Banks for the memories

Long-term bank lending, the mechanism which since time immemorial has allowed housing associations to plan their future developments, looks to have gone the way of the Betamax.

The last two major banks that were still theoretically offering 25-year loans to the social housing sector – Santander and RBS – have effectively drawn a line under their former generosity and have stopped offering the product. While loans of that length are still technically available, they are offered only at eye-watering rates and with repricing options included at regular intervals. So, from a borrowers’ point of view, it means the days of long-dated bank finance are over.

The line from the banks is that such loans are simply no longer economically viable and that social landlords had enjoyed a privileged position for way too long. In effect, RSLs are being told to wake up and smell the recessionary coffee.

And that makes perfect sense in many ways. After all, there’s no reason why a housing association should be able to access the kind of borrowing rates unavailable to those poor souls plugging away in other sectors. And, with tighter capital holding requirements on the horizon and no end to the eurozone crisis in sight, the banks’ attitude towards risk is only likely to go in one direction.

But these same housing associations are now at risk of being pulled in two entirely contradictory directions: on the one hand, there is increasing political pressure to develop like they have never developed before (except with limited government funding, of course); while simultaneously, many are in no position to commit to anything that is going to cost any significant amount of money for fear that the well may soon be running dry.

It is a damned if you do, damned if you don’t situation.

But there is a chink of light at the end of the tunnel. As the cost of UK government borrowing has fallen to historically low levels (yes, again), there has never been a better time for landlords to find their pots of gold at the end of the bonds rainbow. And the indications are that a good half a dozen might do just that early next year.

It’s not an option available to all, however, and the reality is that only three things might allow the smaller developing landlords to access the kind of financing they need: consolidation, consolidation, consolidation.