On 17 June the Government announced its plans to establish a new subsidiary of Homes England, the National Housing Bank, with up to £22 billion of financial capacity to be deployed over a 10-year period.
The approach is intended to allow Homes England the flexibility to issue guarantees directly, provide a wider range of products and make long term investments to support housing. The stated aim is that the bank will support the implementation of the spending review package to deliver large, transformative and otherwise unviable projects.
Of most interest to housing associations will be the £2.5bn of lower interest cost loans the Housing Bank will be tasked with providing to support the development of more social and affordable homes. Whilst access to debt finance has never really been a significant problem for most registered affordable housing providers, the costs of that debt have increased markedly in recent years. Many providers have decided to rely on shorter term finance from bank funders rather than locking in (generally speaking) long term fixed rate debt with higher interest costs. If, as seems likely, the loan funding will be offered only with conditions around additional building (as seems highly likely as the government seeks to deliver its new homes targets), it may not be suitable for all.
Alongside the news of the National Housing Bank, social housing providers will also now have access to the building safety fund. Remediation and fire safety has of course been a spending priority for may providers, so this should ease balance sheet pressures and may result in less strain on certain interest coverage metrics.
The consultation on rent convergence (confirmed earlier this week to be starting later this month) is also welcome and something many larger housing associations have been calling for. The results of that, and therefore any firm commitments to implement it, remain pending. If this was implemented as policy, convergence could bring significant additional income for housing associations by allowing the raising of historically set rents where these are below the social rent formula.
The pinch point for many social housing providers is likely to remain in the shorter term, as whilst the 10 year settlement may provide some business planning certainty, most providers would have been expecting (and would have built into their plans) the current settlement at CPI+1 over the nearer term. Much of the additional funding announced by the government also falls to be provided in later years. This may give boards more confidence to take on projects and provide some stability in business planning, but it seems unlikely to be transformational in the immediate future. Should Labour not be re-elected, this also means that the commitments of one party would not be given the same weight or priority by an incoming government, so uncertainty past the end of the parliament unfortunately remains.
All that said, ratings agencies have taken the view that the measures are credit positive for the sector as they support balance sheet resilience, which is welcome news.
