Key Takeaways
- We project the sector's gross borrowing will moderate in fiscal 2026 and 2027 due to lower capital expenditure. Over the same period, we anticipate gross borrowings of £17 billion, of which £10 billion will be used for refinancing and debt repayment to address pent-up refinancing needs.
- We believe investments in existing stock will remain high, constraining a recovery of the sector's financial performance. We expect this will crowd out capital expenditure for new build development and therefore limit debt accumulation.
- While we estimate that growth of the sector's debt will be less than in the past three years, reaching £124 billion by March 31, 2027, the sector's debt burden remains relatively high.
- The top 20 borrowers continue to account for close to half of the sector's debt. Despite a focus on containing debt buildup, consolidation has moved debt into the top 20 from the rest of the sector.
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
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
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
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
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
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
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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