‘I want to be the FD that listens to the voice of the resident’: L&Q’s graduate trainee turned finance boss reveals his plans

Strategies

 

With Mr Farnsworth in post, L&Q is continuing to embark on the “clear plan” to restructure its balance sheet that it has been implementing over the past few years.

 

This involves divesting non-core assets so that the housing association can reduce its leverage and therefore lower its interest costs, allowing the landlord to invest more in existing homes.

 

These strategies are also intended to shorten the current 15-year schedule for L&Q’s £3bn works programme under its current business plan.

 

L&Q sold its land business, L&Q Estates, last year and Mr Farnsworth says the sale of its private rented sector (PRS) portfolio Metra Living has progressed “very well” and will complete before the end of this financial year.

 

L&Q has been undergoing stock rationalisations to exit non-core geographies, for example selling more than 800 homes to Southern Housing in 2022, and most recently selling 524 homes to CHP in April this year.

 

The housing association, which manages more than 105,000 homes, has also been scaling back its development ambitions since May 2021.

 

Shared ownership

 

Referring to plans revealed by his predecessor, Mr Ahmed, Mr Farnsworth notes that the landlord is looking at how it can extract value from its shared ownership portfolio in “the most optimum way”. Within this, it is looking for a model that not only L&Q could benefit from, but the whole sector.

 

This could involve selling the second tranche of homes to another vehicle, allowing the provider to recycle that capital, Mr Farnsworth says.

 

“[The potential model] is still in its concept stage, but we believe that there is still an opportunity, not just for L&Q, but an opportunity for the sector to put together a model by which RPs could extract value from shared ownership assets that are sat on our balance sheet,” he says.

 

“If that could be a model that could work for the sector as a whole, so that all RPs could benefit from that, we think that could release a significant amount of capacity in the sector.”

 

Other housing associations are also looking at shared ownership models.

 

“What we haven’t got is a single model that has got a significant amount of traction at scale; we’d like to deliver that at L&Q,” Mr Farnsworth says.

 

He adds that it would be a “real strength” if the sector could also come together to provide a combined “quality dataset” to demonstrate the characteristics of shared ownership portfolios to investors.

 

“One of the challenges is that without that quality data, you end up potentially selling the shared ownership at lower value than what we believe it’s worth,” he says.

 

Liquidity

 

L&Q’s strategy of divesting non-core assets and geographies and scaling back development means that L&Q is in a “strong position” with a “significant amount” of available liquidity, Mr Farnsworth says.

 

The housing association has not required access to additional funding in the past 18 months and currently has over two years’ worth of available liquidity.

 

According to unaudited results for the year to 31 March 2025, L&Q has net debt of £5.43bn and available liquidity of £1bn.

 

“That’s a huge positive, because that means we’re not having to go to the debt capital markets, and we’re not having to go to raise additional funds whilst there is some volatility in the costs of financing,” Mr Farnsworth says.

 

L&Q is therefore able to take a step back and only raise funds where it sees an opportunity to do so, at “more optimal levels”, Mr Farnsworth says.

 

This, he adds, could mean accessing lower-cost sources of finance, whether that is government-guaranteed products or other “more attractive financing”.

 

“We are always reviewing our debt-raising opportunities, but right now, one of the benefits is we don’t need to [raise funds] so we can be more selective,” he says.

 

Mr Farnsworth says that a “key part” of its communication with investors is ensuring that L&Q is demonstrating the execution of its strategy.

 

Credit ratings

 

Of course, investors also pay attention to credit ratings.

 

In June last year, S&P Global downgraded L&Q from A- to BBB+. L&Q is currently rated A3 by Moody’s and A by Fitch, after the latter downgraded the group from A+ in October.

 

Mr Farnsworth points out that across the three agencies, L&Q’s average is a single A credit rating, and says that L&Q could still access the capital markets at a “competitive” cost of financing compared to its peer group, but is choosing not to as it does not currently require the financing.

 

He adds that L&Q accepts there is “some market risk” associated with delivering some of its balance sheet review activities, such as selling L&Q Estates and its PRS business, however the landlord is confident that it can execute those strategies and deleverage.

 

Mr Farnsworth emphasises that the G15 landlord prioritises investing to further its charity objectives over and above achieving top credit ratings.

 

“You never want to be sat in this chair overly thinking about the rating agencies. There are other stakeholders out there; the resident is an important stakeholder. If we wanted to chase a single A rating across all of those rating agencies, that might mean that we would choose to invest less in our existing homes, and that’s not a decision that makes sense for L&Q.”

 

He adds that while significant demand for homes continued amid the housing crisis, the sector, including L&Q, will always be an “attractive proposition” for investors.

Development

 

L&Q remains committed to playing a role in solving this housing crisis, although development has been scaled back in favour of investment in existing homes.

 

In March 2021, the landlord embarked on a new five-year corporate strategy focused on investing in existing homes. At the time, it announced that it would cut back its development to around a third of previous ambitions to deliver 3,000 homes a year compared to the 10,000 it had previously aimed for.

