MHCLG confirms go ahead for policy first set out in State of the Capital report ahead of further detail on affordable housebuilding acceleration package later today
The government has announced its £2.5bn low cost loan fund for social housing providers will have a nominal interest rate of just 0.1%.
This confirms the government is adopting an “amortised grant” or “recycled subsidy” model first recommended by Housing Today and the G15 group of London housing associations last year.
Paul Hackett, chief executive of Southern Housing, said: ”We are delighted that the government confirmed a nominal interest rate of 0.1%. This is very much what we’ve been arguing for and was the model put forward in the State of the Capital report in March 2025, jointly produced by Housing Today and the G15.
”We believe this will make a difference to associations with constrained EBITDA-MRI cash interest cover.”
Under this model, providers receive higher “amortised grant” (or a loan with zero or nominal interest) upfront which is then repaid at a later stage. This reduces the amount of private borrowing the housing association needs to take on to fund development. This keeps interest payments lower, meaning housing associations can widen their interest cover ratio, which measures debt to income and is currently constrained for many providers, particularly in London. The repayable nature of the funding could also allow the subsidy to be classified as an asset on the public balance sheet rather than as direct expenditure.
A key question outstanding is whether providers will be allowed to use the loans to “top up” conventional grant or whether they will need to use them separately as an alternative. Using them as a top-up would allow the £2.5bn to go further.
Housing minister Matthew Pennycook has ruled out allowing councils to use the model due to “fiscal considerations”, despite new council leaders membership body Association of Directors of Housing (AdOH) urging government to do so.
The measure is one of several trailed in a midnight press notice which was light on detail ahead of further announcements from MHCLG later today (Wednesday).
Other policies trailed overnight include an extra £3.5m for the government’s Council Housing Building Support Fund, on top of £5.5m provided last year.
MHCLG is also expected to confirm more details of social housing rent convergence later today. At the time of writing, details had not been officially released, but the Local Government Association put out an embargoed statement welcoming convergence at a £2 weekly premium over and above CPI plus 1%, but with a delayed implementation. An MHCLG spokesperson declined to confirm whether this will be the policy.
At-a-glance
The government has trailed a package of policies to “accelerate accelerate social and affordable housebuilding”. Many of these were light on detail in the advance press notice but more information is expected to be published on Wednesday.
MHCLG said it will be:
- Making £2.5bn in loans available to private registered providers of social housing at 0.1% interest
- Allocating an extra £3.5m through the Council Housebuilding Support Fund for councils to draw up plans for thousands more council homes. This is alongside the £5.5m already provided last year.
- Increasing the Housing Revenue Account threshold – a ringfenced account for income and spending on councils’ own housing stock – from 200 to 1,000 homes.
- Extending the discounted borrowing rate for council housebuilding from the government’s lending facility, the Public Works Loan Board
- Publishing details of “emergency measures” to get the Section 106 market moving again - including allowing the tenure of uncontracted section 106 homes to be varied where no affordable housing provider is willing to buy
- Announcing the process to agree a compact with the social housing sector, urging all providers to come forward with ambitious pledges to ramp up housing supply.
- Setting up a new social housing taskforce, made up of key players from the sector, to hold the sector to account on delivery
- Publishing detail about the new Decent Homes Standard
- Publishing detail about the Minimum Energy Efficiency Requirements
Housing Today has also heard from several sources the government is set to announce no convergence measures in 2026/27, rising to 1% the following year and then 2% the year after that.
MHCLG confirmed it is increasing the Housing Revenue Account threshold from 200 to 1,000 homes. This means fewer councils will be required to set up a separate financial management account for its council housing. The District Councils Network (DCN) has previously estimated raising this threshold could unlock 88,000 homes.
Government said it will set up a social housing taskforce, made up of sector figures to “hold the sector to account” for delivery. The department said it wishes to agree a “compact” with the social housing sector where providers make specific delivery pledges.
MHCLG said it will allow tenure of uncontracted section 106 homes to be varied where no affordable housing provider is willing to buy the homes. It said this approach will be “time-limited”.
Steve Reed, housing secretary said: ”I’m calling on everyone who has a part to play to build, baby, build.”
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 sheet 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. One of these - an “amortised grant” model to reduce upfront commercial borrowing for housing association development - has since been adopted by government.
The report is written by Carl Brown of Housing Today, in collaboration with the G15.
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