UK Affordable Housing Market Update | June 2024

Market update

  • The wait for CPI to fall to target is over, with the May 2% result meeting economist expectations. Will CPI hold at this level, will we now see interest rate cuts?
  • Higher than expected service inflation (5.7%) led the market to dial back bets on interest rate cuts in 2024. The service economy continues to resist higher interest rates and until there is a meaningful change in this trend, interest rate cuts will likely be delayed.
  • The market expectation for SONIA in 2025/26 and 2026/27 is 10 bps and 20 bps lower than a month ago respectively. It is higher for longer in 2024, with a steep fall priced in through 2025 to c. 4% later in 2026.
  • Swap and gilt curves for 10 and 30 year are down 25 and 20 bps respectively on a month ago. Gilt yields combined with tight spreads look appealing, despite a c. 10 bps tick up in spreads from the lows a month ago.

Implications for clients

  • We may wait a little longer for the first rate cut but there is a little more headroom in June business plans with forward SONIA down for 2025/26 and 2026/27. Locking in that fall could be attractive unless hedging ratios are already at the upper end of policy range.
  • Bookrunners continue to suggest modest premium on sub-benchmark issuance for good credit, and investor demand for medium-term notes is more than sufficient to meet supply leading to attractive spreads. Housing Associations have a wide range of DCM funding options, and an unusually low cost of carry thanks to high short-term rates.
  • With the election looming there is a chance of domestically driven volatility. The global financial system continues to adjust to higher bond yields and there is always a chance of further shocks as we saw in 2023 with the various bank failures. It makes a lot of sense for Housing Associations to avoid delay in locking in cost of capital and funding for fresh investment plans.

Recent client activity

At Centrus, we are actively developing hedging strategies and participating in business planning and assurance engagements for our housing clients. Recent activities include:

  1. Business planning and assurance engagements: Centrus recently worked with Capital Letters, providing their Board with confidence and assurance that their business plan was founded on informed assumptions and driven by a best-in-class model.
  2. Investment policy reviews: Investment policy reviews are a recent common trend, with a focus for some of the best way to look after significant chunks of cash post asset disposal or capital raise. Beyond paying down RCF, we have focussed on money market funds.

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

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

Centrus Spotlight with L&G Affordable Homes

Centrus Spotlight with L&G Affordable Housing

For-Profit Registered Providers (FPRP) have prompted a significant shake-up of the UK affordable housing market. Savills estimates that by 2028, there’ll be roughly 100 FPRPs, with 113,000 units – a significant rise from 2023.

Omer Fazal, Managing Director and Head of Real Estate at Centrus sat down with Ben Denton, CEO at L&G Affordable Homes, a leading for-profit affordable housing provider, to discuss the evolution of for-profit affordable housing and its impact on the sector.

Our recent In Focus report takes a closer look at the For-Profit Affordable Housing sector, discussing challenges faced by the UK affordable housing market and the benefits of partnership opportunities for housing associations and investors. Click here to read the report.

For more information, please get in touch with Omer Fazal.

In Focus Report: For-Profit Affordable Housing


For-Profit Registered Providers (FPRP) have prompted a significant shake-up of the UK affordable housing market. But the landscape is an unusual one. At present, a majority of providers are small developers, yet a significant majority of the stock is with a few larger institutions – and there have been few trades between FPRPs, a function of the nascent nature of the sector.

Analysis based on Savills research earlier this year suggests 39% of the 70 registered For-Profit Registered Providers (FPRPs) are independent developers, yet they account for only 6% of homes.

In comparison, 90% of all stock is owned by institutions, despite the fact that they make up less than a quarter (21%) of the FPRPs; highlighting the weight of capital residing with the institutions.

Recent successful fundraisings of c £250m in aggregate by the likes of Octopus, Savills Investment Management and Edmond de Rothschild, reflect a growing appetite by institutions to access this sector.

