022 - GOV.UK (www.gov.uk)

[14] Labour market overview, UK - Office for National Statistics (ons.gov.uk)

[15] Bank of England Monetary Policy Report May 2022

[16] Universal Credit statistics, 29 April 2013 to 10 March 2022 - GOV.UK (www.gov.uk)

[17] Universal Credit statistics, 29 April 2013 to 10 March 2022 - GOV.UK (www.gov.uk)