Analysis of the Finances of Registered Social Landlords - May 2022

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


12 May 2022


12 May 2022


Like other areas of the economy and society in general, Scottish Registered Social Landlords (RSLs) have been affected by the unprecedented events of recent years; however, most landlords moved at pace to adapt to the new and challenging operating environment in which they found themselves.  Our analysis for 2020/21 is that RSLs have achieved this whilst generally delivering a robust financial performance, backed up by strong liquidity. It is worth noting that over the period of analysis some RSLs received furlough payments and aggregate maintenance costs fell as restrictions meant they had to be deferred. 

Turnover  RSLs increased aggregate turnover by 0.6% to just over £1.80 billion in 2020/21.  Affordable lettings income went up by 0.5% to £1.59 billion, contributing 88% of turnover.

Surplus  RSLs reported an aggregate surplus of £309.8 million for the year to 31 March 2021, showing a continuation of the upward trend of recent years.  The net margin increased from 14.0% in 2019/20 to 17.2% in 2020/21.

Available Cash  RSLs increased cash balances significantly in 2020/21, up £155.0 million (18.5%) to £990.6 million.  Quarterly COVID-19 returns submitted during 2021/22 show an overall reduction in cash balances across the year, dropping to £928.6 million at 31 March.

Cash Generated  RSLs maintained a strong financial position at the end of 2020/21, with cash generation up £102.4 million to £626.6 million, and interest paid on debt down £9.6 million to £181.6 million.

Interest Cover  Increases in operating margins caused a 23-percentage point rise in EBITDA MRI interest cover (Earnings before interest, taxation, depreciation & amortisation, major repairs included), which was up to 285% for 2020/21. 

Housing Investment  RSLs continued to invest in new and existing homes, with net housing assets up £406.0 million (3.0%) to £14,060.5 million during 2020/21. That said, levels were below those forecast as a consequence of pandemic related restrictions.

Borrowing  RSLs increased available debt facilities to £6.41 billion at 31 March 2021, of which £5.36 billion has been drawn down, with a balance outstanding of £4.71 billion.  Whilst RSLs agreed new facilities of £0.66 billion in 2020/21, a drop in spend in the year meant available undrawn facilities of £1.05 billion at 31 March 2021.  This, and increased cash balances, means sector liquidity remains strong.  Borrowing is set to further increase with a forecast requirement for an additional £1.3 billion over the next five years to fund investment in new and existing homes.

Rents & Inflation  In aggregate, rent increases were above CPI inflation in 2020/21.  Aggregate rents are projected to increase by more than inflation for the majority of the next five years; however, many RSLs have moderated their rent increases down for 2022/23 in response to the circumstances brought about by the pandemic and other economic challenges.

Voids, Arrears and Bad Debts  Voids, arrears and bad debts at 31 March 2021 either remained around the previous years’ levels or showed some improvement, demonstrating the positive impact of the work done by RSLs to mitigate these.  RSLs are also forecasting reductions over the next five years.

Pensions  The move to defined contribution (DC) schemes by RSLs who previously offered only defined benefit (DB) schemes has continued, but at a slower rate than in previous years.  There are now 77 RSLs who only provide a DC scheme for employees, up from 69 in 2019/20.

Executive Summary

Overall Conclusion

RSLs’ financial performance remains robust, but the challenges ahead are significant.

The Annual Financial Statement (AFS) returns cover the year to 31 March 2021.  We know this time was dominated by the pandemic and like other sectors of the economy and society, RSLs were massively impacted during this unprecedented period.  Our analysis of the AFS returns for this period show that in general RSLs had a robust financial performance, despite the challenges brought by the pandemic.

During the period, lockdowns and other restrictions resulted in delays to capital investment programmes in particular.  This disruption contributed to lower levels of investment in existing stock in 2020/21 and led to lower operating costs.  Planned and cyclical maintenance was the most impacted, with expenditure 8.9% lower than the previous year.

The aggregate surplus generated by operating activities decreased from £392.5 million to £390.5 million, however this was predominately a result of a fall in the gain on exceptional items due to reported losses on RSL transfers of engagements.

RSLs have, however reported an aggregate net surplus of £309.8 million for the year to 31 March 2021.  This is an increase of 23.4% from 2019/20 and a continuation of the upward trend of recent years. Other key indicators such as net assets, cash generation and interest cover remained strong.

The Five Year Financial Projections (FYFP) returns cover the period from 2020/21-2025/26.  These projections were made at a time when the economic outlook remained unclear.  RSLs continue to operate in an uncertain environment over this five-year period and our analysis is carried out within this context.  We anticipate that the next FYFP returns will be more reflective of the current economic environment.