Our report In Focus: For-profit affordable housing explores:

  • For-profit affordable housing
  • Challenges faced by housing associations and local authorities
  • Market demand and opportunities
  • Benefits of partnerships between housing associations and investors

Download the report below. For more information on any of the topics discussed, please contact Omer Fazal, Managing Director and Head of Real Estate at Centrus.

UK Affordable Housing Market Update | May 2024

Market update

  • We had farcical scenes at 10 Downing St this week as Rishi Sunak’s election announcement was drowned out by the pouring rain and a protester blasting out D:Ream Things Can Only Get Better!
  • The Government has solved inflation, masterful, I wonder if Brian Cox could write us a song about that…
  • Paul Krugman, a distinguished Professor and Nobel Prize winner said, “On interest rates, I am actually fanatically confused”. He commented on the long period of low interest rates that we thought was grounded on fundamentals, and now a period of high interest rates with the economy remarkably robust. Has the long-term sustainable interest rate gone up?
  • Within the April 2.3% CPI result (2.1% was expected) is notably higher service inflation (5.9%) and core inflation (3.9%) than a Reuters poll forecast (5.5% and 3.6% respectively).
  • The UK economy, largely services driven, is proving resilient to higher interest rates, and the April inflation results sparked a rally in sterling and revised projections of rate cuts, with the chance of a June cut now below 20%.

Implications for clients

Expectations on timing of the elusive first cut have bounced around in recent months and the 3-month forward SONIA curve for 2025/26 is c. 15bps higher than it was a month ago. But looking out 2 or 3 years, the curve hasn’t really moved so variable base rate assumptions in prudent financial plans are unlikely to need knee jerk review.   

Longer term rates remain stable and are beginning to look stubbornly static at c.4% on the 10-year swap and c.4.6-4.7% on the 30-year gilt. Our recent development assumptions survey showed clients using an average 5.3% discount rate, having crept up from sub 5%. Expectation that the cost of long-term capital will fall materially appears to be waning.     

The relatively insatiable investor demand and falling HA bond spreads has helped offset gilts, and issuances from Clarion, Platform and Paradigm in the 5.3% to 5.4% coupon range is cause for optimism. Bookrunners are suggesting modest premium on sub benchmark issuance for good credit, highlighting the variety of DCM funding options currently available to HAs, and an unusually low cost of carry thanks to high short-term rates is another factor to consider.     

Recent client activity

1. Tai Tarian refinance: Tai Tarian completed a £95m full re-finance. This involved two new bank funders and a PP investor, all on terms reflective of Tai Tarian’s high credit quality. The refinance will drive a substantial £6m NPV benefit, significantly reducing WACC, optimising financial covenants and corporate controls, and enhancing debt capacity and operational flexibility. Despite current rates, this transaction highlights opportunities to refinance debt and deliver a positive impact.

2. Strategic advisory: We continue to advise on strategic asset disposals and acquisition strategies, highlighting the sophisticated approaches some HAs are exploring to unlock capacity.

3. Risk management: Hedging strategies and interest rate risk management continue to be areas in which we are helping clients.

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

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

Power price hedging with financial derivatives

Financial hedges offer a key solution for managing ongoing energy price volatility arising from geopolitical and environmental risks; certainty of energy-related costs or revenues has become paramount for many of our clients, including both large energy users and generators.

Market volatility stems from conflicts in Eastern Europe and the Middle East, shifting weather patterns, station disruptions, technological advancements, and global politics amid a net-zero transition. Quick and decisive actions to secure energy cost or revenue certainty have proven vital in navigating this environment.

