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U.K. Social Housing Borrowing 2025: Focused On Containing Debt

Refinancing Will Likely Increase Following Low Activity In 2025

  • We anticipate relatively stable levels of gross borrowing over the next two years as disposal proceeds limit debt funding requirements.
  • Refinancing will increase again over the next two years as the sector aligns its debt structure with its fixed asset base.
  • We estimate the sector's debt will increase to £124 billion in 2027. However, in real terms, this is relatively modest, highlighting the impact of inflation on the sector.

Chart 1

image

Sales Of Existing Homes Reduce Reliance On Debt Funding

  • We expect capital expenditure to reduce over the next two years as social housing providers (SHPs) are scaling back on development plans due to an increased focus on investing in existing homes. More certainty around future grant funding could encourage further development from fiscal 2027.
  • Higher proceeds from fixed asset sales and capital grants under the existing programs will likely mitigate the need for debt funding, mainly on the back of disposal programs by some of the largest providers.
  • While we estimate that the sector used cash over fiscal 2025, we expect this trend to subside as providers look to protect their liquidity position.

Chart 2

image

Capital And Operating Investments Strain Financial Performance

  • Rental increases beyond inflation will support a modest recovery in adjusted EBITDA margins. However, increasing investment in existing homes will continue to constrain the sector's financial performance.
  • Higher than previously forecasted spend on existing homes has flattened our expectations of a recovery compared to our previous base case.
  • We assume that the sector will receive moderate levels of grant funding to help mitigate the effects of capital investment works.

Chart 3

image

Less Development Will Lead To A Moderate Recovery In Debt Metrics

  • We expect debt metrics across the U.K. social housing sector will gradually improve as lower levels of new build development, along with other funding sources, contain debt build up.
  • We forecast that a continued reduction in base rates will support the recovery of interest coverage. However, we project a more moderate recovery than previously assumed due to pressure from investments in existing homes.

Chart 4

image

Interest Coverage Continues To Decline Across Our Rated Portfolio

  • We project a continued weakening of the interest coverage ratios across our rated portfolio (see the proportion of entities below the line in chart 5).
  • Strong management and proactive asset strategies underpin stable and relatively strong credit metrics (see green highlights for examples).
  • Large London-focused SHPs with high investment needs maintain credit metrics thanks to projected fixed asset disposals (see red highlights for examples).
  • Material increases in investment spend while maintaining development, as well as mergers, are some of the drivers for outliers (see orange highlights for examples).

Chart 5

image

Consolidation In The Sector Increases Debt Of Largest Providers

  • While we expect some of the top 20 providers to repay debt using disposal proceeds over the next two years, the impact on their debt concentration will likely be offset by continued consolidation.
  • In fiscal 2024, consolidation added close to £2 billion of debt among the top 20 borrowers. These providers accounted for 49% of the sector's debt as of March 31, 2024.
  • We project that the top 20 will hold close to £60 billion of debt by fiscal 2027, in part due to continued consolidation.

Chart 6

image

Top 20 social housing borrowers in the U.K.
Amount in FY2019 Amount in FY2020 Amount in FY2021 Amount in FY2022 Amount in FY2023 Amount in FY2024
Rank Entity Rating* (mil. £)
1 (1)

London & Quadrant Housing Trust

BBB+/Stable 5,037 5,587 5,512 5,530 5,441 5,632
2 (2)

Peabody Trust

A-/Negative 2,199 2,797 2,911 3,117 4,731 5,004
3 (3)

Clarion Housing Group Ltd.

A-/Stable 3,936 4,101 4,401 4,510 4,518 4,618
4 (4)

Sanctuary Housing Assn.

A/Stable 2,811 3,106 3,377 3,075 3,759 3,917
5 (5)

Places for People Group Ltd.

A-/Negative 2,927 3,216 3,128 3,237 3,356 3,682
6 (9)

Sovereign Housing Association Ltd.

A-/Stable 1,709 1,897 1,918 2,048 2,227 3,633
7 (6)

Notting Hill Genesis

A-/Negative 3,471 3,486 3,379 3,353 3,305 3,585
8 (7) Southern Housing NR 829 978 987 1,140 2,910 3,131
9 (8)

Riverside Group Ltd. (The)

NR 862 997 975 2,168 2,347 2,521
10 (16)

Guinness Partnership (The)

A-/Stable 1,250 1,375 1,444 1,487 1,496 1,942
11 (10)

Metropolitan Thames Valley

A-/Stable 1,949 1,936 1,965 1,905 1,937 1,910
12 (11)

Vivid Housing Limited

A/Stable 1,075 1,302 1,332 1,427 1,600 1,902
13 (13)

Orbit Group Ltd.

NR 1,425 1,464 1,689 1,560 1,559 1,651
14 (15)

Wheatley Housing Group Ltd.

A+/Stable 1,178 1,462 1,488 1,513 1,546 1,614
15 (19)

Stonewater Ltd.

A-/Stable 912 959 1,083 1,237 1,374 1,591
16 (14)

Hyde Housing Association Ltd

A-/Negative 1,598 1,509 1,599 1,534 1,578 1,580
17 (12)

A2Dominion Housing Group Limited

NR 1,609 1,718 1,692 1,688 1,581 1,542
18 (17)

Bromford Housing Group Limited

A+/Stable 1,182 1,238 1,255 1,435 1,406 1,537
19 (18)

Platform Housing Group Ltd.

A+/Stable 1,162 1,160 1,283 1,439 1,393 1,488
20 (20)

Abri Group Limited

NR 1,094 1,204 1,186 1,217 1,232 1,402
Total 38,213 41,491 42,603 44,618 49,294 53,881
*As of March 31, 2025. FY--Fiscal year. NR--Not rated. Sources: S&P Global Ratings, Company annual reports, Regulator of Social Housing 2024 Global Accounts of private registered providers, January 2024.

This report does not constitute a rating action.

Primary Credit Analyst:Karin Erlander, London + 44 20 7176 3584;
karin.erlander@spglobal.com
Secondary Contact:Matthew R Hyde, London +44 20 71760456;
m.hyde@spglobal.com

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