Anticipate ‘modest uptick’ in capital markets deals, advisors say

Bank finance still offers “value for money”, he says, while strategic hedging – including International Swaps and Derivatives Association (ISDA) arrangements – will continue to be important this year to “optimise” treasury portfolios.

 

“We expect to see more ISDAs being established, and sensible, tactical, risk-managed hedging activity, and we’re going to continue to see that play out as a theme,” Mr Flynn says.

 

Banks and capital markets: moving the needle on ‘60:40’

 

For Gows Shugumaran, director at Newbridge Advisors, 2026 is likely to be a “busy year” for funding activity as housing associations seek to finance delivery in line with the government’s renewed housebuilding ambitions.

 

He refers to the changing dominance of the different parts of the market, where around five years ago new sector funding was broadly split 60:40 in favour of capital markets over bank debt.

 

For example, Social Housing analysis of the English regulator’s quarterly surveys for the financial year to 31 March 2021 shows new capital markets funding over the year of £8bn (62.5 per cent) and new bank lending of £4.8bn (37.5 per cent).

 

Mr Shugamaran points out that this balance has reversed in recent years, with a greater reliance on bank funding. The same data from the Regulator of Social Housing for the year to 31 March 2025 shows a split of £3.9bn (32.5 per cent) of new capital markets funding and £8.1bn (67.5 per cent) of bank lending.

 

That said, Mr Shugamaran believes there is an opportunity for increased bond issuance this year.

 

While banks currently have good capacity, Mr Shugumaran notes that individual housing associations will increasingly review the composition of their loan books and may conclude that they need to introduce longer-dated tenors beyond 10 years to manage refinancing risk in the short to medium term.

 

Mr Shugumaran says: “It does feel like there is an opportunity this year for housing associations to introduce some slightly longer-dated funding into their debt portfolios. As a result, we expect to see a modest pick-up in capital markets activity over the course of the year, although it will remain rate-dependent.

 

“I don’t expect a return to pre-Covid issuance levels or materially larger transaction sizes this year in terms of own-name capital markets issuance. However, we do expect volumes to step up modestly from recent years.

 

“The dominant theme last year was guaranteed financing, and we expect that to continue through this year. At the same time, we would expect a number of housing associations to explore longer-dated issuances in the capital markets, particularly in the 15 to 20-year part of the curve, where we are seeing good investor appetite.”

 

Mr Shugumaran added that there will be “pockets of opportunity” in the market that housing associations can identify and move quickly to take advantage of.

 

Examples include the use of standalone swaps, the sale of retained bonds and quick, flexible issuances through Euro Medium-Term Note (EMTN) programmes.

Mr Shugumaran says: “I expect to see more flexible use of EMTN programmes, particularly among larger issuers. Rather than waiting to issue benchmark-sized transactions, these issuers can access the market in smaller tranches of £50m or £75m to meet funding needs more flexibly.

 

“As a result, it may not only be large benchmark transactions that we see more of this year: we could also see an increase in smaller, strategic placements.”

 

Jamie Thorn, consultant at Altair Consultancy, says he believes the “needle” will start to move away from 60:40 between bank and capital markets finance, back towards a more even split.

 

“I think the needle will start to move back towards more capital markets issuances in the next 12 months,” he says.

 

“But I think we’ll still see organisations favouring bank funding until we see a further [downwards] movement in gilt yields.

 

“And I don’t think that there’s going to be a moment where everyone in the sector is rushing to the capital markets again. I think it’s going to be those that have a need to due to reaching capacity with lenders or can afford the slightly higher cost, and I think offerings through the bond aggregators are becoming more appealing.

 

“The trend will likely continue that those issuing are doing so to fund development, and we are seeing some clients prepare for this.”

 

The Affordable Homes Guarantee Scheme and low-interest loans

 

Mr Thorn also questioned whether the arrival of the government’s new low-interest loans would have an impact on the types of finance borrowers seek. Last week, details for the previously promised £2.5bn package emerged, including confirmation that terms will be 25 years long and the revelation that the interest rate will be just 0.1 per cent. 

 

“[It] will be interesting to see how access to the government’s new low-interest loans may impact on demand in the capital markets,” Mr Thorn said.

 

Housing providers have welcomed the products which, in the words of one chief financial officer, help address the “principal problem of housing association development capacity – historically low-interest cover metrics”.

Advisors also expect the Affordable Homes Guarantee Scheme (AHGS) to continue to be busy this year, after around £1.4bn in new funding was arranged through the government-backed scheme in the 2025 calendar year. Last year, the application window for the scheme was extended from 30 April 2026 to 30 April 2028.

 

At the end of January, scheme manager Venn announced its first loan and issuance during the new calendar year, with a £50m transaction for Accent Group.

 

“We still expect to see a primary focus on term bank debt and the AHGS, which was very popular in 2025,” says James Tarrant, director at Savills Financial Consultants.

 

“What is unknown is the impact of the recently announced low-cost loans and how this will feed through into associations’ funding strategies.”

 

But Mr Tarrant also predicted a “slow transition” towards the debt capital markets as revolving credit facilities continue to be utilised.

 

Mr Tarrant says: “Certainly larger organisations that have got much larger, more significant exposures with banking market funding will need to diversify their funding, which could lead to a return in some form to the capital markets.”

 

‘Similar levels’ of bond issuance – for now

 

Meanwhile, Lawrence Gill, a director at Centrus, says he expects “similar levels” of bond issuances this year.

 

He added that, as housing associations look to increase their development plans in response to government support, they will need more funding, most likely through the capital markets.

 

But rather than in 2026, it is likely the peak of this requirement will arrive in two to three years as development pipelines ramp up, Mr Gill says.

 

“Those 10, 15-year issuances that we’ve been seeing, I think, will continue,” he says.

 

“Maybe not at the scale [seen] five years ago, but we’ll certainly see a good handful or more go for that 10 or 15-year – and beyond – bond market, for those that need the scale, longevity or diversity, which isn’t everyone.”