Source: Nord Pool Group, 2024

Centrus has been particularly active in advising clients around getting set up to trade financial hedges (derivatives) with financial institutions and energy trading companies. We see four key benefits to being in a position to trade financial hedges:

  1. Price advantage: Financial hedges often offer superior pricing compared to traditional Power Purchase Agreements (PPAs), resulting in significant cost savings per MW over a 7-10 year period.
  2. Agility in execution: Doing the heavy lifting of agreeing security, structure and ISDA documentation upfront allows for an expedited execution should markets turn quickly (even same day) – this can be in the form of a market order at a pre-determined fixed price that “works”.
  3. Tenor / product flexibility: Particularly when looking to transact quickly, financial hedges can give more flexibility over how far out the curve you can hedge, or for specific seasons to target. PPAs have become more customizable but there is generally a large suite of features available from financial hedge providers.
  4. Accounting benefits: Proven track record for being eligible for hedge accounting treatment, deferring changes in fair value through other comprehensive income (OCI).

We continue to support clients through adding value along the full spectrum of accessing energy security, from sourcing and advising on acquisitions of generation assets to arranging power purchase agreements and financial power hedges with financial institutions and energy trading entities.

Want to learn more? Reach out to the Centrus team for a complimentary initial assessment to discover how we can help you save on your energy generation costs.

Please contact Myrto Charamis, Adam MacDonald or Ivan McKinlay for more information.

Time for a radical solution to the UK’s housing crisis?

The UK housing crisis remains a pressing issue, with alarming statistics highlighting the severity of the problem. According to Shelter, over 280,000 people are currently homeless, and Rough Sleeping Statistics reveal a 52% increase in rough sleeping between 2010 and 2020. The shortage of affordable homes is evident, with around 8.4 million people in England alone living in unaffordable, insecure, or overcrowded housing, according to the National Housing Federation. These figures underscore the urgent need for comprehensive measures to tackle the crisis and provide affordable housing for all.

Alongside the shortage of social and affordable housing, the affordability of private housing in the UK has become a significant concern in recent years. Rising house prices have outpaced wage growth (the average house price in England has risen by 56% over the past decade, while wages have only increased by 20%) making it increasingly difficult for many individuals and families to afford homes in the private market.

This affordability challenge is particularly acute in areas with high demand and limited supply, such as London and other major cities. Various factors contribute to the affordability issue, including a shortage of affordable homes, speculative investment, and stagnant wages. As a result, a significant proportion of the population struggles to access suitable and affordable housing, leading to increased pressure on rental markets. For those for whom the dream of home ownership seemed a distant one, rising interest and mortgage rates have simply put this further out of reach. For a “home-owning democracy”, this places a strain on a fundamental strand of the UK’s social contract for an entire generation.

Underlying the affordability issue is a more fundamental one of supply and demand. Since 2000, the population of the UK has experienced significant growth. According to the Office for National Statistics, the estimated population of the UK in mid-2000 was around 59 million people. As of mid-2021, the estimated population had reached approximately 67 million people. Along with further increases since the last census, this represents an increase of well over 9 million people over the course of two decades. Over the same period, Ministry of Housing, Communities and Local Government data suggests that approximately 4m million net new homes were completed across England, Scotland, Wales, and Northern Ireland combined. The National Audit Office (NAO) reported in 2019 that the backlog of new homes needed in England was approximately 4,000,000, with this gap likely widening at current levels of net migration.

Despite the obvious problems, politicians seem to have been unable to sustainably grow the housing supply numbers with planning, the property cycle and opposition to building over swathes of the green belt among the challenges faced.

So rather than tinkering with the existing system (which seems to be the gist of the political class’s thinking on this issue), perhaps it is time for a more radical solution, which could not only tackle, but get ahead of the UK’s housing shortage, while also providing a boost for UK economic growth, investment and productivity and breathing life into a stagnating economy. This would involve a Green New Cities Strategy harnessing a combination of public and private sector capital and the Government’s ability to use its legislative powers to deliver 3-4 new cities, each designed for 1 million people but with the capacity  to grow. A vision for this could involve:

1. Locations targeted for a genuine “levelling up” agenda, bringing jobs, investment and prosperity to currently economically neglected parts of the country. I can think of several potential locations, but will avoid naming names for the purposes of this article!

