Most registered social landlords are continuing to manage their resources to ensure their financial well-being despite economic challenges, the Scottish Housing Regulator has found.

Published on Tuesday, the regulator’s annual analysis of the finances of Scottish RSLs found that the aggregate net surplus fell below £100 million for the first time in five years, although this does not indicate a deterioration in the overall financial health of the sector.

RSLs generated more than £3 from operations for each £1 paid in interest, a strong cash position which will be a source of assurance to lenders and other stakeholders. But the regulator has cautioned that the need to keep rents affordable for tenants, coupled with uncertainty over the outlook for inflation, mean that careful management and effective governance are more important than ever.

The regulator urged landlords to speak to lenders about the implementation of Financial Reporting Standard (FRS) 102. Changes to accounting practice will make it difficult to calculate some of the accounting ratios that underlie lender covenants on a consistent basis.

Ian Brennan, director of regulation (finance & risk), said: “The aggregate accounts show a healthy surplus and an increase in cash generated from operations. This indicates a sector that is coping with current economic challenges. Many RSLs have scaled back their projected rent increases but the uncertain outlook for inflation will create additional challenges around affordability. RSLs need to understand the impact that a period of low inflation would have upon their business plans and test their compliance with lender covenants in these circumstances.”

The regulator also highlighted the growing cost of pension provision. There has been an increase of 40 per cent in the number of employees in receipt of pension provision. The Regulator stressed that the forthcoming revaluation of the Scottish Housing Associations Pension Scheme (SHAPS) might increase costs still further. It urged the RSLs within SHAPS to have plans in place to manage any increase in costs.

Read the Analysis of the Finances of Registered Social Landlords 2014