Delivering investment in challenging times
Housing associations need to raise private funding to build more affordable homes. Max Cawthorn at the Pension Insurance Corporation explores how monetary policy is impacting delivery
using associations need to raise private funding to build more affordable homes. Max Cawthorn at the Pension Insurance Corporation explores how monetary policy is impacting delivery (sponsored_ #UKhousingIn association with:
The June Spending Review was welcomed by many in the housing sector for bringing greater clarity and stability for investors. However, to accelerate the delivery of affordable homes, housing associations will need to raise an additional estimated £100bn in private funding, according to research by property firm JLL. This is difficult when borrowing costs are high, there are multiple demands on their funds, and many have little borrowing capacity left.
The need for social housing is great, with about 1.3 million households on the social housing waiting list. The number of affordable homes needs to increase by about 100,000 a year to meet demand.
Pension Insurance Corporation (PIC) has invested more than £3bn in social housing over more than a decade and we have never seen so few investable opportunities within the sector. In a recent edition of PIC’s newsletter, Compound Interest, we explored how monetary policy is impacting the delivery of social homes.
Max Cawthorn is head of strategy at PIC Capital, developing investment initiatives appropriate for matching pension liabilities within a Solvency UK framework.
He has led the diversification of PIC’s asset base into new sectors through deployment of both debt and equity, including into senior living and long-income markets.
Quantitative easing
Under quantitative easing – the creation of additional money supply by the Bank of England – gilt yields and borrowing costs reached historic lows, and institutional investors’ investment in social housing increased markedly.
PIC research found that, as of December 2018, housing associations had agreed total borrowing facilities of £95.4bn, of which £59.8bn (63%) were bank loans, with institutional investors such as insurers funding the £35bn gap.
The reduction of money supply by the Bank of England – quantitative tightening (QT) – results in higher borrowing costs which cannot be passed on to customers because social rents are regulated.
Housing associations, as long-term investors, are more sensitive to fluctuating gilt yields than many borrowers. Long-term interest rates are high and are expected to remain high. This has made borrowing at durations of up to 30 years a much less attractive option for housing associations. This means they are borrowing less and for shorter periods, typically between five and 10 years.
Quantitative tightening is increasing the 10-year gilt rate. In its August 2025 Monetary Policy Report, the Bank of England revised up its assessment of QT’s cumulative effect on the 10-year gilt rate, from 10-20 basis points to 15-25 basis points. Overall borrowing costs may have risen even more than this.
Others estimate the impact to be around 50 basis points, as we explore in Compound Interest.
Agreed debt increasing
This comes at a time when credit ratings agency S&P projects that total agreed social housing debt in the UK will increase to £120bn by 2026. Banks will not be able to fund this by themselves, and insurers are less able to fill the gap both because overall borrowing costs have gone up and because credit spreads are historically tight. For bonds with a duration of more than 10 years, this is the tightest they have been since before the global financial crisis. This makes the investment case challenging, given the long-term nature of the asset.
Furthermore, the weakening outlook for the sector could mean that even if rates do decline – for example through the ending of QT – the risk profile of the sector has changed. In October 2024, the Regulator of Social Housing’s Sector Risk Profile report warned that its weakening financial position “continues to intensify” as the sector’s debt servicing cost exceeded its earnings for the first time since 2009.
Coupled with the costs of retrofitting existing properties for both fire safety and energy efficiency, this means fewer social homes will be built. The Sector Risk Profile revealed that “providers forecast building 300,000 homes over the next five years, 12% lower than forecast a year ago [2023 forecasts]”.
PIC has a growing portfolio and wants to invest more. We are keen to engage with forward-thinking and like-minded local authorities and partners to bring forward viable developments.
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