For many years, lenders have successfully contributed to the funding of housing associations, and we are working to help ensure that they are able to continue to do so – and that funding remains a relatively low-risk commitment.
Crucial in continuing to maintain this will be the role of the regulator of the sector, the Tenants Services Authority (TSA). We are working closely with this new body to try to reinforce a regulatory regime that underpins the financial viability of the social housing sector, now and in the future.
Working with the TSA and our own members, we have already reached broad agreement on an informal protocol for dealing with any housing association that might need rescuing from financial difficulties. We are keen to work with the regulator as it ensures that the system is robust enough to prevent the insolvency of any individual association or group.
One of the difficulties for all those involved in funding housing associations is that a combination of the current shortage and higher cost of funding for lenders, the increased pressures on them to maintain liquidity and the exceptionally long-term nature of lending to associations are all putting pressure on lenders to charge higher rates than they have done historically.
But while this is inevitable and unavoidable, a positive outcome is that lending rates that more realistically reflect risk are encouraging some lenders to consider entering or re-entering the market.
With the encouragement of the government, some housing associations have used a model of cross-subsidy to deliver affordable housing. With the help of private finance, they have developed properties both for sale and for rent, with revenue from those sold on the open market used to subsidise the renting of others at affordable levels.
But in the current housing market downturn, this model is not workable and some associations have now been left with large numbers of unsold properties.
We welcome the proactive approach of the Homes and Communities Agency (HCA) in supporting housing associations as they convert the tenure of these properties. The HCA has also shown greater flexibility in grant payments, which will enable mothballed schemes to go ahead. We would urge, however, that the “flexible tenure” approach (that is, the conversion of properties to subsidised rent or to rent with the option of moving to low-cost home-ownership) is matched with work to track demand for these products in the medium to longer term.
Elsewhere in this issue, we explain why lenders prefer the shared equity model of low-cost home-ownership (where a borrower takes out a mortgage for, say, 75% of the price of the property and has an equity loan for the other 25%) rather than shared ownership (where the borrower buys 75% of the property leasehold and pays rent for the other 25% to the housing association).
Any expansion of shared ownership is unlikely in current market conditions. We are therefore encouraging the government to provide more direct funding for housing associations wanting to increase their stock of properties for social renting, and there are signs that this will happen – certainly, for the next two years.
We have also identified problems for lenders with the standard shared ownership lease which, if rectified, would encourage more lenders to remain in the market and to offer loans on more favourable terms than might otherwise be the case.
We continue to believe that the housing association sector offers good, low-risk funding opportunities for lenders and is well placed to weather the current housing market downturn. We are committed to reinforcing the need for effective regulation and to working with stakeholders so that lenders can continue to provide stable, appropriately priced funding for the sector into the future.
