In recent months there have been loud and numerous calls for innovative finance models to be developed in order to release funding for the social housing sector. Thus, many will be interested in last week's announcement of a partnership between the National Wealth Fund and Barclays and Lloyds respectively to support the sector's net zero ambitions.
The partnership promises to facilitate "flexible and competitively priced loans" by Barclays and Lloyds, partially backed by guarantees from the National Wealth Fund, to housing associations across Britain for the purpose of retrofitting to upgrade the energy efficiency of their homes.
What is the National Wealth Fund?
The National Wealth Fund (NWF) is an arm's length institution, to be created and funded by the UK Government to enable the UK Government to prioritise investment in key industries. The aim of the NWF is to catalyse private sector funding for priority projects that might not otherwise be able to access sufficient funding. The NWF will subsume the previous UK Infrastructure Bank with an expanded mandate to support broader range of sectors and with more capital, resources and finance structure options available to it. This is the first investment since the announcement that the UK Investment Bank is to become the NWF.
The NWF says that its new remit includes measures to improve financing to the social housing sector, which is a fundamental pillar of the Government's warm homes plan. It is encouraging that the Government's focus on social housing appears to be more than lip service; this deal seems to indicate that they are committed to finding tangible ways of unlocking funding that the sector so desperately needs in order to contribute to the net zero journey. However, with the National Housing Federation estimating that close to £36 billion of investment will be needed to fully decarbonise housing association properties, it represents only a small proportion of the funding required.
Amount available?
Overall the NWF will have £27.8 billion at its disposal, of which £23.8 billion will be allocated to corporate private sector financing (£13.8 billon for debt and equity investments and £10 billion of guarantees) and £4 billion for advisory and lending to local authorities.
Under this first deal, £750 million of guarantees have been provided to support £1 billion of lending to the social housing sector. Lloyds will make loans of £500 million in total on a shorter term basis (backed by a NWF guarantee of £400 million) while Barclays will offer £500 million of mid to long duration loans (backed by a NWF guarantee of £350 million).
The NWF has also announced that it has reached agreement in principle with The Housing Finance Corporation (THFC) for a further £150 million of funding. THFC accesses longer term funding through the bond markets which is passes on through loans exclusively to social housing providers. We await further details of the THFC / NWF scheme in due course.
Who will be able to apply?
The NWF deals with Barclays and Lloyds will facilitate loans to social housing registered providers in the UK. Further details regarding who is eligible and how to apply have not yet been published. It will be interesting to know whether the loans may be on-lent to, or directly accessed by, special purpose subsidiaries or joint ventures of housing associations set up for retrofitting purposes.
Loan terms
These will be "impact loans", allocated to funding retrofit works on existing housing stock to achieve energy efficiency upgrades. We await details of the other terms and conditions, including security and financial covenants, that will apply to these loans. We have acted for several housing associations on existing government-backed lending schemes such as the Affordable Homes Guarantee Scheme and, usually, a guarantee will reduce the cost of borrowing and/or the security requirement.
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