Trowers & Hamlins

Registered Social Landlords (RSLs) need to secure private financing from a far broader spectrum of lenders as UK banks continue to shore up their capital bases and push for higher margins on their lending, warns City law firm Trowers & Hamlins.

Last year 75% of RSLs’ new borrowing came from just five lenders – Nationwide Building Society, Abbey, Barclays, Royal Bank of Scotland and Lloyds TSB.

It is estimated that RSLs’ outstanding loans will need to reach £45billion by 2011, meaning they will need to secure £4.6billion in new borrowing every year compared to the current £2.2billion.

Adrian Carter, Head of Banking and Finance, of Trowers & Hamlins comments: “Banks have been the major suppliers of much needed private funding to RSLs in recent years.”

“The credit crunch has highlighted the risk of having too narrow a base of lenders. UK banks are now looking for high margin lending opportunities. The market is reporting a borrowing slowdown to the social housing sector as these traditional lenders make less funding available for RSLs and push hard to increase their margins.”

Trowers & Hamlins says that the Housing Corporation (the sector’s regulator) has been warning housing associations against relying too heavily on this source of funding for some time but that progress has been slow.

RSLs should be looking at Gulf and other sovereign wealth funds as an alternative

Trowers & Hamlins suggests that housing associations should be marketing their debt to new sources of capital such as sovereign wealth funds and other Gulf based institutions.

Adrian Carter says that some progress is being made in this area, for example Europe Arab Bank has announced it is in talks with RSLs to enter the social housing lending sector, but that much more will need to be done if aggressive targets on house building are to be met.

Says Adrian Carter: “The long term returns and perceived low risks that lending to the social housing sector offers closely match the requirements of sovereign investors who have traditionally invested in US government bonds but are now looking at a wider range of long term and low risk investments.”
 
“Housing associations are turning to alternative sources of private financing but the levels of funding they are currently securing is not yet nearly enough to provide the homes they need to build at affordable rents.”

“RSLs are under pressure to help the Government deliver on its ambitious house building commitments. It is essential that in order to keep pace with these plans they have sufficient access to reasonably priced financing in place now.”