Author: Stephanie Crawford

Market update

• UK inflation remained steady at 3.8% in September, below the expected 4%. This is positive news for both the BOE and the Chancellor, and hopefully marks the beginning of a forecasted decline in inflation moving forward, rather than mirroring last year’s drop followed by a much unwelcome continued rise thereafter.
• Optimism surrounding inflation has led to speculation about a potential Bank of England rate cut in December, although the base rate remains unchanged at 4%.
• Nonetheless, speculation has fed through into the rates environment, with the swap curve seeing a material c.20bps reduction vs September across all tenors and Gilt yields falling by as much as 28bps – both a very welcome sight.

Implications for clients

• October’s fall in rates, whilst a welcome outcome, has confirmed how sensitive rates are to both positive and negative news, and this is only expected to continue as we quickly approach the budget at the end of November.
• Volatility is likely to increase as we approach the budget, with policy leaks expected to rise and drive market reactions.
• HAs should build this into their timing considerations for funding or hedging, with conditions likely to be most challenging around the Budget window and immediately afterwards.
• Clients should continue to look out for announcements on housing policy, particularly rent convergence and grant regime, alongside announcements on the expected low-cost development funding that could open up development opportunities.

To learn more about our work in the affordable housing sector, click here.

For more information, please contact Paul Stevens or John Tattersall.

Market update

• June CPI of 3.6% (vs the 3.4% expectation) contrasts with the weaker May GDP growth data, higher unemployment and slower wage growth. Economists expect tax rises and a cooling economy to be disinflationary.
• Signs that businesses are passing on tax increases such as Employers NI onto prices are a factor in the higher CPI, with the fiscal policy seeming inflationary in the short to medium term.
• The BoE has been clear it expected CPI to rise in 2025 and peak in the third quarter. The relative stability in short term swaps in the last month is evidence that the market continues to expect the BoE to largely ignore this transitory bump in inflation and cut rates to 4% in August and to 3.75% later in 2025.
• Longer term rates are a slightly different story, with the 10-year swap rates moving up 13bps month on month to c. 4.7%. Conversely, the 2 and 3 year rates remain static. The 30-year gilt yield is at a lofty 5.5%.
• The trend for 2025 is a steepening of the cost of fund curve, with longer term rates rising while shorter term rates have fallen or held steady. This trend will likely continue as investors seek appropriate returns on gilts in the context of higher inflation and a challenging fiscal deficit backdrop.

Implications for clients

• A steeper cost of funds curve means more complexity in seeking to balance value and risk through an appropriate mix of funding and hedging tenors.
• Proactive hedging strategies, and tactical use of ISDAs, may become more prominent as the sector continues its reliance on bank debt to achieve the right balance of value of risk management.
• The spread between gilt yields and swap rates is unlikely to close materially soon, unless quantitative easing could be justified to shift the demand / supply balance of gilts (which feels unlikely given the current political environment and lack of an obvious market stress trigger).
• We therefore encourage clients to prepare for more proactive hedging, and we look forward to discussing what this means for funding and hedging strategy.

To learn more about our work in the affordable housing sector, click here.

For more information, please contact Paul Stevens or John Tattersall.

Introduction

This week, Centrus shared a briefing with our retainer clients analysing the implications of the recent Comprehensive Spending Review (CSR) for housing finance professionals.

With new clarity around rent standards, long-term grant funding, and access to the Building Safety Fund, the CSR marks a pivotal moment for housing associations to reset business plans, re-engage funders, and move forward with renewed strategic focus.

The sector faces both opportunity and expectation: to turn policy stability into tangible delivery amid ongoing market pressures.

We’ve published the full note — “Policy Stability to Delivery: Implications of the CSR for Housing Finance Professionals” — to help wider stakeholders understand what this means and how to respond.

📄 Download the full report below

If you’d like to discuss how this impacts your organisation’s plans or treasury strategy, please get in touch with Paul Stevens, Executive Director or John Tattersall, Managing Director.

Market update

• Since the last monthly update, the outlook for inflation and interest rates fell during late November but has since bounced back in December, with the 5 and 10-year swap rates back at 4%. Expectations are that businesses will pass on higher National Insurance and Minimum Wage costs and service CPI remains stubbornly high.
• Despite 3 of the 9 MPC members voting for a rate cut in December, the outlook for rate cuts in 2025 hasn’t moved much since last month, with two cuts expected in 2025.
• The strength of the US economy is another factor influencing the higher rate outlook, with UK gilt yields broadly tracking the higher US Treasury yields; the 30-year gilt is 5.1% as we release
  this update. 
• CPI rose to 2.6% in November from 2.3%, with transport costs the main driver. Service CPI held steady at 5.0%. Both readings were above the Bank of England’s expectations.
• Demand from investors remains, with bond spreads back to record lows helping to offset some of the rise in gilt yields. The gilt yield curve rises steeply from 4.6% at 13 years, highlighting the relative attractiveness of shorter-dated issuance.

Implications for clients

• The higher inflation outlook will moderately improve rent increase projections with September 2025 CPI currently projected at c. 2.5%, although a higher cost base is likely to more than offset this; most clients are describing the 2025/26 budget process so far as ‘challenging’.
• The higher long-term cost of capital makes investment decisions even more challenging, with Housing Associations facing the difficult choice between subsidising new development schemes and maintaining financial resilience. The cost of re-financing future debt maturities is another factor to consider when assessing capacity to invest.

Recent client activity

There have been several portfolio restructures and new funding transactions completed in November, with case studies soon to roll out on our website.

Additonaly, the banking market continues to be supportive of the sector, evidenced by recent deals that lowered margins across banking portfolios creating material value for our clients. Support is also evidenced by bank cooperation to amend loan covenants and reduce risk for Housing Associations. Where legacy long dated low margin facilities are in place, some banks seek to shorten tenor and increase the margin moderately, whilst others look at restructure and can offer 10 years or more.

To learn more about our work in the affordable housing sector, click here.

For more information, please contact Paul Stevens or John Tattersall.