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Introduction

1 - This quarterly survey report is based on regulatory returns from 203 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 October 2022 to 31 December 2022.

3 - The regulator continues to review each PRP鈥檚 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 拢billion to one decimal place. This can result in rounding differences in totals and percentages as the individual returns are denominated in 拢000s.

Summary

Liquidity

New bank facilities at highest level in six years 鈥� Short term aggregate liquidity remains sufficient

• 拢121.8 billion total facilities in place at the end of December, up from 拢119.7 billion in September.
• New finance of 拢3.4 billion agreed in the quarter. New bank facilities in the quarter are the highest in six years and new capital market facilities the lowest in over three years.
• Loan repayments of 拢0.6 billion made during the quarter. Repayments forecast to be 拢3.1 billion over next 12 months.
• Total cash and undrawn facilities total 拢35.2 billion; sufficient to cover forecast expenditure on interest costs (拢4.1 billion), loan repayments (拢3.1 billion) and net development (拢14.4 billion) for the next year.
• Mark-to-market exposure on derivatives remains low, with current gross exposure of 拢0.3 billion, up from 拢0.2 billion in September.

Performance in the quarter

A further reduction in 12-month cash interest cover - Capitalised major repairs below forecast but at historically high levels 鈥� Income collection indicators stable

• 拢1.7 billion total repairs and maintenance spend in the quarter; 8% higher than the previous quarter but 9% below forecast.
• Expenditure on capitalised repairs amounted to 拢678 million; 17% higher than the previous quarter.
• Over 60% of providers report delays or changes to repairs and maintenance programmes during the quarter. Material and labour shortages continue to have an impact. Shifting priorities result in a focus on damp and mould works and deferral of non-essential works.
• Aggregate interest cover (excluding all sales) for the year to December 2022 was 102%, the lowest ever recorded. Interest cover for the year to December 2023 is forecast to reduce to 93%.
• Forecast reduction in interest cover results from increases in projected spend on capitalised repairs and maintenance (拢0.9 billion) and interest payable (拢0.4 billion), offset by increased net cashflows from operating activities (拢1.0 billion).
• Income collection indicators remain consistent with previous performance and seasonal trends. Marginal improvements in arrears and rent collection. Void losses remain above long-term averages.

Investment in new and existing stock

12-month major repairs spend forecasts remain high as delayed works are reprofiled and building safety and energy efficiency works are planned. development spend forecasts decreased from previous quarter to their lowest level in two years, mainly due to economic uncertainty

Outturn development expenditure above forecasts for committed schemes - Unit completions increase during the quarter

• Capitalised repairs and maintenance expenditure was 拢2.5 billion in the 12 months to December 2022. Expenditure forecast to reach 拢3.4 billion over the next 12 months.
• Forecasts for capital investment continue to increase due to inflationary pressures, building safety and energy efficiency works being included in budgets, and increased focus on damp and mould works.
• 拢3.8 billion invested in new housing properties in the quarter; 7% above forecasts for contractually committed schemes.
• Development expenditure forecast to reach 拢16.6 billion (September: 拢17.3 billion) over the next 12 months, of which 拢11.0 billion (September: 拢11.4 billion) is committed.
• However, over half of providers have reduced their forecast development, with some pausing or removing uncommitted development due to the current economic uncertainty.
• Development schemes continue to be delayed due to supply chain issues affecting availability of materials and labour, and market volatility has resulted in prolonged contract negotiations.
• Market sale completions rose 28% compared to the previous quarter, and AHO completions increased by 16%.
• 18-month pipeline for AHO units stands at 37,325 units and 8,434 units for market sales.

Sales

Unit sales behind completions during the quarter 鈥� Unsold market sales units increased but unsold AHO units marginally decreased at the end of December

• AHO sales totalled 4,445 units (September: 4,345), and market sales totalled 1,100 units (September: 1,313).
• Total unsold AHO units marginally reduced by 1%, and unsold market sale units increased by 9%, although remain below the previous three-year average.
• Margins on AHO sales are 21.6% in the quarter (September: 19.6%). Market sale achieved margins of 15.0% (September: 14.5%).
• Current asset sales totalled 拢1.0 billion; 10% below forecast. Market sales totalled 拢497 million, lower than the quarterly average achieved over the last three years. At 拢565 million, AHO sales are the highest ever recorded.
• Fixed asset sales totalled 拢0.9 billion. Bulk disposals to other organisations amounted to 拢0.4 billion of this, 70% below forecast.
• Fixed asset sales forecast to reach 拢4.0 billion over the next 12 months, including 拢2.4 billion bulk sales.

Operating environment

5 - The quarter to December 2022 continued to be a challenging and turbulent period for PRPs, with inflationary pressures and economic uncertainty continuing to affect the housing sector. The recently published financial viability judgements by the regulator towards the quarter-end, reflect the widespread financial challenges facing the sector. Following the increased media coverage on damp and mould issues, there has been a large focus on maintaining the Decent Homes Standard, with the regulator publishing an initial findings report on damp and mould in social housing on 2 February 2023.

6 - Reported gross domestic product is estimated to have fallen by 0.5% in December, following an unrevised growth of 0.1% in November, driven by a decline in the services sector. More broadly, .

7 - . This is a decrease of 0.9 percentage points since the previous forecast was issued in October, which projected a growth of 0.3%. Nevertheless, there was a more positive outlook from the , though with GDP growth set to remain close to zero this year, it will still reflect a weakened economy.

8 - Overall inflation, as measured by the . On a monthly basis, CPI increased by 0.4% in December. , which was surpassed in October at 11.1%, and fell back down in the subsequent months.

9 - Following the rent cap announcement in November, several providers have revised their forecasts this quarter to reflect the 7% cap between 1 April 2023 and 31 March 2024. With continued pressures of rising inflation, the restriction on annual rent increases will add to the burden of growing costs and have an impact on providers鈥� liquidity.

10 - In a bid to alleviate rising inflation, further increases in interest rates were announced by the Bank of England during the quarter. . On 2 February 2023, , the tenth consecutive increase since December 2021 and the highest level in almost 15 years.

11 - Mortgage interest rates have been increasing in response to base rate changes, with . This has led to net borrowing of mortgage debt by individuals decreasing from 拢6.1 billion in September to 拢3.2 billion in December. Mortgage approvals for house purchases decreased to 35,600 from 66,800 in September, .

12 - Construction output remained flat in the quarter to December 2022. This came from an . At sector level, non-housing repair and maintenance, and infrastructure new work, increased by 5.4% and 3.7% respectively. The main negative contributors were seen in private housing repair and maintenance, and private new housing, falling 8.5% and 2.3% respectively.

13 - Prices in the construction industry are estimated to have increased by 9.7% in the year to December 2022. The overall increase includes .

14 - House prices in England increased by 10.3% in the year to December 2022, reaching an average of 拢315,119. The largest annual increase was recorded in the East Midlands (12.3%), and the smallest was in the London (6.7%). However, with uncertainty around the cost of living and rising interest rates, the housing market is showing signs of a significant slowdown, with .

15 - . , and the sixth consecutive quarterly fall. . . The number of claimants has been increasing steadily since June 2022.

16 - As risks begin to crystallise within the operating environment, providers will have reduced financial flexibility to respond to further challenges. Providers are expected to closely monitor and update forecasts to reflect ongoing inflationary and interest-rate risks, along with the potential for increasing arrears as cost-of-living pressures impact upon tenants. Providers must be able to identify areas where covenant headroom or liquidity may be restricted and ensure that contingency plans and mitigations remain robust.