Author: Stephanie Crawford

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.
 

Introduction

The UK higher education sector stands at a crossroads. Despite its global reputation, mounting financial challenges—frozen tuition fees, rising costs, and a decline in international students—are threatening its stability.

Centrus’ latest report, In Focus: The University Challenge, explores the financial pressures facing universities and offers strategic solutions to build resilience. From diversifying revenue streams to innovative funding models and decarbonisation strategies, the report highlights actionable pathways to a sustainable future.

Download the full report to explore how tailored hedging solutions can help navigate today’s volatile energy landscape. For further insights, please contact Russell Schofield-Bezer, Senior Advisor of Higher Education at Centrus.

Market update

• Since the last monthly update, the market has shifted to a more inflationary outlook and projection of higher interest rates for longer. The Government’s commitment to investment in the Autumn Statement is a key driver to the change in outlook. The US Election added to the markets
  conviction with President Trump’s policies considered inflationary across the world economy.
• The rise in Employers NI Contributions will add c. 3% to Housing Association staff costs, with most of the increase caused by the fall in the threshold to £5,000 from £9,100. The lower the average cost per employee, the greater the cost impact.
• October CPI of 2.3% was higher than the 2.2% expectation, with the jump from 1.7% in September due to the c. 10% increase in the energy price cap from 1 October 2024.
• Service inflation of 5.0% and wage growth of 4.8% reinforced the market outlook that inflation will remain persistently above 2% requiring the Bank of England to hold rates for longer.
• Prior to recent events and data releases, the inflationary outlook had dampened, and we saw a low in swap rates in September (3.4% for the 10 year). The swap curve rose for 6 weeks from that low in response to the revised inflationary outlook, and the 10-year swap is now steady at 4%. Gilt yields followed a similar path with the 30-year gilt yield up to 4.9%.

Implications for clients

• The higher inflation outlook will moderately improve rent increase projections with September 2025 CPI currently projected at 2.8%. However, the rise in Employer NIC and variable rate projections will more than offset this modest gain.
• As tempting as it is to speculate on future interest rate movements, we remind clients that interest rate risk management focuses on exposure to variable debt, headroom on covenants and policy limits. There is an equal chance the market projection will move up or down.
• With the spread between gilt yields and swaps back at a high (the 10-year gilt yield is c. 50bps higher than the swap), we anticipate a continued focus on new funding from the bank market and recommend clients remain aware of the capacity limit for their banking portfolio and review short term maturities.

Recent client activity

Centrus is busier than ever, actively advising clients on hedging and risk management across its core sectors of social housing, infrastructure, and other essential services. The demand for this expertise is being driven by heightened market volatility, the maturity of existing hedging arrangements, and a growing focus on achieving greater certainty around the cost of capital.

In addition to hedging, mergers and treasury strategy execution remain particularly active areas. Loan portfolio restructuring continues to play a pivotal role, delivering tangible value to clients and creating improved covenant headroom.

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

• The September CPI of 1.7% is disappointing for rent growth, however lower interest rate projections will help the significant sector re-financing requirement over the coming years. The 10-year swap was 4.3% a year ago, and now sits at 3.7%.
• The sharp month-on-month fall in service inflation to 4.9% from 5.6%, along with signs of weakening wage growth is significant. The Bank of England may revise down its inflation projections again, and the market expects successive monthly rate cuts in November and December, with further falls projected.
• Swap rates and gilt yields rose through September from a recent low early in the month, with the 10-year swap rising from 3.4% to over 3.8%. Following the lower-than-expected inflation reading, it fell back to 3.7% and may continue to retrace.
• We wait in anticipation for the Autumn Statement on 30^th October. It will be interesting to see if the OBR revises projections, and how gilt yields react to the Chancellor’s announcement.

Implications for clients

• The 1.7% CPI release was below our business planning assumption of 2.2% and below the Bank of England CPI projection.
• With the potential for another market moving Autumn Statement and two remaining MPC meetings for 2024, we may see increased volatility as we run into Christmas. We’ll be into risk buffer discussions and business planning season before we know it.
• Hedging interest rate risk and having more certainty on cost of capital for decision making can avoid the need for excessive risk buffers in discount rates and interest budgets.
• There will be more to get our teeth into next month, until then, we hope for no further escalation in global instability.

Recent client activity

At Centrus, we are actively engaged in supporting our clients with strategic financial initiatives, from loan restructuring to exploring innovative financing solutions. Recent activities include:

Southern Housing EMTN Programme and Sustainability Finance Framework:
Newbridge Advisors recently advised Southern Housing to help successfully complete its first issuance from a £1bn European Medium-Term Note (EMTN) programme and Sustainability Finance Framework. The £250m issuance in September saw significant demand from investors, reflecting the growing appetite for sustainable investment opportunities in the housing sector. This issuance marks an important step in aligning housing finance with broader sustainability goals.

Loan Portfolio Restructuring:
Restructuring loan portfolios has become a key focus for many of our clients, particularly in light of the current interest rate and banking market environment. Centrus has been working closely with several clients to renegotiate loan terms and improve pricing, providing opportunities to optimise their financial positions and reduce costs, ensuring more robust long-term financial stability.

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

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



Correction: This article has been updated to state that Newbridge Advisors advised Southern Housing on their debut issuance under their EMTN, rather than Centrus as incorrectly referenced in previous version.