Homes England and MHCLG working up plan to adopt Housing Today and G15’s amortised grant funding model
Homes England and the Ministry of Housing, Communites and Local Government (MHCLG) are continuing to work up a plan to adopt a new funding model first proposed by Housing Today and the G15 group of housing associations in London.
Officials are exploring how the £2.5bn low-interest loans scheme announced in June’s spending review could work. Housing Today understands all of the money is likely to be used for amortised grant, a model under which housing associations receive higher per unit payments upfront for development and then repay the money at a later stage at a negligible rate of interest.
The model, recommended in Housing Today and G15’s first annual State of the Capital report, is intended to help housing associations build in the short-term without having to borrow as much commercially. It is understood officials are considering applying an interest rate of 0.1%, which would enable government to class the payments as an investment rather than debt on the public balance sheet.
The G15 group is anxious however that the government and Homes England provide clarity on how the loan scheme will work soon so providers can factor the low-interest payments into their bids under the new £39bn Social and Affordable Homes Programme (SAHP). The prospectus for the new programme is expected to be published in the Autumn.
What is amortised grant?
The amortised grant model is intended to help housing associations, particularly London, who are facing short-term balance sheet constraints.
Due to inflation and building safety costs, many landlords in London have seen their EBITDA-MRI interest cover deteriorate. Interest cover measures debt to income and is seen as a measure of financial capacity.
Several G15 landlords are seeking to widen their interest cover by reducing their debt costs, so are scaling back development as they borrow commercially to build new homes. In the medium-term landlords expect their interest cover to widen again, as a result of efficiencies and building safety costs reducing, but in the immediate term they are constrained.
Receiving a higher per unit payment through amortised grant could help keep interest costs lower, meaning housing associations can build more in the immediate term without widening their EBITDA_MRI cash interest cover ratio.
Ian McDermott, chief executive of Peabody and chair of the G15, said: “For housing associations in London, who have quite specific financial constraints, the government’s planned £2.5bn low-interest loan fund could mean we’re able to get building again much more quickly.
“We’re keen to work with government on shaping the solution, but we do need urgent clarity on the detail so this intent can translate into delivery. With the new programme prospectus about to be published, it’s vital that the loan fund is aligned - so we have the confidence to factor it into our funding bids.”
A spokesperson for the Greater London Authority, which will administer SAHP in the capital, said: “We welcome the £2.5 billion commitment announced in the spending review and recognise that low cost loans could address some of the capacity constraints in the sector and support overall supply if designed appropriately.”
A Homes England spokesperson said the agency is not in a position to comment as the scheme is still being finalised. MHCLG was approached for comment.
Housing Today and G15’s State of the Capital report
Providing new social tenancies for the 323,800 households on London’s waiting lists would inject at least an additional £7.7bn a year into London and the UK’s economy.
However, while social housing providers and ministers are both aware of the need for more affordable housing, both housing associations and the government have balance sheets constraints.
This inaugural State of the Capital report, produced by Housing Today in partnership with G15, looks at several ideas that could be adopted to help the sector build much-needed affordable housing in London during these difficult times.
The report is written by Carl Brown of Housing Today, in collaboration with the G15.
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