Sector will need extra £50bn in debt facilities for decarbonisation and building improvements, warns Fitch

Fitch flagged that the issue is mostly having the greatest impact on London-based RPs with high-rise accommodation.

Below are the 11 providers Fitch rates and the estimated fire safety costs each will pay between 2022-26. Six of the 11 are G15 landlords.

On top of these costs are further health and safety costs, as electricity safety and quality of homes came under scrutiny and an expected government revamp of the Decent Homes Standard.

“This could have a significant financial and operational impact on the sector, with £35bn budgeted to be spent on major repairs and maintenance from forecasts provided to the Regulator for Social Housing with 81 per cent expected to be capitalised,” Fitch said.

COVID-19 has had a “limited impact overall” on the sector as it has maintained strong liquidity and consistent cash flow, according to the agency.

Meanwhile, Fitch expects availability of resources and labour to improve as the impact from the pandemic subsides, supply chain pressures decrease, and the effects of Brexit reduce as international trade agreements are put in place.

On the growth of for-profit providers, Fitch noted a number of issues for traditional housing associations.

“The main concerns for RPs is if investors focus investment on their own social housing vehicles and finance dries up for debt issuance or they become priced out of key areas of development, both for land and Section 106 properties,” the agency said.

Fitch said that while these concerns are “yet to materialise”, it does expect this to change soon, with for-profit providers potentially investing up to £23bn in 130,000 homes by 2026.

“This could stress development costs for RPs in the medium term, in particular those with aspirational units – development not yet identified or committed financially – within plans, and affect key financial ratios,” the agency added.

This year, for-profit providers were included as strategic partners for the first time in the government’s latest Affordable Homes Programme 2021-26.

Fitch said the funding rounds for strategic partnerships required significant commitments from providers to increase shared ownership scheme and invest in modern methods of construction (MMC), which prevented some providers from applying.

Concerns were raised over the scalability of MMC and the ability to securitise the resulting assets.

“Given the debt structures most RPs operate under, this could have an impact on the availability of finance if new assets are not able to be secured against funds and could affect the credit assessment if refinancing became a concern,” the agency said.

But Fitch added that it “expects the situation to be resolved in the short term as this area of the sector and borrowing develop”.