Summary of the Annual Loan Portfolio Returns at 31 March 2020

Our annual analysis of RSLs' annual loan portfolio returns.

Updated

18 December 2020

Key messages and highlights from the 2020 returns

Lender and investor confidence in Scottish social housing continues, as the sector remains financially strong with access to substantial long term funding.

  • The majority of new loans have funded the building or acquisition of affordable homes as Registered Social Landlords (RSLs) development programmes continued to be a major contributor towards the Scottish Government’s 50,000 affordable homes target.
  • Total investment in the Scottish social housing sector has now reached £6.2 billion.
  • 20% of all lending is now from the bond and capital markets.
  • 2020 saw the largest drawdown of available facilities since 2012 at £409 million or 8.6%.
  • With just over £1 billion of undrawn facilities available, this gives landlords some capacity to help deal with the ongoing financial challenges of COVID-19.
  • 2020 saw three new entrants to the field of lenders and investors; Scottish Widows, Sun Life and the Pensions Insurance Corporation.

How much debt do RSLs have?

  • The total value of facilities available to RSLs increased by 3.5% over the last year to £6.18Bn.
  • Of this total the amount drawn down increased by £400m to £5.18Bn.
  • The total outstanding balance owed increased by 9.0% to £4.52Bn.
  • The average amount owed per home increased by 7.0% to £15,000.
  • The total amount drawn down is forecast to exceed £6.0Bn by 2025.

The total facilities and balances outstanding as at 31 March across recent years were:

  • In 2016; facilities £4.82Bn, balance outstanding £3.61Bn
  • In 2017; facilities £4.91Bn, balance outstanding £3.73Bn
  • In 2018; facilities £5.24Bn, balance outstanding £3.92Bn
  • In 2019; facilities £5.97Bn, balance outstanding £4.15Bn
  • In 2020; facilities £6.18Bn, balance outstanding £4.52Bn

Annual interest charges were £192m and this represented about 14% of landlords’ income from rent and service charges.

 

How has debt changed this year?

The total amount borrowed by RSLs has increased by almost £1Bn from £3.56Bn to £4.52Bn since 2015, and despite a smaller increase in the value of new facilities added in 2020, the total amount borrowed by the sector continues to grow.

  • At 31 March 2019 RSLs had borrowed £4.15Bn
  • During 2020 they repaid £0.43Bn
  • And borrowed a further £0.80Bn, most of which was to finance affordable housing development
  • The total amount borrowed at 31 March 2020 was £4.52Bn

 

Who lends to RSLs?

Thirty nine separate lenders and investors help fund the sector across almost 1,500 separate loans, to which more than 2,300 lending covenants are attached.

Between them the three largest lenders manage 55% of the value of all facilities and the net amount they have made available has dropped by £44m or 1.3% from £3,445m in 2019 to £3,401m this year.

The proportion of RSL debt they each manage is:

  • Royal Bank of Scotland – 34%
  • Lloyds Group – 11%
  • Nationwide Building Society – 10%

Some of this debt is provided across a syndicates of lenders, but most is from them on a sole lender basis. 

  • RBS lend £1,398m, and manage a further £709m as the lead lender in a syndicate for a total of £2,107m
  • Lloyds Group lend £585m, and a further £115m as a syndicate lead for a total of £700m
  • Nationwide lend £595m as sole lender

RBS remain the biggest lender, having strengthened their position, and although Lloyds and Nationwide have seen a marginal drop in their market share they still remain the second and third largest lenders to the sector.

Allia and Charities Aid Foundation Bank (CAF) both increased their lending to the sector by more than 50% and there are also a number of specialist lenders that lend to particular types of organisations (e.g. charities) or for specific purposes (e.g. environmental projects).

The total value of these facilities in 2020 was £4,955m, representing a reduction of £146m or 2.9% on the 2019 facilities total of £5,101m. The table below summarises facility values by individual lender:

Lender *

2019

2020

Change

Change

 

£m

£m

£’m

%

 

Royal Bank of Scotland plc

2,055

2,107

51

2.5%

 

Lloyds Group

745

700

-45

-6.0%

 

Nationwide Building Society

645

595

-50

-7.8%

 

European Investment Bank

289

289

0

0.1%

 

Santander

220

215

-5

-2.1%

 

Allia

124

193

69

55.8%

 

Clydesdale Bank plc

182

169

-13

-7.4%

 

The Housing Finance Corporation

152

153

1

1.0%

 

HSBC **

100

100

0

0.0%

 

GB Social Housing

94

94

-0

0.0%

 

Barclays

86

86

0

0.4%

 

Triodos Bank

35

45

10

27.6%

 

Charities Aid Foundation Bank

26

41

15

57.5%

 

Co-operative Bank PLC

31

30

-1

-2.0%

 

Handelsbanken

25

25

0

0.0%

 

Unity Trust Bank

24

24

-0

-1.3%

 

