Analysis of the Finances of Registered Social Landlords - May 2021

Read the highlights and executive summary or download the full report below.


07 May 2021


Registered Social Landlords (RSLs) reported generally strong financial performance for the 2019/20 financial year. Liquidity was robust and RSLs continued to raise significant levels of new private finance from banks and the capital markets.  During 2020/21 the limited financial data collected from monthly returns also indicated that RSLs’ financial position remains strong.



RSLs increased turnover at the aggregate level by more than 5% to £1.8bn in 2019/20. Affordable lettings income went up by 6.1% to £1.6bn, contributing 88% of turnover.



RSLs reported an aggregate surplus of £251.1m for the year to 31 March 2020 showing a continuation of the upward trend of recent years. The net margin increased from 12.8% in 2018/19 to 14% in 2019/20.


Available cash 

RSLs increased cash balances by £102.2m during 2019/20, reaching £835.6m at 31 March 2020. Monthly COVID-19 returns submitted during 2020/21 showed cash balances continuing to increase, reaching £1.03bn at 31 March 2021.


Cash Generated 

RSLs maintained a strong financial position at the end of 2019/20, with increased cash generation (up £21.0m to £524.2m) whilst interest paid on debt rose £17.0m to £191.2m.


Interest Cover 

Increases in operating margins caused a 29 percentage point increase in EBITDA MRI (Earnings Before Interest & Taxation Depreciation & Amortisation, Major Repairs Included) interest cover, up to 262% in 2019/20.


Housing Investment 

RSLs invested more in new and existing homes, with net housing assets up £960.1m, or 7.6%, to £13,654.5m during 2019/20.



RSLs increased debt facilities to £6.2bn at 31 March 2020, £5.2bn of which they had drawn down, with a balance outstanding of £4.5bn. RSLs had undrawn facilities of £1bn available, and had agreed new finance of £0.8bn in the year. Borrowing is set to further increase as RSLs forecast a requirement for an additional £1.2bn over the next 5 years to fund investment in new and existing homes.


Rents & Inflation 

In aggregate, rent increases were above inflation in 2019/20. RSLs’ aggregate rents are forecast to increase by more than inflation for the next 5 years; however  we are aware that many RSLs are looking to moderate their planned rent increases for 2021/22 in response to changed circumstances resulting from the pandemic.


Arrears, Voids & Bad Debts 

Following increases in 2020/21, the sector is forecasting reductions over the remaining years of the projections. 



Movement to defined contribution schemes by RSLs who previously offered only defined benefit schemes has continued, but at a slower rate than in previous years. 69 RSLs now only provide a defined contribution scheme for employees, up from 64 in 2018/19.


Executive Summary

Overall Conclusion


At March 2020 most RSLs were managing their resources to ensure their financial well-being, while maintaining rents at affordable levels.


At that time, key indicators such as cash generation and interest cover remained strong and the aggregate net surplus had increased to £251m, a continuation of the upward trend in recent years.


So, RSLs entered the pandemic in a strong financial position and based on the 2020/21 monthly returns, as a whole, have coped well over the last 12 months with the short term financial impact of the pandemic and have maintained a strong aggregate financial position.


That said, RSLs are likely to face considerable challenges in the future in managing their resources to ensure their financial well-being, while maintaining rents at a level that tenants can afford to pay.


The medium term outlook for social landlords, society in general, and the wider economic environment, remains uncertain and as we look towards the transition out of lockdown RSLs will have to manage increased challenges in relation to service delivery and investment in new and current homes at a time when tenants’ and service users may be facing increasing financial hardship.


Compliance with the Energy Efficiency Standard for Social Housing post 2020 (EESSH2) will require considerable investment in existing homes beyond that which is already provided in current financial forecasts and business plans of some RSLs.


While the post-Brexit EU-UK trade deal is implemented there also remains the possibility of  further financial shock and uncertainty.


Ensuring financial well-being while maintaining rents at a level that tenants can afford to pay is a requirement for RSLs.  Where we are engaging with an RSL about its business plan, we will discuss how it has satisfied itself that its rents are affordable. RSLs will need to look constructively and creatively at ways in which they can reduce costs without detriment to the interests of tenants and keep tenants’ rent affordable.


