RSH quarterly survey: sector’s interest cover falls to another record low

Annual expenditure on capitalised repairs totalled £3.1bn and a further £3.9bn investment was forecast over the next 12 months – both are record amounts. The RSH said that “prioritising work” relating to damp and mould continues to contribute to providers’ higher spend on existing homes.

Over half (56 per cent) of landlords reported delays or changes to repairs and maintenance programmes during the quarter, with labour shortages continuing to be an issue.

The RSH said the “increasing demand” on cash resources has resulted in a “steady reduction” in cash levels and an increase in drawn debt.

Available cash, excluding amounts held in secured accounts, reduced by £200m during the quarter to reach £4.2bn.

This is the seventh consecutive quarter where cash balances have reduced and they are now at the lowest level in 10 years. In addition, balances are expected to reduce to £3.1bn by December 2024.

The net increase in drawn debt in the quarter stood at £2.1bn, the highest recorded since cashflow data was first collected in 2015.

In the 12 months to December 2023, total drawn debt increased by £5.7bn, up from £3.7bn in the year to December 2022. Forecasts show this increasing by a further £4.8bn over the coming year, according to the quarterly survey.

Furthermore, new finance of £3.7bn was arranged in the quarter, compared with a three-year average of £2.8bn per quarter. This £3.7bn was offset by loan repayments of £1.3bn during the same period.

Will Perry, director of strategy at the RSH, said: “It is encouraging to see the sector raising new finance, which is enabling providers to invest in existing homes and build new ones for the future.

“But as a result of this higher spend and wider economic pressures, their interest cover remains very low.

“Boards must manage financial risks carefully and deploy appropriate mitigations when needed.”

Mitigating risks

The RSH said that to mitigate risks in the “challenging” economic environment, some providers have deferred uncommitted development projects or, in a smaller number of cases, arranged covenant waivers with their lenders.

Landlords should continue to deliver their services “as efficiently as possible”, the regulator said.

A total of 48 providers reported having one or more loan covenant waiver in place, a slight drop from 51 in September.

The RSH said that landlords are continuing to make use of loan covenant waivers in order “to prioritise and increase investment” in existing stock.

A total of 26 providers reported having a waiver in place to exclude the “exceptional costs” of building safety works from loan covenant calculations, and a further 24 waivers for energy efficiency or decarbonisation works were disclosed.

Three providers had agreed for any major works that are funded by grant, such as the Social Housing Decarbonisation Fund, to be excluded from covenants.

Furthermore, while landlords spent £3.9bn on building and acquiring new homes in the third quarter – the highest quarterly spend for eight years – the amount providers expect to spend on development over the next 12 months has dropped to £15.9bn.

This is five per cent lower than forecast in the previous quarter, of which £11.5bn is contractually committed.   

“Providers continue to face inflationary cost pressures, combined with ongoing demand to improve the quality of existing stock; expenditure on which has continued to increase,” the RSH said in its quarterly survey.

“This will inevitably place pressure on providers’ cash resources and limit their ability to manage further additional costs. In general, we have assurance that PRPs [private registered providers] are taking action to manage their position, which for a growing number of providers includes the deferral of uncommitted development or arrangement of loan covenant waivers.

“We will continue to monitor and engage with individual providers as necessary and reflect findings in regulatory judgements where appropriate.

“With the passing of the Social Housing (Regulation) Act into law and subsequent increased focus on consumer issues that will follow, boards must ensure that they maintain strong and effective control over financial performance.”

Elsewhere, current asset sales of £700m in the quarter were 26 per cent below forecast and less than the £800m achieved in the second quarter.

However, there were 4,559 units of affordable homeownership sales, six per cent higher than the previous quarter and above the three-year average.