Local Authority

20

20

-0

-0.4%

 

Affordable Housing Finance

17

17

-0

-1.2%

 

Scottish Building Society

15

15

0

2.1%

 

Scottish Government

0

13

13

100.0%

 

Energy Savings Trust

7

9

2

25.1%

 

Charity Bank Ltd

6

6

0

5.8%

 

Dexia Municipal Bank plc

133

3

-130

-97.6%

 

Scottish Homes

3

2

-1

-28.9%

 

Leeds Building Society

2

2

-0

-16.2%

 

Other

2

2

0

10.8%

 

Bank of Ireland

6

0

-6

-100.0%

 

Inter Group ***

57

0

-57

-100.0%

 

Total

5,101

4,955

-146

-2.9%

 

 

* analysed by lead lender per Loan Portfolio annual return

** last year HSBC’s 2019 figure was incorrectly reported as £135m

 

** last year’s total facilities figure incorrectly included £57m of Inter-Group Loans

There has been another significant increase in RSLs sourcing funds through bonds and private placements and the combined bond and capital markets investment is now the second largest source of funds for RSLs.

To date eight capital market investors have made a total of £1.22Bn available to 24 different RSLs and more detail on the spread of this source of funds, including 2020’s new investors, can be found in the table below:

Lender*

2019

2020

Change

Change

£m

£m

£’m

%

Own Named Bond

330

330

0

0.0%

M&G

100

214

114

114.0%

Canada Life

155

205

50

32.3%

MetLife

135

175

40

29.6%

Black Rock

150

150

0

0.0%

Sun Life

0

70

70

100%

Pension Insurance Corporation

0

40

40

100%

Scottish Widows

0

40

40

100%

Total

870

1,224

354

40.7%

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

What type of private finance do RSLs have?

80.2% of RSL debt remains traditional borrowing, with 19.8% now provided by investors from the bond and capital markets. 

  • The total amount of traditional lending available fell by 3% to £5.0Bn, with the balance outstanding down a marginal 0.2% to £3.4Bn.
  • The total investment from the capital markets increased by 41% to £1.2Bn, with the balance outstanding up 38% to £1.1Bn.

While most debt continues to relate to traditional borrowing from the more recognised high street banks, the proportion being sourced from the bond and capital markets has continued to increase, from zero only five years ago to 20% of all funds now available to the sector.

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 loans referenced to LIBOR, RSLs should be examining all financial contracts and discussing transition with lenders.

The utilisation of revolving credit facilities also continues to grow, having increased by £100m since 2018 and here RSLs should be mindful of the refinancing risk attached as they will likely find themselves needing to re-tender or at least re-negotiate on a more frequent basis.

The table below shows the wide variety of loan types and balances that RSLs have:

Loan Type

2016

2017

2018

2019

2020

 

£'m

£'m

£'m

£'m

£'m

Bond/Capital Market product

411

440

571

766

901

Bridging Finance

0

5

8

0

0

Development Overdraft

0

0

0

3

2

Fixed Rate Loan

1,420

1,392

1,707

1,890

2,310

Fixed with embedded Interest Rate Swaps

469

481

108

89

90

Fixed without embedded Interest Rate Swaps

46

52

57

10

10

Revolving Loan / Facility

126

185

196

238

296

Variable Rate Loan

1,057

1,102

1,181

1,085

865

Variable with embedded Interest Rate Swaps

77

71

67

63

49

Variable without embedded Interest Rate Swaps

8

7

21

7

0

 

 

 

 

 

 

Total

3,614

3,735

3,915

4,150

4,522

All financial products carry a certain degree of risk. We would expect RSLs to seek advice where appropriate, and for that advice to be both impartial and independent.

Whilst SHR does not support one particular form of borrowing over another we do expect Governing Bodies to have a clearly expressed strategy which reflects their risk appetite and wider operating environment and possess the necessary skills and experience to allow them to understand and effectively challenge any advice given.  An effective approach to Treasury Management is essential if RSLs are to comply with Regulatory Standard 3.  The importance of relationships and communication with funders remains vital.

What new borrowing have RSLs undertaken this year?

This year has again seen a high value of new loans arranged by RSLs.  Although a total of £802m is down 12% from £912m in 2019, 118 new loan agreements is a 37% increase in number from 86 in 2019.

  • 63% by value has been for affordable housing development or ongoing investment in existing properties.
  • 25% for refinancing.
  • 12% for other purposes.

A closer look at the loans for ‘other purposes’ shows that most should be reclassified in the loan returns as for investment in new and existing properties.

RSLs are using around 68% of their housing stock as security for borrowing.  This is down from 72% in 2019, but reflects the drop in new borrowing in 2020, and demonstrates that RSLs continue to make good use of their properties to support their borrowing.  Secured property is now valued at approx. £7.2Bn, and is in the region of 117% of the funds available to RSLs.

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