2. Government to use legislation and public resources to pump-prime through land purchase/assembly, remediation, transport and social infrastructure to ensure long term connectivity and viability

3. Cities to be designed for long-term energy and environmental sustainability, harnessing clean energy and providing an opportunity to deploy clean/environmental technologies, including the new generation of Small Modular Nuclear Reactors, building methods and sustainable communities. For any UK Government wishing to pursue a “green revolution”, what better opportunity to showcase UK leadership in this field?

4. Housing would be a mix of rented, affordable and private, built at high density and to high, tenure blind quality, with the volumes/pipeline involved allowing the coming of age of volumetric modular and modern methods of construction

5. Economic viability – each city would be designed in accordance with national industrial, education & training and business strategies to attract concentrations of industries (and associated supply chains) of the future, with specific clusters and educational and research establishments to support industries such as:

a.       AI/Software

b.       Advanced Manufacturing

c.       Clean Energy/Clean Tech

d.       Life Sciences

e.       Fintech/Crypto/Web3

f.        Creative Industries

6. How would Government leverage the large amounts of domestic and global capital required to deliver on such a vision? Part of the legislative process could involve the creation of special economic zone status over a period of time (say 10-20 years), providing highly attractive tax breaks & reliefs (think corporation tax, CGT, stamp duty, business rates etc) and other investment incentives (such as potential linkage with freeports) for global businesses and entrepreneurs to locate their businesses and make investments in these locations.

7. This could also tie in with the intention behind the Edinburgh Reforms which are designed in part to unlock significant volumes of domestic pension and insurance capital for strategic long-term investment in the UK.

8. Finally, while this would involve considerable front-loaded investment by the UK Government, the medium to long term economic growth and tax revenues associated with these new and economically dynamic cities would ensure longer term viability and return on this investment

While the UK may have lost its confidence to undertake major national infrastructure projects, the country retains an incredible pioneering and entrepreneurial spirit, together with key economic advantages such as leading global universities, the world’s second largest financial centre, the English language and a widely used and respected legal system.

If anything, these advantages are being held back by poor infrastructure, a lack of vision and a linear mindset on the part of our political leaders. What better way of tackling our housing supply crisis, growing our economic prosperity and sending a powerful statement that the UK is open for business than by setting out a bold and ambitious blueprint for the UK’s Green New Cities of the future?

Written by Phil Jenkins, Managing Director and CEO at Centrus Financial Advisors Limited.

Phil Jenkins

Phil is a founding partner of Centrus and draws upon more than 25 years of investment banking and advisory experience across derivatives, commercial banking, structuring and debt capital markets. He has advised a wide range of listed, private and non-profit businesses across the UK on funding strategies, mergers, lender negotiations & capital raisings and played an instrumental role in establishing the widely adopted Sustainability Reporting Standard for Social Housing. Phil previously worked in the Infrastructure division of RBC Capital Markets and the Fixed Income division of Hambros Bank.

Why titanTreasury is the market leading solution for UK Housing Associations

Market Leading Treasury and Risk Management System

With Centrus’ support and training, a growing number of our affordable housing clients are benefitting from titanTreasury, the leading treasury and risk management system designed to streamline and optimise treasury processes. But what exactly makes titanTreasury stand out?

1. Greater Efficiency

titanTreasury enhances cost efficiency by allowing users to automate and manage a diverse range of financial operations within one platform. Through automation of standard procedures, titanTreasury eliminates the necessity for repetitive manual tasks, freeing up human resources to focus on more complex or strategic activities. 

2. Improved Risk Management 

Unlike other treasury management systems, titanTreasury goes beyond mere task automation and data centralisation; capturing and quantifying risk effectively. Through sensitivity analysis, stress testing, ‘what-if’ scenarios, and activity measurement, titanTreasury equips teams with the tools needed to mitigate risk exposures and reduce volatility in financial statements. By integrating features such as CVA/DVA calculations, titanTreasury ensures a thorough understanding of risk landscapes, enabling informed decision-making and proactive risk management strategies.

