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Introduction

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.

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 2020 to 31 March 2020.

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.

Operating environment

The ongoing coronavirus outbreak was declared a pandemic on 11 March, and the UK was put into lockdown on 23 March to attempt to limit its spread. The lockdown period impacted on the last week of the reporting period for quarter four鈥檚 out-turn, hence having some, albeit limited, impact on the quarter鈥檚 out-turn figures. However, it is already clear that there will be a significant economic downturn and it will potentially impact further on reporting data such as rent arrears, sales, repairs and development over the 2020/21 financial year.

There is significant uncertainty over what the full impact of the pandemic will be, making it increasingly difficult for providers to plan for the future. Potential impacts are partially captured in the forecasts referred to throughout this report and will be more fully captured in future returns as all PRPs revise business plans and forecasts.

The Bank of England base rate had been at 0.75% since August 2018. In light of the expected economic impact of coronavirus, the BoE cut interest rates on 11 March to 0.25%, and in a further emergency response the base rate was reduced for a second time on 19 March from 0.25% to 0.1%.

The coronavirus lockdown had an immediate impact upon the housing market, as almost all house sales were put on hold. The construction sector has also experienced significant disruption, with sites temporarily closing down and needing to quickly adapt working practices to allow works to recommence.

The Department for Work and Pensions has reported significant increases in the number of people claiming Universal Credit since the government announced lock down measures. In addition, a rising number of people, including social housing tenants, are now being supported by the government鈥檚 furlough scheme.

There continues to be significant uncertainty as the ongoing implications of coronavirus and the period of lockdown are unknown. The Prime Minister announced steps to begin to ease the lockdown in England on 10 May, however the process will be gradual and contingent on the progress of the outbreak. PRP forecasts will continue to evolve as the financial impact of coronavirus is revealed.

Regulatory expectations

The coronavirus lockdown began shortly before the end of the reporting quarter, bringing unprecedented challenges for providers and forcing them to make initial assumptions on the impact of the pandemic on their cashflows and business plans. The effects of this new operating environment remain highly uncertain and will not yet be fully reflected in the forecasts submitted. Providers expect to continue to adjust these forecasts over the coming months as the situation develops.

In response to the pandemic, RSH wrote to providers setting out that it had changed its overall approach to regulation to focus on understanding the short-term risks that PRPs are facing. Two formal sources of information will be used to do this, namely the existing quarterly survey which focuses on key financial risks, and a new monthly survey (CORS) of landlords to understand how they are coping with the operational impacts of coronavirus. To reduce the regulatory burden on providers, the annual reporting elements of the quarterly survey, usually requested in quarter four, were not required to be completed.

It is recognised that the consumer standards may not be fully achievable during the coronavirus pandemic. Our CORS survey will provide information on how providers are managing, and providers should contact us if they believe tenant safety is threatened. In respect of the Governance and Financial Viability Standard, however, PRPs must continue to inform the regulator in a timely manner regarding any viability issues that arise.

PRPs are still expected to manage their resources and risks effectively to ensure that their viability is maintained. In particular, liquidity must be ensured, and emerging risks must be carefully monitored and factored into cash flow planning. The regulator continues to follow up cases where financial indicators, such as liquidity, are weak, to ensure that PRPs are managing their risks effectively. The regulator also continues to monitor developments in the housing market closely and will engage with providers with significant exposures to market and AHO sales. It is particularly important that providers have contingency plans in place for housing market sales falling short of forecasts.

As the coronavirus outbreak continues to affect the economic environment, the regulator has extended its assessment of liquidity to include the impact of cash or facilities being inaccessible, and reductions in trading cashflows and sales receipts. We will engage with providers that show indications of a weak liquidity position over the next 12 months and may request that they share their own cashflow monitoring information.

Summary

The quarterly survey findings are summarised below.

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

• 拢21.9 billion of undrawn facilities were in place at the end of March. Debt facilities totalled 拢103 billion.

• Available cash balances totalled 拢6.3 billion; this has been forecast to reduce over the next 12 months to 拢4.3 billion as cash is used to fund capital investment.

