Loans sell-off to raise pounds 1.2bn

Government pressed to speed up Housing Corporation deal
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PLANS are well advanced for selling off the Housing Corporation's pounds 1.2bn loan portfolio, a privatisation that could finance a penny off income tax.

Several banks and building societies have told the Government they are keen to buy the loan book and want the sale speeded up. The Halifax and Nationwide building societies are among the front runners. NatWest and Barclays are also said to be interested.

The loan book consists of 50,000 loan arrangements of 60 years' duration made to around 1,000 housing associations.

The Treasury and the Housing Corporation have been taking informal soundings in the City for several months to establish if institutions were keen to buy the portfolio, and if so at what price. However, no financial adviser has yet been appointed for the privatisation.

Some potential buyers are irritated that the sale has not proceeded more quickly. Both the Treasury and the Housing Corporation are pushing for a quick sale, but a heavy workload at the Department of the Environment, which funds the Corporation, has slowed progress.

Whitehall sources said that William Waldegrave, Chief Secretary to the Treasury, has written to John Gummer, the En- vironment Secretary, urging him to speed up the sale.

From 1974 to 1988, developments arranged by housing associations were financed by grants and loans from the Housing Corporation, a government- funded quango. Since 1988, however, the loans have been financed by the private sector, supported by grants only from the corporation.

Most housing associations are regarded as an extremely good commercial risk, though some mortgage lenders have been warning for the past year about the possible collapse of less well managed ones.

Mike Lazenby, managing director of UCB Home Loans, a subsidiary of Nationwide, said: "Nationwide made an informal approach more than a year ago to acquire the portfolio. Unfortunately it has not been able to happen."

Potential buyers are understood to want a discount of pounds 85m off the book value, which would represent their margin on the loans. The Housing Corporation borrowed the money from the National Loans Fund at gilts rates at a time of high interest, lending on to associations at the same rates.

Pete Williams, head of research at the Council of Mortgage Lenders, said: "It has gone out to tender in the sense that the Government has invited people to put in proposals."

Housing associations are also keen to see the sale go ahead. Chris Cantwell, finance policy manager for the National Federation of Housing Associations, said: "We don't know much about what is going on, but we have no major concerns. It might make life easier. There are complications dealing with the Housing Corporation."

Several associations have wanted to pay off their loans early, but have been told by the corporation that there would be a financial penalty on them doing so. The associations hope that a disposal to the private sector would lead to a more flexible approach.

Steve Preston, director of finance at the Housing Corporation, said: "These loans have been around for a long time, and we have always talked about securing capital receipts by disposal. About pounds 5m a year is being repaid on them. If they were sold off in one lot, there would be a capital receipt which would strengthen our negotiating position with the Treasury.

"The Treasury is looking to reduce the PSBR, and this would be one way of doing that. It is now up to politicians to decide if they want to do it, and it is not clear that they do."