The social housing sector remains in a strong financial position with access to sufficient finance, according to the latest quarterly survey published by the Homes and Communities Agency today (24 August 2016).
The 2016 to 2017 Q1 survey covers the period 1 April to 30 June 2016, and includes forecasts up to 30 June 2017. The quarterly survey is one of the ways in which the regulator monitors and reports on the financial health of the sector as part of its robust approach to supporting the sector’s financial viability, helping to support providers’ contribution to new housing supply.
Following the announcement of the EU referendum result towards the end of the quarter, the 15 year swap rate fell, reaching 1.13% at the end of June (March 1.55%). For the 49 providers making use of free standing financial derivatives to hedge variable rate debt, the fall in the swap rate saw mark-to-market (MTM) exposure increase from £2.9 billion in March to £3.5 billion in June.
Collateral to meet the increased exposure was largely met through additional property and reduced headroom. The regulator sought additional assurance from providers most affected and will continue to monitor on-going movements in the swap rate and engage with providers where there are significant levels of exposure.
It is unlikely that the quarterly survey returns will fully take any responses to the referendum result into account. However, the survey results suggest that the sector is in a robust position to respond to any changes to the wider economic environment.
The sector has access to sufficient finance, with £14.5 billion in undrawn facilities and £5.6 billion held in cash. 96% of providers (March 97%) have sufficient debt facilities to last over 12 months. New facilities arranged in the quarter totalled £1.2 billion (March: £1 billion) of which 40% came from banks; capital market funding, including private placements and aggregated bonds contributed 56%.
The sector continues to forecast strong operating cashflows for the next 12 months, expected net operating cashflow is £5.5 billion. This forecast includes £3 billion current asset sales, an increase of £198 million on the 12 month forecast from March.
Cashflow forecasts show that the sector plans to invest £9.4 billion in housing supply over the next 12 months.
Jonathan Walters, Deputy Director of Regulation at the HCA, said:
Given the events at the end of June it is encouraging to see that the sector is well placed to respond to any changes in the wider economic environment. The survey results also demonstrate continued investor confidence in the sector.
As regulator, we initially concentrated on the short term impact of Brexit on the viability and liquidity of providers. With the swap curve dropping to an historic low, associations with stand-alone interest derivatives were required to put additional cash and security in place. Thankfully, everyone appears to have negotiated these issues, and where we sought assurances from providers we were comforted by the robustness of the response and the contingency plans in place.
In the longer term one of the key variables will be the state of the housing market. With an 18 month delivery pipeline that includes over 27,000 affordable home ownership and outright sale homes, the regulator will continue to monitor sales forecasts and we expect providers to manage their development pipelines carefully.