The regulator’s analysis of audited financial statements for the year to 31 March 2023 highlights that RSL operating costs rose at a faster rate than turnover and increased by 5.7% to £1.6 billion, while their operating surplus after exceptional items dropped by 3.4% to just under £370 million. RSLs’ interest cover also reduced, reflecting the tightening financial headroom.

The level of economic volatility and uncertainty facing RSLs and their tenants over the reporting period remained high and several key factors continued to impact financial performance during 2022/23, including:

• sustained high inflation and rising interest rates. Consumer Price Index (CPI) inflation peaked at 11.1% in October 2022 whilst the Bank of England increased its base rate from 0.75% in April 2022 to 4.25% at the end of March 2023;
• the impact of resource shortages on material and labour costs exacerbated by the war in the Ukraine and global shipping disruptions;
• maintenance contractors and house builders reporting financial viability issues which in some situations resulted in contractors going into administration;
• rent increases below the prevailing CPI inflation rate of 9%, with some RSLs not increasing rents in recognition of the financial hardship that was a reality for many of their tenants.

Shaun Keenan, assistant director of financial regulation, said: “Overall, the RSL sector’s financial position is weaker than it has been for several years. And the scale of the financial challenges faced by RSLs since March 2023 remains significant, reflecting the continuing difficulties and volatility in their operating environment.

“It is therefore important that RSLs’ continue to adjust their business plans in response to changing circumstances to manage their resources effectively to ensure their financial well-being, while maintaining rents at a level that tenants can afford to pay.”