 

According to unaudited results for the 2024-25 financial year, the landlord completed 2,316 residential homes in 2024-25 – a fall from 2,955 in 2024, and 4,047 in 2023. The future projected cost of L&Q’s entire development pipeline, which extends until 2039-40, was estimated at £2.1bn, marking a drop from £2.5bn in 2023-24. 

 

Mr Farnsworth says the “fundamental challenge” is that the cost of raising debt is now significantly higher than it was several years ago.

 

“The challenge we face right here today is being able to balance the books so that we can deliver against our primary objective, which is investing in existing homes, and create the financial capacity to build new homes,” Mr Farnsworth says.

 

However, the group “will always have” a role in tackling the housing crisis, he adds.

 

“We will never lose our appetite at L&Q to be a developing housing association, but it has had to be measured over the last few years, and it’s going to continue to have to be measured.”

 

Joint ventures

 

L&Q is looking at “more creative ways” to use its finite capacity and partners’ balance sheets to deliver new homes.

 

In terms of equity investment in development, L&Q favours joint ventures (JVs) in which it shares this investment with a partner. The housing association has a long history of developing through JVs and has previously embarked on deals where it has been the majority partner, as well as those where it has been the minority shareholder.

 

However, the government must also address the subsidy gap for building new affordable homes, which has “significantly increased” and is “huge” in London, Mr Farnsworth says.

 

“HAs need to be more creative to find the capacity, we need the government to offer more attractive sources of funding for affordable housing, and we should be exploring different models of how we can deliver affordable housing,” he says.

 

In the context of the increasing debate over the idea of housing associations managing rather than owning homes, Mr Farnsworth’s view is that management and ownership “go hand in hand”.

 

“There are some significant, strong rationales of why an organisation would want to not only manage assets but also have some ownership of those assets,” he says.

 

“Although just providing pure management to a third party can have some benefits of economies of scale, it doesn’t have benefits in relation to the overall owning of the asset. And therefore, joint ventures make sense because you can share ownership in assets, and that’s something that we’re always keen to pursue.”

 

Being a manager of someone else’s assets is not “attractive” to L&Q at the moment, Mr Farnsworth says. “Attracting sources of finance and equity to sit alongside L&Q is very attractive but we’re not interested in managing assets that we don’t own.”

 

However, Mr Farnsworth says L&Q is working on “lots of ideas” to “keep development going”. These include, on a smaller scale, some pilots where the association is developing for a local authority.

 

“A key part of our plans is, how can we continue to develop at the scale we’ve developed in the past?” Mr Farnsworth says.

 

L&Q remains committed to its aspiration to deliver 3,000 homes a year, as dictated by its current strategy, and will continue to deliver on its existing development commitments, but is not buying new land.

 

“We’d like to be in a position by which we can create the financial capacity to do that,” he says. “But right now, we’ve had to balance the books appropriately, [and] our focus is on existing homes.”

 

Investment in existing homes

 

In 2025-26, for the first in Mr Farnsworth’s memory, the landlord will be investing more in existing homes than it will be in development.

 

The landlord has ambition to use its current deleveraging activities to “supercharge” its 15-year programme of investment in existing homes and drive efficiency.

 

During 2024-25, the housing association invested £372m in its maintenance programme, unaudited results show – a rise from £328m in the previous year.

 

On the phased introduction of Awaab’s Law from October, the housing association has factored into its budgets the part that comes into force this year and can absorb the cost of this, Mr Farnsworth says.

 

This is because the landlord is already doing the majority of these requirements after investing a “significant amount” in its approach to damp and mould.

 

However, an early analysis on the likely cost of complying with the requirements coming through in later years has indicated that it could be an additional “significant” £20m a year, Mr Farnsworth says.

 

“We are forecasting that to have a material increased cost to our reactive service, and that’s primarily due to the timescales by which the works have to be carried out and there will be a significant cost on us and through our supply chain to be able to meet those requirements,” he says.

 

New corporate strategy

 

The current financial year, 2025-26, marks the fifth and final year of the previous ‘Future Shape’ corporate strategy. L&Q is therefore starting to work on its next five-year strategy, which will be concluded over the next 12 months.

 

“It will be an evolution of our existing strategy, with a real focus on a simplified L&Q, a continuing focus on the safety and quality of existing homes and being really clear around our customer offer,” Mr Farnsworth says.

 

“And the voice of the resident is something that I want to make sure absolutely shines through for L&Q and therefore all those trade-off decisions that we make as a business absolutely have to consider the impacts on our residents.”

 

Mr Farnsworth says that despite the “really challenging environment” over the past five years, he believes L&Q today is in a “far better place than we’ve ever been” following the focus of its recent corporate strategy.

 

“I see the sunny uplands are definitely ahead of us. For this year, you’ll see a great set of results for L&Q so we’re definitely heading in the right direction.

 

“There is still a hell of a lot of work to do. But I think as a sector, if we have taken all the punches we’ve taken over the last few years and can still be, broadly speaking, a resilient sector, that means that there are opportunities to build on.”

 

Among these opportunities, Mr Farnsworth would like to see more collaboration in the sector, whether within financing models or procurement.

 

“My sense is we can be more efficient and effective if we all got behind more, bigger solutions for the sector as a whole,” he says.