The effects of the financial crisis of 2008 continue to ripple around the world. For housing associations that has meant a continuing impact on the bank funding needed to build new homes.
Up to 2008 the banks were competing with each other to lend to housing associations at lower and lower rates, often lower than those available to national governments.
Following the ‘credit crunch’ these loans caused problems as the costs of funds were higher than the rates the banks were charging housing associations. Bank loans frequently have restrictions preventing the association raising any further debt without the bank’s permission, and requiring the association to get its business plan approved annually by the bank.
At Coastline we called these restrictions ‘the shackles’ that prevented us running our business the way we needed to. Getting rid of ‘the shackles’ comes at a price, with the bank typically looking to re-price the debt up to current, much higher, market levels.
We thought long and hard about this dilemma. We considered all the alternatives, including leaving our loan agreements untouched and not developing new homes, but decided that we had a clear imperative to break free of ‘the shackles’ so we could build much needed new homes in Cornwall.
Key to reaching this decision was realising that the world had moved on, and that if we didn’t accept this and change then we would be failing to meet the needs of our current and future customers.
So, after many months of negotiations, in April 2013, we finally reached an agreement with our banks on a mutually acceptable commercial agreement. The banks received a greater return on the sums they lent to us, - albeit not as high as current market rates - and we got the freedom to run our business the way we saw fit.
What have we done with our freedom? In January 2014 we put in place a further £25m facility with one of our existing funders.
More recently, in May 2014 we secured £31.3m through an innovative new funding arrangement with 13 other housing associations, put in place by Affordable Homes Finance plc and backed by a government guarantee.
The funding is made up of a £23m loan from the European Investment Bank and an £8.3m share of a bond that was issued at 3.76% – the lowest ever rate in our sector.
As well as giving us the funding we need to deliver up to 660 new homes, the new agreements will save £500,000 a year in interest costs, increasing tour ability to invest in both new and existing homes.
None of this would have been possible if we hadn’t accepted that the world had changed and that we needed to break free from ‘the shackles’.
Allister Young is director of finance at Coastline Housing.
Click here to register for your free copy of Local Government News magazine.