At the end of 2020/21 RSLs forecast that turnover would increase at a faster rate than operating costs over the next five years, driven in part by the tendency to forecast rents increasing at a faster rate than operating costs.  However, recovering from the impact of the pandemic, disruptions in global supply chains, and a tight labour market are likely to result in continuing shortages of materials and skills resulting in sustained increased rates of inflation.  Landlords are already seeing increases in development costs and maintenance costs.

RSLs will need to closely monitor the financial implications of spending on existing homes to address remedial safety works, energy efficiency improvements and catch up on repairs.  In particular, the drive to achieve net zero and the decarbonisation of heating in homes is likely to bring significant future costs for RSLs.  All of this makes it essential for Governing Bodies to fully understand their cost base and capital requirements.  They should also stress test their underlying financial and economic assumptions and where appropriate develop mitigation plans in response to risks identified.  Given the current level of uncertainty and volatility it is vital that this stress testing is carried out on emerging as well as current risks.

Aggregate gross arrears increased over most of 2021/22; from 4.10% at 30 June to 4.31% at 30 September, to 4.42% at 31 December, before dropping back to 4.34% at 31 March 2022.  Within these figures, there are a number of RSLs who have experienced high levels of gross arrears. 

From our most recent financial risk assessment we have concluded that the vast majority of RSLs were managing their resources to ensure their financial well-being, while in general maintaining rents at affordable levels. We have published Engagement Plans and Regulatory Statuses for all RSLs and are engaging with 33 RSLs in relation to finance.  Where we are engaging with an RSL on finance and considering its business plan, we will also discuss how it has satisfied itself that rents remain affordable for its tenants.

Keeping rents affordable should be a principal objective of all social landlords.  In a context of rising inflation, fuel and energy costs it has never been more important for landlords to vigorously pursue cost efficiency and value for money.  It is also important that landlords demonstrate to their tenants that their rents will remain affordable and that they are having effective dialogue with their tenants on rent levels and increases.



The aggregate turnover for RSLs is up 0.6% to £1.80 billion, with affordable lettings showing similar marginal growth of 0.5% in 2020/21, and other activities up 2.0% over the same period.  Affordable lettings comprise an RSL’s income generating activities (rents & service charges) but also the receipt of grant income.  Most RSLs release grant income over the life of the related assets, and in 2020/21 that income was down £42.7 million on the previous year to £155.8 million.  Grants released from deferred income can fluctuate year on year due to several larger RSLs using the performance method.

The core business of RSLs however is the provision of social housing.  This generates an annual income of approximately £1.43 billion (over 79% of all turnover), predominantly from rent and service charges.

RSLs forecast that turnover will increase annually by an average of 4.1% over the next five years, with operating costs set to rise by 3.7% per annum over the same period.  Overall, turnover is set to increase by 22.2% to £2.1 billion, and operating costs by 19.5% to £1.6 billion.


Cash Generated from Operations

In the coming years RSLs’ costs are expected to rise significantly. Governing Bodies are responsible for ensuring that RSLs have access to sufficient liquidity at all times, 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 £500.0 million in 2021/22 to £794.0 million by 2025/26.


Cash Generated per £1 of Interest Paid

For many years we have used cash generated from operations to interest paid as a measure of the financial health of the sector and individual RSLs.

This ratio had been falling in recent years; however, it increased to 3.45 in 2020/21 (2019/20  2.74).  The main driver of this increase was the rise in net cash from operating activities. While interest paid is also forecast to increase across the five years, it is not expected to rise to the same extent as net cash from operating activities.

This ratio is forecast to fall again in 2021/22 as re-profiling of spend previously delayed by COVID-19 restrictions takes place.  It is then forecast to be at least 3.00 from 2022/23.  This means that RSLs, in aggregate, are forecast to generate around £3 in cash from operations for each £1 they pay in interest.


Investment in New & Existing Properties

Lockdowns and other restrictions saw many developments suspended and investment in existing stock slow down.  This disruption meant RSLs’ expenditure on the acquisition and construction of properties and investment in existing properties reduced substantially.  In 2020/21 RSLs invested £907.6 million, a decrease of £183.3 million on the previous year.  Net capital grant receipts decreased marginally to £453.0 million (2019/20 £466.9 million).

