News Column

Financial Stability in the Social Housing Sector Continues, Although Financial and Housing Market Risks Could Increase in the Medium Term

June 10, 2014

BIRMINGHAM, England, June 10 -- England's Homes and Communities Agency issued the following news:

The social housing sector demonstrates its financial stability as it continues to access sufficient finance, according to the latest quarterly survey (2013/14 Quarter 4) published by the Homes and Communities Agency today.

As the Regulator of social housing providers, the HCA undertakes a quarterly survey of housing providers to establish the levels of exposure to a range of risks faced by the sector. This year-end report is based on a survey of all private registered providers owning and/or managing more than 1,000 homes for the quarter ending 31 March 2014.

The report concludes that the sector continues to have access to sufficient finance, with over 90% of providers having sufficient debt facilities to last 12 months or more. New facilities arranged in the year to March 14 were Pounds5.6bn, similar to the previous year, with around half of the new funding for the year arranged on capital markets, although bank loans represent over three quarters of total facilities.

Management of the existing debt portfolio has been solid. Mark-to-market exposure on derivative instruments eased slightly in the quarter and is generally well managed. The sector fixes the interest rate payable on around two thirds of its debt, giving some certainty over future interest costs. Immediate refinancing risk is low with only 2.5% of debt due to be repaid within the next two years. However, the sector has seen an increase in the level of debt repayable in the next two to five years, partly as a result of shorter term bank lending.

The sector continues to develop and sell affordable home ownership (AHO) properties. The number of unsold AHO units increased by over 20%, largely driven by an increase in completions and acquisitions in the quarter - 2,678 completions were achieved in the quarter (December 1,936). The number of unsold AHO properties remains below the March 2013 level. However, the level of sales achieved is over 30% below the run rate of completions and acquisitions indicated by providers' pipeline forecasts, showing that unsold AHO properties could increase further.

Jonathan Walters, Deputy Director of Strategy and Performance, said: "In recent years, we have seen providers increasingly access the capital markets for their long term funding as banks have offered shorter term loans. We have also seen a small number of sale and leaseback financing deals. Taking on private finance is one of the most important decisions that boards need to make. The Regulator expects them to do this in a robust and considered manner and in a way that the whole board can understand the trade-offs and risks associated with a particular deal. Appropriate independent, professional advice should be taken, and recommendations understood and critically appraised.

"Housing sales for the year were robust, with sales up 24% on the previous year. However in the last six months, providers' 18 month AHO pipeline forecasts have increased by around 30% and we know that open market sales are expected to provide a significant and increasing income stream for a small number of providers. We expect providers to manage their sales exposure and to ensure they can continue to meet our viability standard irrespective of changes in the housing market."

The latest quarterly survey includes year-end additional information on the sector's private finance position. It is available to download from the HCA website.

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Source: Targeted News Service

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