About this report
This report provides an overview of the aggregated, Audited Financial Statements (AFS) returns for the year to 31 March 2024 submitted to us by Registered Social Landlords (RSLs).
Throughout the period covered by the AFS returns, the operating environment remained difficult for RLSs, with the broader macroeconomic situation continuing to affect tenant finances and RSL's financial performance. Key factors influencing RSLs' financial performance in 2023/24 included:
- CPI inflation peaked at 11.1% in October 2022 and remained high at 8.7% in April 2023. RSLs in Scotland implemented an average rent increase in April 2023 well below 8.7%. In the 6 months to September 2023, it fell to 6.7% and by March 2024, it had fallen to 3.2%;
- the Bank of England raised its base rate from 0.75% in April 2022 to 4.25% by March 2023 to combat inflation. It then increased the rate three times in 2023, reaching 5.25% in August, the highest since April 2008, and maintained that rate for the rest of the period covered by the AFS returns;
- the impact of resource shortages on material and labour costs exacerbated by global instability;
- the increasing requirements to address the safety and quality of homes, including on energy efficiency and decarbonisation;
- maintenance contractors and house builders reporting financial viability issues which in some situations resulted in contractors going into administration.
Highlights
The aggregate financial position of RSLs weakened in 2023/24. This has reduced their financial headroom and while we are engaging with more RSLs on financial issues than before, most are still managing the financial pressures but with increasingly constrained finances. Overall, liquidity remains strong in aggregate across the sector, and RSLs have successfully raised the necessary funds to invest in both new and existing homes. However, the combination of weaker performance and record investment levels is impacting cash and cash equivalents, which have decreased for the fifth year in a row to £685m.
In total, RSLs spent a record £945m on management and maintenance which is the highest on record. Total management and maintenance cost per unit increased by 6.46% to a record high of £2,965.
At an aggregate level in 2023/24, RSLs’:
- turnover increased by 5.98% to £2.11 billion;
- affordable lettings turnover rose by 5.89% to £1.86 billion, contributing 88.29% of total turnover. This includes gross rent receivable and service charges of £1.66 billion, a rise of 7.53%;
- operating costs continue to increase at a faster rate than turnover, up by 7.07% to £1.75 billion;
- planned and reactive maintenance expenditure rose at very different rates with planned increasing by 3.88% to £176.03 million and reactive increasing by 15.26% to £295.51 million;
- operating surplus after exceptional items dropped marginally by 0.87% to £364.45 million;
- affordable lettings surplus fell by 3.3% to £343.73 million as rental income and deferred grants released grew at a slower rate than the associated expenditure.
- investment in new and existing homes continued with net housing assets up by 5.50% to £16.52 billion;
- cash balances decreased by 11.78% to £685.20 million;
- cash generation from operating activities reduced marginally by 0.11% to £615.88 million;
- EBITDA MRI interest cover reduced to 199.38%, reflecting the tightening financial headroom;
- voids reduced to 1.53% but remained well above pre-pandemic level of 1.22%;
- bad debts rose to 0.72% whilst net arrears reduced to 2.62%;
- the average rent increase was below both CPI and RPI for the third year in succession; and
- continued to reduce the number of employees in defined benefit schemes.
Looking ahead
Since 31 March 2024 the complex and uncertain economic environment that RSLs operate in has remained very challenging. The Bank of England cut rates from 5.25% to 5% in August 2024, then to 4.75% in November, and to 4.5% in February 2025, their lowest in 18 months, with a "cautious" approach to future cuts. Inflation has dropped significantly from 11.1% in October 2022, the highest in 40 years. However, prices are still rising, just more slowly. The UK’s annual inflation rate was 2.3% in April 2024 and 2.5% in December 2024. While it briefly met the Government's 2% target between April and December, it hasn’t been sustained.
Social Landlords applied an average rent increase in 2024/25 of 6% as they balanced keeping rent as low as possible while meeting their obligations to deliver on tenant and resident safety, the quality of the homes they provide and funding the decarbonisation of homes. The Scottish Government’s cap on private rented properties continued to impact the mid-market rents RSLs can charge.
Supply chain disruptions, higher costs and labour shortages continue to contribute to volatility, leading many RSLs to scale back their plans to build new homes. Some RSLs have faced unanticipated costs to assess and remediate safety issues in tenants’ homes, including for RAAC and cladding. Such unexpected costs can represent a significant risk to the financial stability of an RSL.
In this context, RSLs aim to sustain service levels while investing in their current homes to enhance and preserve tenant and resident safety, meet net-zero standards, and fulfil stock quality commitments, all while continuing to invest in the construction of new homes. Information on RSL projections can be found in our Summary of Registered Social Landlord Financial Projections 2024/25 - 2028/29 | Scottish Housing Regulator published in December 2024. It is crucial for RSLs to keep adapting their business plans in response to evolving circumstances, managing their resources effectively to safeguard their financial stability, while ensuring that rents remain affordable for tenants.