• Available cash increased by 拢1.2 billion during the quarter. Over 10% of providers reported drawing down cash from existing facilities to support their liquidity position in response to the coronavirus outbreak and ensuing lockdown.

• New finance of 拢2.4 billion was agreed in the quarter, including 拢1.6 billion from banks and 拢0.8 billion from capital markets.

• Cash interest cover, excluding current asset sales, was 132% in the quarter to March 2020 compared to a forecast of 108%.

• Providers making use of free-standing derivatives reported mark-to-market (MTM) exposure of 拢2.5 billion, a 10% increase since December, reflecting a decrease in swap rates at the quarter end. In aggregate, providers continued to have headroom on available collateral on MTM exposures.

• Income collection data continued to show a stable performance consistent with seasonal trends. Providers reported minimal effects on income collection and voids in the quarter resulting from the coronavirus outbreak, however, providers have stated that they expect these effects to be felt in quarter one of 2020/21.

Performance in the quarter reflected some challenges with regards to sales receipts and margins. However, this did not destabilise the sector鈥檚 overall strong financial position:

• Including both current and fixed asset sales, total sale receipts were 拢1.8 billion in the quarter, generating surpluses of 拢0.6 billion. In aggregate, asset sale receipts were 22% below the forecast made in December.

• Investment in housing supply was 拢2.9 billion in the quarter to March 2020. This was below the total forecast expenditure for the quarter of 拢4.2 billion, and below the 拢3.2 billion forecast on contractually committed schemes.

• During the quarter 4,870 affordable home ownership (AHO) units were developed, and 3,959 were sold. The number of unsold units increased by 12%, to reach 7,808 at the end of March. Around half of the unsold AHO units were held by 18 providers.

• During the quarter there was a 3% increase in the number of AHO units unsold for more than six months, which reached 2,428 at the end of March.

• Margins on AHO sales averaged 22.4% in the quarter, the second lowest rate achieved in the last three years but an increase on the previous quarter.

• During the quarter, 1,944 market sale units were developed and 1,363 were sold. The number of unsold properties increased by 21% to 3,073, the highest level recorded since the data was first collected in June 2014. Over half of the total unsold market sale units were held by seven providers.

• The increase in the number of unsold market sale units reflected the high number of units acquired or developed over the past three quarters. An average of 1,686 units were completed in each of the past three quarters, compared to an average of 1,298 per quarter over the last three years.

• The sector鈥檚 spending on capitalised major repairs in the quarter totalled 拢592m, 14% below forecast. Underspends against forecasts on major repairs are common as works can often be delayed, although around 10% of providers mentioned coronavirus as an additional factor in this quarter.

Forecasts for the next 12 months indicated that the sector is planning to decrease its development and housing market exposure, and its investment in existing stock. Due to the unprecedented nature of the coronavirus outbreak and the lockdown that began shortly before the reporting date, these were providers鈥� initial estimates and the full impact may not yet be reflected in forecasts.

• Forecast capital expenditure over the next 12 months was reported to be funded by drawing additional debt of 拢4.7 billion, use of 拢2.1 billion of cash reserves, and grant funding of 拢1.3 billion.

• Over the 12-month forecast period, expected investment in new housing supply was forecast to be 拢13.1 billion, of which 拢9.5 billion was contractually committed. This was a 22% reduction from the previous quarter, when providers were forecasting 12monthly investment expenditure of 拢16.9 billion. In the 12 months to March 2020, total investment in new supply was 拢12.4 billion.

• For the 12 months to March 2021, the sector was forecasting 拢3.6 billion worth of current asset sales and 拢1.2 billion of fixed asset sales. By comparison, in the 12 months to March 2020, current asset sales were 拢3.6 billion and fixed asset sales were 拢2 billion.

• In the next 18 months, including committed and uncommitted development, providers were forecasting the completion of 29,221 AHO units and 9,983 market sale properties. This would be an increase on the 24,764 AHO units and 9,119 market sale properties developed in the last 18 months, but a 15% reduction from the 18-month forecasts made in the previous quarter.

• In the 12 months to March 2020, capitalised expenditure on repairs and maintenance was 拢2.0 billion. For the 12 months to March 2021 the sector was forecasting capitalised repairs and maintenance expenditure of 拢2.2 billion.