A small number of RSLs use the proceeds of sales to help finance development.  Whilst the numbers remain small at this time, the risk attached is greater as it relies on the ability to be able to sell at a high enough price and volume to meet the required investment in new properties.  Cash receipts from property sales fell by £3.5 million to £19.1 million and is forecast to remain at current levels.

The development of new homes remains a key Government priority and RSLs continue to play an important role in meeting this demand.  The total number of units forecast to be developed by RSLs is just over 29,000 at a cost of almost £4.5 billion.  Exposure to development brings its own set of risks.  In addition to slippage and general scheme delays, RSLs have reported development works being affected by the continued supply chain issues and pressures in the contractor market across the construction sector.  In many instances this has led to price increases.

RSLs should refer to our development thematic when making decisions about whether to undertake a development project.  The thematic sets out ten positive practice principles that will assist Governing Bodies as they go through the process.

In addition to the new development programme, many RSLs are forecasting significant capital expenditure on their existing properties.  In total they are projecting spend of almost £1.6 billion over five years.

We encourage all landlords to have robust and up to date information on the condition of all their stock.  This is to ensure that landlords have as accurate information as possible to monitor their delivery of the Scottish Housing Quality Standard (SHQS), Energy Efficiency Standard for Social Housing (EESSH) and other tenant and resident safety obligations as well as feeding into their planning for investment in their tenants’ homes.  We provide guidance for landlords on this and will publish an update to our Asset Management Recommended Practice during 2022/23.



RSLs’ aggregate debt facilities secured exceeded £6.41 billion at 31 March 2021.  Of that total, £5.36 billion had been drawn down, with a balance outstanding of £4.71 billion.  Available undrawn facilities were £1.05 billion.  RSLs agreed new finance of £0.66 billion in 2020/21 and debt is expected to increase to £6.3 billion by 2025/26, as funding for the investment in new and existing homes, an increase of around £1.3 billion over the five-year period.

We published our latest summary of the RSL Annual Loan Portfolio Returns in December 2021.  Our analysis shows the funding markets continued to function throughout the pandemic and that lending to and investment in RSLs remains high.  The ongoing commitment of many long standing lenders and investors continues to represent a considerable vote of confidence in the sector and how it is managed, governed and regulated.  This is good news for RSLs and their tenants and service users.

It is important that lender and investor confidence is maintained in order to retain the availability of lending and favourable investment rates for the sector.  This will be vital in supporting RSLs as they continue to deliver increased investment in existing stock and new affordable homes.

At the time of writing, the Bank of England base rate of interest had increased from an historically low 0.1% to 1.00% as inflationary pressures increased.  The Office of Budget Responsibility (OBR) is forecasting that this will increase further to a peak of 1.9% in 2023/24 before falling back to 1.4% by 2025/26.  This is likely to impact on the interest rates being paid by RSLs for new borrowing and we would expect this to be incorporated into assumptions for long term projections and any associated sensitivity analysis.

We expect all RSLs to plan their treasury requirements well in advance.  At a time when more RSLs are looking for more finance than ever before and several RSLs now hold published credit ratings, this has heightened importance.  For any RSL the provider of private finance is an important stakeholder, and it is crucial for RSLs to be clear what the lender is seeking and what type of relationship they will look to have with their client.  Clearly price is an important consideration, but it is not the only consideration.  It is essential that RSLs manage interest rate risk and plan for any interest rate increases in the future.

With RSLs now also considering Environmental, Social & Governance (ESG) investments, this may attract new lenders and investors to the sector.  This type of lending has the potential to introduce lower interest rates; however, it also tends to bring with it new accountabilities.  There can also be extra costs associated with reporting against targets and RSLs should be aware of this.

The EBITDA MRI calculation (Earnings before interest, taxation, depreciation & amortisation, major repairs included) is impacted by the level of capitalised maintenance costs being forecast.  Due to the level of catch-up work being forecast, the figure for 2021/22 is significantly lower than the next four years.  Many RSLs will have this, or something similar, as a covenant and will need to monitor this calculation closely.  Where there is a risk that the covenant level will be breached, RSLs should have early dialogue with the lender.  A notifiable event for a potential covenant breach should also be raised through the Social Landlord Portal.


Rent Affordability

Last year we reported that during 2020/21 the average weekly RSL rent was £89.74. In 2021 landlords planned to increase rents by 1.2%, and that is a significant reduction from the 2.5% planned rent increase in the previous year, and from the actual rent increase in that year of 2.7%.  Clearly, the pandemic, and the wider economic impact on tenants, have influenced landlords’ decisions on rent increases.  This is an understandable response to the difficulties that a significant number of tenants have faced over the period of the pandemic.

