The Regulator of Social Housing published the results of its Q1 quarterly survey in early September, amid an economic/financial market environment that has taken a turn for the worse since the end of June. The survey indicates a sector that remains financially resilient, but under growing pressure from higher interest costs, repairs expenditure, development requirements and a challenging sales market.
The survey covers 195 registered providers owning or managing more than 1,000 homes and looks at the period from April to June 2026. Liquidity remains strong, but competing demands are squeezing interest cover and increasing the importance of active treasury and funding management.
Funding
Housing associations continued to raise significant new finance during the quarter. Total agreed borrowing facilities increased to £144.5 billion, up from £143.0 billion at the end of March. Of this, £110.6 billion was drawn, leaving £33.9 billion of undrawn facilities available.
During the quarter, 46 providers arranged £4.3 billion of new finance. This was well above the three-year quarterly average of £3.4 billion. Bank lending remained the largest source, providing £2.2 billion, while capital markets, including private placements and aggregated bond finance, contributed £1.3 billion.
Available liquidity from undrawn debt facilities therefore remains substantial, and added to available cash (£3.4bn, down from £4.1bn in March, and the lowest amount in 13 years), liquidity totalled £37.3 billion at the end of June. The regulator noted that this would be sufficient to cover forecast interest costs, loan repayments and net development expenditure over the next twelve months even without further borrowing or sales receipts. We’ll see whether the potential reduction in the importance of liquidity for credit ratings reduces this figure in the future. Associations also forecast a slight decline in cash levels for June 2027.
And borrowing is expected to increase. Associations forecast £10.6 billion of loan drawdowns over the next year, including £3.3 billion from facilities that have not yet been agreed, so plenty of work to be done here. After expected repayments, drawn debt is forecast to rise by £6.7 billion.
Interest Cover
Perhaps the most important feature of the report, in terms of the ability to raise new finance, is the continuing weakness in interest cover. Cash interest cover, excluding sales but including grant relating to capitalised major repairs, was 59% during the quarter. Excluding grant, it fell to just 49%, the lowest quarterly level recorded since the regulator began collecting cash flow information in 2015.
The reduction largely reflects weaker operating cashflows, due to major annual expenditure occurring in Q1, including insurance costs. So, while Q1 cover is normally a low point, a further increase in interest and repairs and maintenance costs were the primary drivers of the deterioration compared to previous years.
Longer-term projections also highlight further expected deterioration. Rolling 12-month interest cover excluding grant fell to 76%, compared with 79% in March, while the median fell from 92% to 86%. Forecast interest cover excluding grant for the coming twelve months has also reduced to 64%. The need for new debt will therefore continue to rise, but will lender demand continue to be strong if this situation continues? Government funding therefore assumes greater importance to make up the deficit.
Recent market movements are unhelpful in this area, and while we expect the rise in rates to be temporary, the political nature of the main drivers makes unforeseen outcomes more likely.
Repairs Costs
Repairs and maintenance spending remain one of the most significant pressures on housing association finances. The sector spent £9.7 billion on repairs and maintenance in the twelve months to June 2026, 6% higher than the previous year and 18% higher than two years earlier.
And it’s only forecast to increase; associations are forecasting £11.1 billion over the next twelve months, around 15% above the latest annual outturn. Of this, £5.8 billion is expected to be revenue expenditure and £5.3 billion capitalised works.
The regulator noted its expectation that elevated investment will continue, reflecting building safety requirements, energy efficiency improvements and wider investment in housing quality.
Development
Development expenditure softened slightly in recent outturn figures, but future plans are becoming more ambitious. Providers spent £13.1 billion on development during the year to June 2026, compared with £13.6 billion in the previous year. Forecast development expenditure for the coming twelve months has risen to £16.0 billion, its fifth consecutive quarterly increase.
£5.1 billion relates to uncommitted development, the highest level for three years and perhaps a sign that the government’s recent moves on rents and grants are prompting/spurring associations to increase development activity.
Market Sales
Unsurprisingly perhaps given the wider state of the housing market, sales are one of the weaker areas. Current asset sales generated just £0.5 billion during the quarter, the lowest quarterly level in eleven years and 40% lower than the previous quarter.
Affordable Home Ownership completions fell by 38% to 3,240 units (the lowest for six years), while sales declined by 26% to 3,337 units, remaining below the three-year average. Market sale completions were down 50% to the lowest for 10 years. Although the number of unsold properties fell slightly overall, the number remaining unsold for more than six months increased by 15% to 3,439.
The sales pipeline increased from the previous quarter, but margins remain under pressure. The margin on first tranche Affordable Home Ownership sales improved to 13.3%, but this remains historically low.
Overall, whereas current asset sales are on a declining path, fixed asset disposals are increasing. Housing associations sold £4.9 billion of fixed assets during the twelve months to June, 44% more than the previous year. A further £4.9 billion is forecast over the coming year. This appears to be driven by non-social housing sales (market rent, shared ownership, student accommodation and Extra Care schemes), but is also highly concentrated as a quarter of June’s total was a bulk sale by just one provider.
What does this mean for treasury management?
The sector is experiencing a squeeze from different avenues, including higher interest rates, maintenance costs, ambitious policy-led development demands and a weak housing market. On the other hand, housing associations generally retain substantial liquidity, lenders remain willing to provide finance, and the government is being more supportive.
However, debt is expected to increase, refinancing requirements remain significant, repairs expenditure is rising, and interest cover is becoming tighter. The effect of this issue depends on the individual position and financial strength of each association. For treasury teams, this increases the importance of forward funding plans, covenant forecasting, refinancing strategies and understanding exposure to interest rate movements.
Arlingclose can assist in these areas, as we already do for around 175 public, private and third sector organisations. For a brief discussion, please get in touch with nkeeling@arlingclose.com or join us on our stand at the Treasury in Housing event on 8th October.