Our decision on regulatory status and regulatory engagement depends upon our assessment of the risks for each landlord.  In November 2020 we published details of the risks that we would focus upon in our 2020/21 risk assessment for RSLs. This can be read in more detail here.


Regulatory Standard 3 requires that each RSL manages its resources to ensure its financial well-being, while maintaining rents at a level that their tenants can afford to pay. Following our review of the 2019/20 financial statements and the completion of the 2020/21 financial risk assessment we concluded that the vast majority of RSLs comply with the standard. We have published engagement plans and regulatory statuses for all RSLs and are engaging with 25 RSLs on finance.



The core business for RSLs is the provision of social housing. This generates an annual income of approximately £1.39bn (over 77% of turnover), predominantly from rent and service charges.

The aggregate turnover for RSLs is up more than 5% to £1.8bn, with affordable lettings showing growth in 2019/20 of 6.1% and other activities a 1% reduction for the same period. Affordable lettings turnover comprises an RSL’s income generating activities (rents & service charges) but also the receipt of grant income. Most RSLs release grant income over the lifespan of the related assets.

RSLs are forecasting turnover to increase annually by on average 3.7% over the next 5 years, with operating costs forecast to increase by 2.5% pa over the same period. Overall, turnover is set to increase by 19.8% to £2.1bn, operating costs by 13.0% to £1.6bn.


Cash Generated from Operations

RSLs’ governing bodies are responsible for ensuring RSLs have access to sufficient liquidity at all times and that funding is available for immediate cash flow requirements and that plans are in place to mitigate against possible adverse scenarios. RSLs’ forecasts indicate that cash from operations is set to increase significantly from £479m in 2020/21 to £790m by 2024/25. 


Cash Generated per £1 of Interest Paid

Cash generated by RSLs from operating activities for each £1 of interest paid dropped in 2019/20 to 2.74 (2018/19  2.89). This is mainly a result of an increase in interest paid. We do not view this reduction in interest cover as a long term weakening of financial strength. Rather, it reflects a sector using its assets more intensively in order to invest in its housing stock.

RSLs’ Five Year Financial Projections (FYFPs) show this ratio continuing to fall, dropping to 2.58 in 2020/21 before increasing rapidly after this to 3.13 in 2024/25. The main driver of this is the increase in net cash from operations.


Investment in New & Existing Properties

RSLs have substantially increased expenditure on the acquisition and construction of properties and investment in existing properties. In 2019/20 RSLs invested £1,090.9m, an increase of £31.0m on the previous year. Net capital grant receipts decreased marginally to £466.9m (2018/19 £469.8m). Cash receipts from property sales fell by 67% to £22.6m, an anticipated consequence of the end of the statutory Right To Buy in Scotland in 2016.

As well as investing in new properties RSLs must ensure they maintain the quality of their existing housing stock to an acceptable standard. They must ensure they continue to invest adequately to provide homes that are safe and comply with the Scottish Housing Quality Standard (SHQS).

Together with ongoing planned and reactive maintenance to improve safety and quality, RSLs may also have significant additional investment requirements in relation to EESSH (Energy Efficiency Standard for Social Housing) and to the wider decarbonisation agenda. It is fundamental that governing bodies are aware of this and where appropriate are in possession of robust and up-to-date stock condition data. This can then be used as the basis for building a more in-depth understanding and in turn allow them to identify any current investment needs but also plan to meet new requirements.



RSLs’ aggregate debt facilities secured reached £6.2bn by 31 March 2020. Of that total, £5.2bn had been drawn down, with a balance outstanding of £4.5bn. Available undrawn facilities are at just more than £1bn. RSLs agreed new finance of £0.8bn million in the 12 months to 31 March 2020. Borrowing is set to increase, with RSLs forecasting an additional £1.2bn in the next 5 years to fund investment in new and existing homes.