3. Enhanced Governance & Reporting

From tracking financial transactions to generating regulatory reports, titanTreasury offers a complete picture of treasury activities. With available reports to help with NROSH regulatory reporting and FFR reports through integration with third-party software, clients can ensure compliance while making informed decisions.

titanTreasury clients include:

titanTreasury Features

One size does not fit all when it comes to treasury management. titanTreasury’s modular-based platform allows users to tailor the system to their specific needs and connect with other tools seamlessly. Whether it’s cash management, operation workflow or risk analysis, the system adapts to suit the requirements of each client.

Centrus partners with 3V Finance to deliver titanTreasury.

With Centrus as the sole provider in the UK, our clients gain access to cutting-edge technology from titanTreasury as well as unparalleled expertise from the UK’s leading treasury advisor to the affordable housing sector.

Ready to Learn More?

Contact Gilles Bonlong, Director at Centrus, for a demo.

Corporate sustainability risks & trends for 2024

Corporate sustainability risks & trends for 2024

Rising challenges

Before the Covid Pandemic end to 2019 there was solid progress for Sustainability in the corporate world.   Awareness around climate change, biodiversity loss and the importance of social impact was improving.  The risk and the opportunity of adding sustainability into decision making and performance measurement was knocking more regularly on the board room door and People and Planet were starting to find a more regular place at the same table as profitability.  But then close behind the arrival of COVID a multitude of other inflection points have been triggered, with all sectors of work having to handle unpredictable risks arriving at faster rates. 

  • More Planetary Boundaries breached*.
  • AI generated misinformation and disinformation makes trust worthy data harder to find.
  • Market volatility is commonplace.
  • Political and Geo-political influence.
  • Inflation.
  • Cost of living.
  • War.

The list is long and relentless, with macroeconomic headwinds that historically have come once or twice a generation lining up in their droves.

For corporate sustainability, the challenges rose most fervently in 2023.  There was increasing criticism that sustainable thinking was impeding business performance.  If you were considering environmental or social impact in your decision making the you were denting the profitability.  This has been most formally demonstrated in the United States with legal and incentivised anti-ESG measures in place in more than 18 states.  In times of macro-economic challenge, the need for better rates of return in shorter time periods with quick fix thinking is exacerbated and this exacerbation is directly juxtaposed to the long-term strategic approach that sustainability needs.

Momentum and hope

With any substantial change there are negative reactions to the pro-activism before genuine progress and equality can be made. While the doom and gloom list is long, I believe the sustainability backlash has peaked and is passing.

There are few topics more entangled than Sustainability.  It is across business, science, law, politics, consumerism, popularism, public opinion and uncertainty. It is far more consistent and carrying far more weight as part of decision making at so many more parts of the business value chain.

Data consistency, partnerships, sharing, taxonomies, regulation, legislation, technological and biological innovation are more established and there has been a tectonic shift in the direction of capital investment.  Those who doubt the climate crisis or the importance of social impact are starting to acknowledge the commercial reality. There’s growing evidence that sustainability practices are linked to financial success with studies from the likes of McKinsey & Company showing a 3% to 8% increase in EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) for those firms embracing sustainability practices.

