EU bank crisis hits landlords’ lending
The ability of housing associations to raise fund in the future has come under threat from the European banking crisis.
The housing sector was hit by a double whammy last week as several of its major UK lenders had their credit rating downgraded, while Franco-Belgian bank Dexia was broken up and partly nationalised after its share price plummeted as it struggled to raise new funds.
This prompted concern that borrowers may be unable to access existing loan facilities.
Law firm Devonshires last week urged Dexia’s borrowers to draw down unused loan commitments amid fears that the bank’s liquidity was under threat because of the need to retain more capital and the difficulty of obtaining it from other banks.
‘If I had any undrawn facilities there, I’d be worried about them,’ said a finance director at one of the G15 group of London housing associations.
Dexia bought Bradford & Bingley’s social housing loan book for £2.2 billion in 2007 to become one of the largest overseas lenders to the sector. However, it has not issued new loans to housing associations since 2008.
Credit ratings agency Moody’s added to borrowers’ concerns by downgrading 12 UK banks, meaning that their creditworthiness was deemed to have diminished and, in turn, pushing up the price they pay to borrow cash.
Among the dozen were some of the biggest lenders to housing associations, including Lloyds TSB, the Co-operative Bank, Nationwide, Royal Bank of Scotland and Santander. RBS and Nationwide were downgraded by two levels and Lloyds TSB and Santander by one level.
Newcastle Building Society, which is currently engaged in a legal battle as it seeks to invoke clauses that would allow it to renegotiate the terms of existing loans to housing providers, was also downgraded from Baa2 to Ba3 - a four notch downgrade.
‘It can only be bad news for the sector’, said Chris Wilson, head of social housing at global accountancy firm KPMG. ‘This will just make it more expensive for [landlords to access] new lending.
‘The bond market is only available for a certain scale of housing association, so this will only push others to be more creative about where they get funds from.’
Joseph Carr, finance policy leader at the National Housing Federation said: ‘If the cost of funding increases, then [the banks] might look to pass that on to our members.’
However, City watchers said that the danger of lenders other than Newcastle attempting to re-price existing loans because of the increased cost of raising funds was minimal.