RSH Quarterly Survey: cash interest cover forecast at record low

Total repairs and maintenance spend, including capital and revenue, stood at £2.1bn in the second quarter, the same amount seen in the previous three months. In the year to September a total of £8.4bn was spent, with a further £9.6bn forecast for the next 12 months.

Revenue repairs spend dropped by one per cent from the previous quarter to reach £1.3bn, which was in line with the forecast, while capitalised repairs and maintenance spend reached £836m. This was nine per cent above the previous quarter and 21 per cent below forecast but the third-highest spend on record.

The RSH said that increasing costs resulted in net operating cash flows alone being insufficient to fund net interest payments, with an average cash shortfall of £159m per quarter experienced in the year to September 2024.

However, the regulator said that due to a number of one-off factors and some providers reporting delays on planned repairs expenditure, quarterly cash interest cover – excluding sales – increased to 110 per cent for the period between June and September.

This has led to 12-month outturn cash interest cover increasing to 85 per cent, compared to 79 per cent for the year to June.

The RSH said it continues to monitor and engage with providers, particularly those that have a reliance on sales to support their cash flows. 

The regulator said that in general, it has assurance that private registered providers are taking action to manage their position. It said that for a number of providers this includes the deferral of uncommitted development and/or the arrangement of loan covenant waivers.

The Quarterly Survey showed that the sector’s uncommitted pipeline has dropped to the lowest level recorded since data was first collected in 2015.

The data also showed that a total of 42 providers reported having one or more loan covenant waivers in place at the end of September, a fall from 43 in June.

These waivers include 17 agreements to exclude fire or building safety works from loan covenant calculations, 19 in respect of decarbonisation works and five relating to general major repairs.

Will Perry, director of strategy at the RSH, said: “Providers are continuing to invest record amounts in existing homes, including on critical health and safety priorities such as fire safety and damp and mould.

“Effective financial governance and cash flow management is essential to enable landlords to avoid difficulties and continue to deliver for their current and potential tenants. 

“These Quarterly Surveys, alongside our inspection programme and annual stability checks, play a vital role in our scrutiny and financial regulation which is key for maintaining confidence in the sector.”

Development

Elsewhere, the regulator’s data showed that providers are still investing in development, with investment of £3.2bn on building and acquiring new homes during the second quarter. This was, however, a drop from £3.5bn in the previous three months.

Over the next year, providers plan to spend a further £15.6bn on development, a three per cent fall from the previous quarter’s forecast.

Mr Perry said: “Many landlords are grappling with tighter financial headroom, but the sector overall is still continuing to build new homes for the future.”

Strong liquidity

The regulator said that while cash balances remain at historically low levels, investment in the sector “remains robust”, with £3bn of new finance arranged in the quarter.

Total cash and undrawn facilities reached £34.5bn, which is enough to cover forecast expenditure on interest costs (£4.7bn), loan repayments (£3.8bn) and net development (£13.3bn) for the next year.

The sector’s total agreed facilities reached £131.9bn at the end of September, a £2m rise from the previous quarter.

A total of 34 providers arranged new finance during the second quarter, up from 26 in the previous three months. Bank lending accounted for 72 per cent of new facilities, a rise from 65 per cent in the first quarter.

The sector made loan repayments of £1.3bn in the quarter, compared to an average of £1bn per quarter over the last three years, mainly due to early repayments.