Inside Housing – News – Lower borrowing unlikely to pick up as landlord price within rent cost cap, aggregator warns

A drop in the amount of borrowing last quarter is unlikely to pick up as housing associations build the cost of the rent cap into their spending plans, according to new data from MORhomes.

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Social housing bond aggregator MORhomes found borrowing was down 25% from last year’s total of £6bn #UKhousing

The social housing bond aggregator provided a stock market update on Friday using analysis of the latest financial plans submitted by 20 of its housing association borrowers.

Last year’s total borrowing over the calendar year reached £6bn, but if borrowing levels are compared from the start of the year through August 2022 to the same period the last year, borrowing fell from £4bn to £3bn, a 25% decline.

MORhomes says Inside the housing that she did not expect this level to recover and that it could fall further if the associations reduced their development plans further.

Indeed, most of its borrowers had assumed an average rent increase of 7%, but with the government’s preferred cap of 5%, borrowers are now modeling the reduction and taking “corrective action to address it”.

Elsewhere in the analysis, planned private equity investments are expected to grow from £3.8bn to £5bn between 2023 and 2026.

This is partly due to increased maintenance and construction costs and increased investment in the existing fleet.

But borrower development programs are scaled back, as a result, unit ownership forecasts are expected to drop 2% by 2026.

The analysis found that the percentage of unencumbered equity available to secure future loans increased as borrowers brought in new equity and improved the effectiveness of their security. He said this was done while the impact of rising interest rates was limited due to the high percentage of fixed rate debt held by these borrowers.

Interest coverage, based on social housing income before major repairs, remained unchanged. However, interest coverage after adjusting for major repairs was lower due to increased inventory investment.

MORhomes also found that net debt per unit would increase by 8% in 2026, broadly in line with rising inflation.

Borrowing capacity, based on uncharged inventory, has improved significantly, the data shows.

In energy efficiency, borrowers expect to achieve an Energy Performance Certificate (EPC) rating of C by 2030.

While most have strategies to help achieve the government’s goal of zero carbon by 2050, MORhomes said there are still too many unknowns to understand the financial implications of achieving the goal.

Patrick Symington, Managing Director of MORhomes, said Inside the housing that the overall credit rating of its borrowers has remained stable, demonstrating that they have responded well to changing environments and priorities while maintaining their overall financial strength.

He said: “We expect borrowers to now model the implications of the proposed rent cap, looking at development and borrowing plans, maintenance spending plans and operational efficiency.

“We expect borrowers to continue to be flexible and adaptable in managing their financial strength.”

Despite the challenges facing the sector, Mr Symington said he expects there will be strong demand for debt and expects the sector to continue to invest in new stocks and existing.

He added: “MORhomes is finding growing interest from associations to want to borrow smaller amounts more frequently, accessing the market flexibly.

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