SAFE AS HOUSES? NOT FOR THE LENDERS
WHY THE HOUSING BILL IS UNDERGOING REVISION
Wednesday 20 March 1996
Lenders were appalled by the proposals. By restricting transfers to registered social landlords, the full market price for assets might not have been realised, while lenders would have been prevented from taking possession of the assets that loans were secured against.
The Department of the Environment is now committed to redrafting the offending clauses, in line with compromise proposals drawn up by the Bradford and Bingley Building Society. "Our counter proposals provide housing associations with a 28-day breathing space to come up with a solution to keep assets within the social-housing sector, as opposed to the solution proposed by other lenders to sell into the open market," said Nigel Straw, the housing development manger with the Bradford and Bingley.
"Lenders would be committed to a moratorium for 28 days while an association gets itself together," added Mr Straw. "That is the fundamental difference from the Bill, where lenders' rights were trampled upon."
Although all parties seem happy with this solution, serious damage has already been done. Lenders are openly saying that they are much less willing to lend to the sector. Several large loans provisionally arranged for housing associations have now been put on hold, some are expected to fall through and hundreds of millions of pounds worth of planned developments may have to be abandoned.
Lenders argue that the Government's proposals have undermined years of co-operation between the private sector and housing bodies. "The Housing Corporation and housing associations have done everything possible to persuade lenders to lower their security requirements," said Clive Barnett, director of housing finance at NatWest Markets.
"The proposals would have changed the basis of lending. We will now have to review our sector exposure, and we are the biggest arrangers of loans in the sector. Some people will now be put off lending to the sector, irrespective of what becomes of this. Damage has been done and will not be undone in the short term," Mr Barnett added.
For the lenders, arrangements for the transfer of assets is merely the latest factor that has undermined their confidence in lending to housing associations. More than 60 per cent of tenants are in receipt of housing benefit, and continuing reform of the benefit has raised fears among lenders that there could be a reduction in income and an increase in arrears.
And last autumn's Budget had proposed ending what is, in effect, a tax exemption for non-charitable housing associations, to allow them to compete on an equal basis with associations that are registered charities. Implementation has been delayed, but the threat remains. The Department of the Environment intends to proceed with the reform as part of a further Housing Bill, which would also allow the private sector to compete for grants to build and manage social housing, at the first legislative opportunity.
These factors together have made lenders wary about associations. It is suddenly clearer than ever that the sector is vulnerable to the vagaries of politics, which can be even more unpredictable than the market. Lenders had always assumed that loans to associations were largely risk-free, as the Housing Corporation was seen effectively to underwrite bad debts in the sector. This assumption, too, is being questioned.
It is a situation that is worrying the Housing Corporation. A spokeswoman said: "We regret any loss of confidence in the sector, but we think there are a lot of reasons to be confident, as housing associations still represent a long-term good investment."
The problem has been exercising minds at this week's National Federation of Housing Associations conference for finance directors. As John Bryant, NFHA policy officer, said: "The Government sees housing associations as one of its great successes, in getting private finance involved in social housing, and producing much more housing than would have been the case with just public money. Now we see this beginning to be put in question by the Government's own actions."
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