Lending and investor demand for RSL debt remains high despite the additional challenges caused by COVID-19. Maintaining lender and investor appetite is essential if the RSLs wants to maintain or increase levels of capital investment and new development. RSLs will inevitably see a negative financial impact should interest rates increase and need to understand the potential financial implications of this.

Many RSLs have projected significant increases in spend on existing stock in order to make up for the reduction in repair expenditure caused by COVID-19. This is expected to supress EBITDA MRI interest cover levels in the next five years. The latest forecasts indicate that the EBITDA MRI interest cover levels for RSLs over the next 3 years will decrease markedly before returning to their current level by Year 4.

Those with an EBITDA MRI interest cover covenant may find themselves unable to do this without breaching that covenant. A tighter interest cover position further increases the importance of effective monitoring of existing loan covenants to help mitigate the risk of breaches. If interest costs are greater than forecast or if income falls below forecast levels then it is essential to have clear mitigation plans in place to avert potential breaches.

Recent demand for Environmental, Social & Governance (ESG) investments and increasing use of ESG reporting standards has the potential to further increase the range of lenders and investors in social housing and lower costs. This type of lending tends to bring new stakeholders and accountabilities to organisations and RSLs should be aware of this.

The London Inter-bank Offered Rate (LIBOR) that underpins many financial and some non-financial contracts is expected to be phased-out by 31 December 2021. With around 40% of all RSL loans referenced to LIBOR, RSLs should be examining all financial contracts and discussing transition with lenders.


Rent Affordability

Landlords’ Annual Return on the Charter (ARC) for 2019/20 showed the average weekly rent for RSLs was £87.94 in 2019/20, up 3.2% from £85.18 in the previous year. In our seventh National Panel report we considered affordability issues and found that around half of respondents had experienced difficulties affording their rent, including around 1 in 8 who are currently experiencing difficulties. This represents a 14% increase from the 2019 survey.

RSLs’ projections indicate that during the period 2021-2025, average rents are assumed to increase by around 2.5% each year. We are aware that a number of RSLs are looking to moderate their planned rent increases for 2021/22 and some RSLs are freezing rents.

The Consumer Price Index (CPI) over the same period starts at just over 0.5% and rises to around 2% in Year 5. It is likely that over this period any indexation of welfare benefits will be based on CPI. Where welfare caps are applied it is possible that benefit uplifts will not be available at all. RSLs will need to consider this when determining the continuing affordability of rents for tenants in receipt of benefits and for those in work who may not receive pay rises.


Arrears & Voids

Throughout the past few years, RSLs have worked hard to manage and mitigate the effects of changes in the welfare system on tenants and the RSL itself. Lenders have made it clear that they will monitor arrears and voids closely in view of the sensitivity of these measures to changes in the welfare system. At 31 March 2020, RSLs’ management of arrears, voids and bad debts continued to be effective. RSLs are forecasting lower levels over the next 5 years despite changes in Welfare Reform and the COVID-19 impact.

Mean arrears and rent lost to void properties deteriorated across the first six months of the COVID-19 pandemic, however in the latter part of 2020/21 we saw performance remaining more stable even improving slightly in the last quarter to 31 March 2021.



In previous years, there has been a steady movement by RSLs away from Defined Benefit (DB) pension schemes to Defined Contribution (DC), although this has showed signs of slowing recently and more than half of RSLs still have some exposure to DB and the risks attached. They are accruing future liabilities that they cannot control, with the eventual liability to be borne by the RSL and its tenants remaining uncertain. A fall in equity value, weak gilt yields, and interest rate reductions have all contributed to many schemes being under-funded.

Many RSLs belong to pension schemes where liabilities are revalued on a triennial basis, creating a risk of increasing costs if the scheme is found to be in deficit. In the past this has meant additional contributions being required from exposed RSLs to close any deficit. This can impact on the RSLs financial position, have implications for their business plans, and must be reflected in their financial statements.

Although many RSLs have taken a proactive approach to managing this risk, governing bodies may want to seek independent advice, where appropriate, to understand their risk exposure and the impact on cash flow arrangements. This advice could be in conjunction with a consideration of the potential impact on rent levels, cost efficiencies and value for money.

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