Social Landlords in Scotland: Shaping up for improvement

Social Landlords in Scotland: Shaping up for improvement.The average lending margin in 2006/07 reached a ten-year low at around0.3%. This compares to a sector average of around 0.75% for debt that ismore than ten years old, more than double the rate in 2006/07. Such lowerdebt costs have substantially eased the ability of RSLs to service the sizeableincrease in debt obligations that are now in place. The overall effect of this isagain illustrated in Figure 10 (above). While operating costs have risen overthe decade from around 70% to approximately 90% of turnover the proportionof turnover required to service debt has actually fallen from just under 20% toapproximately 15%. Moreover, this has taken place at a time of rapidlyincreasing debt levels.6.16 We know that while debt pricing is increasing it is, in part as a consequenceof our regulation, still significantly cheaper than the deals being secured bycommercial and unregulated sectors. However, as debt costs start to riseand increases to turnover become more constrained, the ability of some RSLsto finance further increases in debt finance now looks limited. The ScottishGovernment has just completed its consultation on proposals for investmentreform. Just over one third of RSLs told us their development ambitions areconstrained as a result of the current economic climate, although one fifth toldus that opportunities are beginning to present themselves – primarily throughprivate developers offering them unsold stock that was initially meant for theprivate sales market, and through more land becoming available at cheaperprices.6.17 Our survey showed that around four fifths of all units owned by RSLs arecurrently used as collateral to secure debt. There is, therefore, a limited assetpool available to secure further increases in debt levels. And while someRSLs are more exposed to falls in valuations of their stock (with clearimplications for some RSLs seeking new debt for development purposes),around 30% of RSL housing stock was valued more than five years ago, and,therefore, is less vulnerable than stock valued at the height of the market.6.18 At the end of March 2008, RSLs in Scotland had agreed borrowing facilities of£3.3 billion, including new facilities of £333 million. Around £1.3 billion ofcommitted funding had not been drawn down and was available to RSLs tosupport their plans. GHA accounts for a significant portion of the sector’sagreed borrowing facility and undrawn funding (£725 million and £673.5million respectively). As figure 13 from our survey shows, at the end of last37