Friday, 27 February 2015

Regular repricing spells the end for loans of more than 25 years

End of the line for long-term lending

Long-term lending to the social housing sector has been consigned to history because the last major banks to provide loans of up to 25 years will no longer do so without regular repricing opportunities.

Santander and Royal Bank of Scotland were the last of the major lenders to housing associations to offer loans with a maturity of 25 or more years, but both have effectively taken the decision to withdraw the product in recent weeks.

Spanish-owned Santander, which has lent around £10 billion to the sector over 20 years, will continue to provide long-term loans but will factor in regular repricing windows - typically at five-year intervals - rendering the loans short-term from a borrower’s point of view.

It is understood that Royal Bank of Scotland, which has a social housing loan book of around £8 billion, has taken a similar view and will include clauses that allow it to renegotiate terms at regular intervals.

One senior banker said: ‘The banking market is struggling to provide long-term money and if it is on offer it will reflect market conditions in terms of pricing and [having] safety nets.’ He added that housing associations ‘have been an anomaly’ for some time in that they had been able to access long-term bank debt at low interest rates for longer than most sectors. ‘They have got to take some of the risk of the changes to funding costs,’ he said.

Before the start of the credit crunch in 2007, housing associations could borrow cash for 25 or 30 years at rates as low as 20 basis points over libor (the inter-bank lending rate). Today, according to another banker, the rate for long-term loans is at least 20 times higher.

Paul Stevens, Santander’s head of social housing, said: ‘The sector has been in a privileged position for the best part of 20 years now, so we are seeing a correction towards the way that banks and capital markets usually work in that the banks provide the short-term finance and the capital markets the long-term.

‘We still see this lending as a long-term commitment but we need to retain some options because there is still so much volatility in funding costs.’

The Co-Operative Bank is also reviewing its lending policies, although it has not provided any long-term financing for several months.

‘The long-term bank funding market has now died,’ said Andrew Hart, a managing director at consultancy Trade Risks.

But he added: ‘It is extremely important that landlords continue to borrow long term so as to continue to match the long-term nature of their assets for as long as such funding is available.’

Mark Washer, finance director at Affinity Sutton, said landlords had to now look to the bond market for long-term funding. He said: ‘The banks have very clearly gone away so it’s got to be the capital market or anyone else that can be identified.’

RBS declined to comment.

Readers' comments (11)

  • Banks stop lending to individual owner occupiers.
    Banks stop lending to industry and manufacturers.
    Banks stop providing local services.
    Banks stop paying taxes.
    Banks stop lending to housing associations.
    Banks DONT stop moaning about the evil public sector with its 'bloated' deficits. The same public sector that has bailed them out to the tune of £1.2 trillion.

    Would some one please tell me why we tolerate, nay fawn over and grovel in front of, these parasites?

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  • Gresley

    Minor correction - It was not the public sector that bailed out the banks but the taxpayer - the same tax-payer that pays the salaries and bloated pensions of the public sector.

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  • F451

    Would some one please tell me why we tolerate, nay fawn over and grovel in front of, these parasites?

    They are owned by the people who own the levers of power, manipulate the media and control our politicians - they are the people who are now imposing themselves as the governments of nations without an election nor common consent - they are the mysterious they referred to in many fora, and now they are becoming desperate before the crisis of their own making.

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  • F451

    A touch of paranoia methinks.

    If you havnt got anything useful to say stay stum.

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  • F451

    I take it you thought that was useful Harry.

    Yes - of course, silly me, the Banks are owned by the most wonderful philanthropists the world has ever seen, who's actions have built a sustainable utopia, the fruits of which we all enjoy with gaye abandon.

    I think the previous description is closer to the mark Harry, and do not believe it is all some conspiracy, just simple power lust.

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  • Maybe it's just sensible behaviour.

    Current 'interest rates' are extremely low. No-one is prepared to deposit money with anyone at less than 5% for 25 years, so why should banks lend it back out at that rate for that long.

    I'm no apologist for banks, but this is how we got in the mess in the first place - borrowing short and lending long, so no sensible commercial organisation would act in that way.

    If the BoE was prepared to lend money to the retail market at 1 - 2% (not index linked but fixed) for 25 years, then OK, but otherwise, it's a non-starter.

    It's a straightforward political choice for HMG to make money available to the Bank of England at that rate. If not, then 5 year reviews are eminently sensible.

    Don't blame the messengers, Chris

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  • F451

    It was not the money loaned to housing associations that was the problem Neil - as you well know so why hide behind the mask of the messenger.

    The lending to individuals who could not afford the borrowing, the gambling on the financial products that we as unstable as they were unsuitable, the gambling on the projection of that gambling, and the lack of regulation to ensure security is what led to the crash Neil - do you remember.

    If not the owners Neil, who is to blame?

    Do you deny that the Government's of Greece and soon Italy exist outside of democratic choice - and indeed across North Africa democratic governments remain absent?

    Is there not a visible desparation in economists currently?

    What exactly should I not be pointing out, in your opinon Neil?

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  • I do remember quite well what has caused much of the problem, but the article is about how the banks will not now lend long term to anyone (not just RSLs).

    So to your particular points:
    'the lack of regulation to ensure security'.... could be taken the other way as the lack of self control in the banks. Surely they are big boys..they got carried away and to be sure we're suffering for it...but now they're returning to 'prudent' lending policies - if youu can borrow for 2% and loan for 5% - that's good business. It avoids another risk.

    'If not the owners Neil, who is to blame?' - well ultimately us by getting caught up and allowing it. Unfortunately we're fickle creatures - and we forget the ageless rules of 'if something looks too good to be true, it usually is' and 'caveat emptor' and when it is reinforced daily by the 'get rich' tripe promulgated by supposed TV 'talent shows', obscene 'salaries' paid to footballers and the garbage throughout the print media, we follow along. The concept of 'Bread and Circuses' may be 2000 years old (Juvenal?) but it remain axiomatic.

    'Do you deny that the Government's of Greece and soon Italy exist outside of democratic choice - and indeed across North Africa democratic governments remain absent?' - no, but this is about Santander and RBS' lending policies so I will refrain from extending the discussion - albeit it is Friday afternoon and suited to 3 hours discussing the propblems down the pub rather than going back to work.

    'Is there not a visible desparation in economists currently' - no. they're lapping it up. 3 scientists stuck on a desert island with a can of beans: chemist - create a compound from acid in the fruit and dissolve the sealing: physicist - heat, cool, heat, cool etc - eventually can will open; economist - assume a can opener.

    'What exactly should I not be pointing out' - that the banks, for once, are behaving prudently and sensibly and in OUR long term interest

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  • Chris Webb

    Perhaps the answer between the two extremes therefore would be for 'the people' who allowed the banks to misbehave, and who's money the banks have, should withdraw all of their money and lend it directly to the organisation and causes that they themselves believe worthy, and on terms that they consider fair.

    But then I suppose the powerless banks might object, slightly.

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  • >>TWIMC

    Maybe there needs to be some form of intermediary that collects the deposits and lends them out to people to help them buy their own property. A sort of mutual society to help home buying. I know - we could call them Buildings Societies!

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