Legal & General to lend to social landlords
One of the UK’s biggest insurance companies is stepping in to provide up to 50-year loans to housing associations in order to fill the long-term lending void left by banks.
Legal & General is preparing to lend potentially billions of pounds to social landlords at a time when most banks are trying to reduce their exposure to the housing sector.
The asset management arm of the insurance giant said it will be able to provide loans to associations on terms of up to 50 years at fixed interest rates rather than the changing rate of libor, the cost of interbank lending.
The last UK banks to offer long-term 25-year loans effectively withdrew from the social housing market in November because it was no longer viable for them to do so after the credit crunch. This is because many existing long-term loans were made at rates of interest lower than that at which banks can now borrow.
As a result banks now factor in regular repricing windows - typically at five-year intervals - rendering 25-year loans short-term from a borrower’s point of view. This has forced housing associations to turn to the bond market as it is the only cheap source of long-term finance. They have raised £5.4 billion since 2008 as a result.
L&G believes it can fill the gap left by the banks for associations that want smaller amounts than the capital markets are able to provide - as low as £25 million.
Loans are likely to be priced between 0.5 per cent and 1 per cent above the cost of a well-received bond.
Ashley Goldblatt, head of commercial lending at L&G, said: ‘The liabilities that most life insurers tend to have is naturally long-dated, so we are set up to look for opportunities to lend on a long-term basis because it meets the liability profile that we have,’ he said.
Mr Goldblatt added that although it would start with a modest number of transactions, the company could lend ‘billions’.
The insurer, which last month also began lending to commercial property, has already received shows of interest for its first loans.
It is in the process of recruiting a housing finance expert to head up the company’s push into housing.
Brendan Sarsfield, chief executive of 20,000-home Family Mosaic said it was ‘great to see new players enter the market’.