CML conference looks at lenders and social housing

The chief executive of the Homes & Communities Agency (HCA), Sir Bob Kerslake, welcomed recent signs of a slowdown in the rate of decline of the housing market but urged delegates, including policy-makers as well as representatives of lenders, housing associations and developers, to face the reality that the full effect of the wider economic downturn was still to come.

Addressing the conference, he said that market conditions would be crucial in using his budget of £17.3 billion, for the period 2008-11, to lever in private investment. The key priority for his teams in the year ahead was to respond to the market downturn. New teams had been set up within the HCA to focus on its recently launched kickstart housing delivery programme and new funding models.

Lenders and social housing

Lenders’ behaviour was highlighted as the biggest single factor in delivering the HCA’s goals on housing and regeneration. It was also clear that from the perspective of the Tenants Services Authority (TSA), the agency set up to regulate housing associations, working closely with lenders had helped the sector avoid the business failures seen in other parts of the economy.

TSA chief executive Peter Marsh described how 93% of the borrowing needed in the next 12 months was already in place. Meanwhile, the recent threat caused by margin calls on swaps in the short term had been mitigated by many of these being incorporated into loan agreements that can be repaid over a longer period of time.

This spirit of close working was the theme of the keynote address by Iain Wright, Parliamentary under-secretary of state at the Department for Communities and Local Government. The junior minister for housing congratulated lenders for their commitment to the affordable housing sector.

Responding to a question on the need for stronger government leadership on future housing market and tenure policy, the minister referred to previous work jointly undertaken with the CML at the onset of the credit crunch. He asked to meet representatives of the CML and individual lenders in the next few weeks, and we are now trying to finalise a date for the meeting with the minister.

Investment opportunities

Many speakers referred to the opportunities for investment offered by the affordable housing sector. Peter Marsh described strong, consistent returns that were attractive to a range of funders, including covered bond houses, pension funds, lenders, including banks and building societies – some now returning to the sector – and insurance firms.

Limited use of the capital markets by housing associations was seen as a lost opportunity, both for the sector and for investors. One delegate suggested, for example, that capital markets provided only 8.5% of total private finance for housing associations, compared to 84% for utility companies.

A session on capital markets funding given by the managing director of global infrastructure at RBC Capital Markets London, Henrietta Podd, concluded that the affordable housing sector would increasingly need to look to the bond markets for funding. Its ability to access the markets would have the effect of encouraging bank lending in the longer term.

Regulation reduces risk

The TSA has increased its focus on the regulation of financial viability and governance of housing associations in recent months and, through quick and targeted action, has supported the sector and helped it to meet the challenges brought about by the recession. Housing associations have suffered from falling receipts from sales through shared-ownership schemes, as well as new funding becoming scarcer and more expensive.

Under the strong regulation of the TSA, the sector has re-aligned its development programme, re-balanced tenures and continued to build even when private developers have pulled back. Stewart Baseley, executive chairman of the Home Builders Federation (HBF), highlighted a difficult picture for his members, with a dramatic reduction in funding continuing to decimate the ability to invest in land and in the workforce needed to deliver the new housing of the future.

Experts from both the housing and finance sectors agreed with academics that the key concern was not the viability of affordable housing providers but a loss of confidence in the sector and a slowdown in activity. This would slow both the rate of housing market recovery generally and efforts to get developments going again by bringing forward public investment.

First-time buyers

As the housing sector and policymakers search for a new model to provide affordable access to home-ownership, particularly when there is a revival of interest from first-time buyers, the conference confirmed that current housing and economic conditions continue to dampen the supply of lending to this group of mortgage customers.

Providing an insight from a lender perspective, Phil Jenks, the former chief operating officer of mortgage business at Halifax and now an independent consultant, stressed that falling house prices continue to underpin lenders’ concerns for supporting low-cost initiatives requiring higher loan-to-value lending.

Bringing back lender support would, in his opinion, need an overall plan and vision which fits the market context, as well as a small number of schemes, based around shared equity, to deliver greater simplicity and lower risk. A recent issue of this newsletter set out our lobbying of government on reform of low-cost home-ownership products.

The debate for the conference’s final panel session saw Professor Christine Whitehead, of the London School of Economics, Piers Williamson, the chief executive of The Housing Finance Corporation, independent housing consultant Rachel Terry and Phil Jenks give their views on the role of affordable housing and intermediate tenure in the future. They agreed that a national approach was needed with much better availability and exchange of data before any assumption of widespread lender support.