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Housing associations can increase their financial capacity in the next five years by refinancing and considering merging with other organisations, according to research by Savills.
Savills Affordable Housing Consultancy estimated that English housing associations have the borrowing capacity to increase their long-term debt to £132bn by 2026 – up from £66bn in 2015 and £83bn in 2020.
This debt will fund social landlords’ development ambitions but the consultancy warned that this debt must be matched with adequate cash flow.
Savills suggested that to meet cash flow demands, more housing associations could take advantage of current low interest rates by refinancing.
The organisation said the average rate of interest on housing sector debt was roughly 4% in 2020 and refinancing deals are currently being done at interest rates of around 2.5%.
Savills also suggested that cash flow could be increased through “more mergers, continued stock rationalisation programmes and sale of shared ownership portfolios”.
Some housing associations have been exploring potential mergers in recent months, including PA Housing and Accent Group, proposals for which were recently scrapped.
A proposed merger between Sanctuary and Southern Housing Group to create the largest landlord in the UK was also abandoned in April.
Alternatively, Savills suggested that partnerships with institutional investors and new entrants could maintain associations’ development programmes, while ensuring sufficient resources to invest in existing homes.
The consultancy also said it is unlikely that housing associations will be able to postpone decarbonisation plans in favour of development programmes as the government has set a target of 2035 to bring existing homes to EPC Band C.
Helen Collins, head of Savills Affordable Housing Consultancy, said: “The housing sector is facing some major costs in the coming years with continued work on building safety, the ramping-up of decarbonisation, and increasing costs for new homes to meet the Future Homes Standard.
“Even if the increasing spend on planned maintenance is halted, housing associations could see EBITDA MRI interest cover fall from 138% in 2020 to around 125% in 2026.
“Organisations are very unlikely to want to allow interest cover to fall this far. The range of choices we have identified to help housing providers mean that they should be able to find the right mix to suit their circumstances.”
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