Wednesday, 01 April 2015

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.

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