RSH: interest cover at lowest level on record as expenditure mounts

Development and construction

Providers continue to see development delays due to ongoing supply chain issues leading to labour and material shortages, as well as planning delays and slower land acquisitions.

A total of £2.9bn was invested in new housing properties in the quarter – two per cent less than the previous quarter and 14 per cent below forecast for contractually committed schemes.

Total development investment is expected to reach £18.2bn over the next 12 months – four per cent above the previous forecast.

The RSH said that pressures in the contractor market across the construction sector had also resulted in contractor insolvencies, leading to further development delays for providers.

Meanwhile, construction output rose by 2.3 per cent in the quarter to June, despite a decrease of 1.4 per cent during the month. This was the first monthly fall since October 2021, following seven consecutive months of growth.

The RSH said it was driven by a two per cent drop in new work and a 0.2 per cent decline in maintenance work.

At the end of June, total output was 2.9 per cent higher than pre-COVID levels in February 2020, driven by repairs and maintenance works rising by 12.6 per cent.

Debt facilities

Total cash and undrawn facilities available within the sector totalled £35.8bn at the end of June, a drop from £36.4bn in March.

The RSH said total available facilities would be sufficient to cover the forecast expenditure on interest costs (£3.4bn), loan repayments (£2.2bn) and net development for the next year (£16.4bn).

The regulator added that this would even be the case if no new debt facilities were arranged and no sales income was received.

There were £119.3bn total facilities in place at the end of June, up from £118.7bn in March. But after a period of particularly high refinancing activity, only £1.9bn in new finance was agreed in the quarter – the lowest amount in three years.

Loan repayments of around £700m were made in April, May and June – a drop from an average of £1.5bn per quarter during 2021-22.

There was a 29 per cent drop in mark-to-market exposure on derivatives, from £1.3bn in March to £900m at the end of June, following a sharp increase in swap rates from 1.88 per cent to 2.69 per cent at the end of June.

This is the highest level that swap rates have reached in more than six years, and the lowest mark-to-market exposure ever reported.

The RSH said that providers continue to have headroom against covenants and flexibility to manage expenditure, but that it will monitor liquidity in the sector closely, especially as rent policy is confirmed.

The regulator warned that providers need to ensure that contingency plans and mitigations are robust and said that they should remain alert and ready to respond to further changes in the operating and economic environment.

Will Perry, director of strategy at the RSH, said: “While the social housing sector remains financially strong, wider economic trends are starting to present challenges for providers.

“This is seen most clearly in cost inflation and material and labour shortages, as well as higher interest payments and potential changes to the rent ceiling.

“Boards will need to monitor these trends closely and have a strong focus on contingency planning to ensure they can respond quickly to emerging risks.”