Sustainability themes: my current top 5

  1. Scaling renewables – the urgency of addressing climate change and meeting Net-Zero commitments made, plus falling costs and increasing government incentives are driving the rapid expansion of renewable energy capacity.
  2. Regulation and legislation – There are more consistent standards for disclosing sustainability information. It will remain fragmented through 2024 and 2025 but mandatory requirements are starting to bed in with spreading influence.
  3. Data tsunami – Consistent, standardised data is going to take time to evolve but the volume of data available now, assisted by AI evolution is huge. To mitigate risk, adhere to standards and meet commitments that have been made every sector must make sure their data management and related business processes can adapt and react to unpredictable risk.
  4. Technological and biological technology innovation – These are advancing Environmental (e.g. renewable energy, energy efficiency, pollution control, carbon capture, sustainable materials…) Social (e.g. Precision Agriculture, Waste Reduction and Recycling, Healthcare, Social Impact Investment…) and Governance Benefits (e.g. Transparency and Accountability, Risk Management, Sustainable Supply Chains…) and offering a powerful toolkit for companies to improve their sustainability performance.
  5. Consumer behaviour and social expectation – Increasing expectations on products and services to prove awareness and social conscience is playing a more important role in consumer and B2C and B2B decisions with supporting evidence of this showing through in behavioural science.

*Side knowledge bite

First Launched in 2009, the planetary boundaries concept presents a set of nine planetary boundaries within which humanity can continue to develop and thrive for generations to come. Crossing these boundaries increases the risk of generating large-scale abrupt or irreversible environmental changes. Drastic changes will not necessarily happen overnight, but together the boundaries mark a critical threshold for increasing risks to people and the ecosystems we are part of.

For more information on any of the topics discussed, please contact George Roffey, Chief Sustainability Officer at Centrus

UK Affordable Housing Market Update | April 2024

Market update

  • March CPI of 3.2% was higher than the expected 3.1%, however despite this swap rates did not increase by the end of the day of the announcement.
  • CPI is expected to get close to the 2% target for April driven by the energy price cap reduction, although the increase in national minimum wages could reduce its effect.
  • Inflation has proved to be stickier than markets were expecting until relatively recently; the US Federal Reserve has acknowledged interest rates will stay higher for longer.
  • Given this, markets now only expect one BoE 0.25% rate cut this year in November (at the beginning of 2024 markets were pricing in 6 or 7 rate cuts).
  • Hence, the swap curve is 15 to 20 bps higher than a month ago.
  • House prices indices are now showing month-on-month falls, although a material fall in nominal prices seems unlikely.

Implications for clients

  • The SONIA curve remains flat, now at 4.0% from 7 years through to 30, meaning clients can hedge over a tenor that suits their loan portfolio; this can reduce short-term interest rates and negate the need for risk buffers on hedged funding.
  • Investor demand for HA paper is still strong and spreads remain attractive, which creates opportunity for long term covenant light funding from the DCM market; there has been a notable uptick in activity in this space over the last month.
  • Even though interest rate projections and swap rates have risen over the last month, all in funding costs are still attractive at current levels and delaying fundraising in the hope of market rate falls is a risky strategy (particularly as any increase in margins/spreads could offset any fall in gilt/SONIA rates). Steady hedging over time and maintaining the right hedging ratio to mitigate interest risk is the objective of a hedging strategy, and we think now presents a good opportunity to lock in relatively attractive rates.

Recent client activity

  1. Bond issuances and retained bond sales: Several new bond issues and retained bond sales have recently completed, with HAs seeking to spread maturities through medium and long-term notes with tight pricing achieved.
  2. Strategic asset disposals and acquisition strategies: Centrus is advising HAs on strategic asset disposals and acquisition strategies, highlighting the sophisticated approach some HAs are exploring to unlock capacity.
  3. Corporate finance and treasury strategy advice for mergers: We’re providing comprehensive corporate finance and treasury advice for ongoing mergers in the social housing sector. Our expertise ensures that these mergers are executed smoothly and strategically.
  4. Hedging strategies and interest rate risk management: Centrus continues to assist clients with hedging strategies and interest rate risk management. Our tailored solutions help HAs navigate market uncertainties and protect against potential risks.
  5. Banking transactions: We anticipate announcing successful completion of several banking transactions, including revolving credit facilities (RCF) and term facilities, shortly. These transactions offer competitive pricing and attractive terms, further strengthening our clients’ financial positions.

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

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