This reduction means that, for many landlords, their actual income will be less than they had previously projected in forecasts and business plans.  We understand the drivers of rent increases can be many and complex, and some will be beyond the control of landlords. That only makes it even more important for landlords to vigorously pursue cost efficiency and value for money to ensure that rents are affordable for tenants.

In their business plans most RSLs use a formula based on past inflation when setting their rents for the year ahead.  There is therefore a risk that the increased inflation experienced since April 2021 will result in higher projected rents for RSLs in future years. 

Our National Panel of Tenants and Service Users reported in July 2021 that 40% of tenants on the Panel have experienced difficulties affording their rent and 64% were concerned about future affordability.

We will continue to focus on rent affordability and the everyday pressures on tenants’ ability to pay.  This was brought into sharp focus by the pandemic and is now exacerbated by the recent and forecast sharp rises in inflation and energy and fuel prices.   


Arrears & Voids

Bad debts, void losses and current tenant arrears are key performance indicators in assessing the efficiency of letting and rent collection.  Throughout 2020/21 and 2021/22, we continued to work with the Social Housing Resilience Group (SHRG) in supporting the recovery from the pandemic.  A key aspect of the work was monitoring the operational impact of the pandemic on these indicators through the quarterly survey return.

The last quarterly dashboard collated and published on behalf of the SHRG shows that aggregate rent arrears had fallen across the last three months of 2021/22 to be 4.34% of rent due at March 2022.

In analysing voids, arrears, and bad debts against turnover, we see that other than voids these measures have remained around previous years’ levels or shown some improvement.  This helps demonstrate the positive impact that the work done by RSLs to mitigate these is having.

RSLs’ are also forecasting reductions over the five years of the projections; however, there is still potential for further pressure on arrears.  Increasing energy and food costs, reduced benefit incomes, the potential for higher tenant unemployment as government support for the economy winds down as the pandemic eases, may all increase financial pressure on tenants over the coming year.

There is also the continued possibility of rent losses from voids increasing because of ongoing labour shortages, supply chain disruption and cost inflation, which are likely to delay works and increase costs.

A key objective for Governing Bodies is ensuring rental income risks are appropriately managed and demonstrating that they understand the implications of increased arrears.  Governing Bodies should continue to stress test against reductions in income and establish mitigations where necessary.



The proportion of RSLs that still have some exposure to DB schemes has dropped to 47%.  This is the first time it’s dropped below 50%.  Notwithstanding this recent shift, it still means almost half of RSLs still have some DB exposure in carrying the risk of any shortfall on return on investment.  The eventual liability borne by the RSL is uncertain and cannot be controlled by the RSL.

The financial obligations of those RSLs with exposure to DB schemes are recalculated on a triennial basis, creating risks of increased costs where schemes are found to be in deficit. Long-term reductions in interest rates and ongoing weak gilt yields have resulted in many schemes being under-funded.  This can, and has done in the past, resulted in increases in pension deficits, and therefore increases in the contributions that landlords must fund.

The main scheme providers to the sector remain the Scottish Housing Associations Pension Scheme (SHAPS) and the Local Government Pension Schemes (LGPS).  The outcome of the next triennial revaluation of the SHAPS scheme should be available in the summer of 2022 and we will incorporate the results into our annual financial risk assessment.

Many RSLs are faced with large and growing liabilities if they do nothing, or a large immediate liability if they do something.  Acting now to change schemes may crystallise future obligations.  Deferring a decision to change away from a DB scheme will increase future liabilities.  Although most RSLs have taken a proactive approach to managing this risk, where appropriate Governing Bodies should seek independent professional advice to understand their pension risk exposure.

RSLs need to take pension affordability into account in their business planning and financial forecasts.  If they continue to choose to offer the option of DB, then Governing Bodies need to consider the potential impact on rent levels, rent affordability, cost efficiencies and value for money for tenants.

Net Zero-Carbon

The Scottish Government’s net zero-carbon commitments will result in requirements for substantial investment in RSLs’ existing homes, although the exact costs for this are not yet know.

It is important for Governing Bodies to be aware of this and to be considering what this might mean for investment in homes and for their business plan.  Having up-to-date stock condition data should be the basis for building a more in-depth understanding and in turn allow the identification of any current investment needs, while also planning to meet new requirements in relation to energy efficiency and decarbonisation.

As part of our FYFP return for 2022/23, we asked whether RSLs’ have considered the future cost of decarbonisation, and if so, what estimated costs have been projected.


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