Thursday, 18 September 2014

Affordable rent homes to count as social housing for loan valuation purposes

Santander delivers borrowing blow

Housing associations may not be able to use ‘affordable rent’ homes to increase their borrowing capacity after a leading lender ordered the properties to be valued at the same level as social housing.

Social homes used as loan security are valued according to their future rental income under the ‘existing use value for social housing’ system.

Landlords had hoped their ability to charge up to 80 per cent of market rents on new homes under the government’s ‘affordable rent’ regime would boost their borrowing capacity by increasing the value of these properties.

The government is also keen for housing associations to borrow as much as comfortably possible to fund new homes.

But at least one key sector lender, Santander, is writing clauses into new loan agreements saying that affordable rent properties will be valued at the same rate as those let at social rents.

According to its 2010 annual report, Santander has a social housing loan portfolio of £9.2 billion.

The clause says properties will be valued using EUVSH system, but ‘with the specific assumption that properties are re-let as social housing, not, for the avoidance of doubt, for affordable rent’.

Patricia Umunna, partner at Winckworth Sherwood, a law firm seeking to get the clause changed on behalf of a housing association, said: ‘This would mean they would not get the same amount of security out of it.’

Robert Grundy, director of Housing Investment Consultancy at Savills, said that for stock let on affordable rents, the impact on EUVSH would vary significantly in different parts of the country, but that values could be as much as doubled in the highest rent areas.

He said, however, that loan valuations in areas with high values tend to adopt a different basis of valuation derived from the market value of the property, and so may be less affected.

Another lawyer who has come across the clauses, but did not wish to be named, said the move could decrease long-term borrowing capacity.
Joseph Carr, finance policy leader at the National Housing Federation, said: ‘This seems simple and crude and does not seem to match future income levels.’

A Santander spokesperson said: ‘Given the ongoing developments around valuation methodologies and outcomes for affordable rented properties, we are asking for new security to be valued applying normal social rented assumptions.

‘We constantly review our criteria and will continue to monitor in line with market developments.’

Adrian Carter, partner at law firm Trowers & Hamlins, said a new level of asset cover, which measures the value of assets needed to borrow a given amount, is likely to be set by the market to take into account affordable rents.

Readers' comments (5)

  • It would seem to be a prudent approach in the light of a weak jobs market and impending housing benefits and overall welfare benefits review squeezing people's ability to may high rents, especially in London and the South-East. This should bring a reality check to some seemingly speculative ventures.

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  • Chris

    This fits with the Minister's claim that those who are vulnerable or in need will not be forced to pay his affordable rents, but continue to be charged rents that they can more likely afford. Lending needs to be based on realistic assumptions if we are not to continue the chaos of Thatcherism/Reaganomics, so lending on an assumed social rent is correct. No doubt the Minister will agree with lenders and admit his policy has failed before it has begun.

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  • Alpha One


    A property is worth the rent you can charge on it, if you have an affordable rent then you can charge more than you could under a social rent, ergo the property is worth more than Satander says it is.

    Essentially this is just Santander gaining a more valuable asset for a lower cost.

    But we shouldn't be surprised with Santander, since they haven't got a clue that they serve us, not us them.

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  • Chris

    Read it again Alpha - they are saying that the rent the estimate will be charged will be closer to the social affordability level rather than the market-near-max preferred by the Minister.

    This is pragmatic of the bank (and I'm no bank supporter, Spanish or otherwise) because, as the Minister says, where a person is vulnerable they will not be forced to pay the higher rents. As the Minister also states that all affordable rented housing should be for vulnerable people then of course it will most likely be rented at a social level - otherwise the Minister is lying, and that could not be the case.

    The second reason why the bank is being realistic is in terms of anticipating the current policy as a failure and a future, more affordable, renting policy being brought in by Government within the 10-20 year lending period.

    If only banks had been so pragmatic previously we may not be in such a poor state - however they were not and we are. Unless the elite are going to hand back the wealth they have amassed from us over the past years of exploitation, we will still have to either meet the bill or see the current economic framework collapse.

    This is the sort of thing that keeps me awake at night, celebrating!

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  • Melvin Bone

    Santander seem to have this one right. Better than overvaluing property at any rate...

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