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European Union's bank approves loans for Peabody and Wheatley with Notting Hill next in line

The European Investment Bank (EIB) is considering a £200m loan to Notting Hill Housing Trust after approving £450m for Peabody and Wheatley Group, as it continues its funding of UK housing in spite of the ‘Brexit’ vote.

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Along with recent bilateral deals and loans via the UK government’s guarantees scheme, it takes the EIB’s approved and planned commitments since 23 June 2016 to over £1bn.

The European Union’s (EU) non-profit bank is currently assessing the loan for Notting Hill, which would be used to finance mainly new-build rented social and affordable housing units.

Fellow G15 London association Peabody Trust saw its application for a £300m loan approved towards the end of November 2016. The loan for Peabody - which announced this week that it plans to merge with Family Mosaic -will support investments from 2016-2020, including the retrofit and construction of social and affordable housing assets as well as associated infrastructure facilities.

Scotland’s Wheatley Group also received approval for its £150m loan at the same time. The money will be used to retrofit existing social housing stock to meet Scottish and EU energy efficiency standards; build new low-carbon social housing; and provide housing and integration for refugees.

It comes after the EIB approved a £300m facility for Genesis in July 2016.

The EIB said in July 2016 that it is still ‘open for business in the UK’ despite the country’s vote to leave the EU. But it remains unclear whether the bank will have an appetite to lend in the UK once ‘Brexit’ takes place.

The UK is currently a 16 per cent shareholder in the EIB, owned by the 28 EU member states, and received £5.6bn of cross-sector investment in 2015 alone. As Social Housing reported in April this year, the exit of a major EIB shareholder is untested, so the impact would need to be ‘discussed and decided’ by the EIB board of governors, made up of the EU’s finance ministers.

Paul Phillips, group finance director at Notting Hill Housing Trust (NHHT), said once the loan completes, he fully expects the EIB to honour its terms, irrespective of what happens to the bank’s appetite to lend in the UK in the future.

He said: ‘As far as I can tell, the UK is a shareholder in the EIB and after Brexit - unless other arrangements are made- the UK will no longer be a shareholder. 

‘All the same, this loan will have been made and both NHHT and the EIB will honour its terms. 

‘Clearly, this is a useful source of funds and, post-Brexit, it seems unlikely that loans will continue to be made on this scale. The EIB does lend to non EU countries, but to a lesser extent than to EU countries.’

Since the year 2000, UK social housing has been the recipient of almost half of all the EIB’s social and affordable housing loans in Europe. The vast majority of the EIB’s UK housing investment has been done via aggregator The Housing Finance Corporation (THFC), and the bank has also provided a £1bn funding line to UK government-backed aggregator, Affordable Housing Finance, with a string of deals at record-low rates. A month after the ‘leave’ vote, Moat took £50m over 20 years at just 1.539 per cent.

The bank made its first bilateral HA loan in 2014 with a £350m deal for Sanctuary Group.

Notting Hill is a regular issuer of bonds and is leading on a major builder across London, including leading on a regeneration scheme in Southwark, the Aylesbury Estate. It made a record pre-tax surplus of £125.4m in 2015/16, but saw its credit rating downgraded in October 2016 over plans to increase debt to finance development.

The note on Notting Hill’s prospective funding from the EIB says the lending concerns the financing of investments in social and affordable housing stock from 2016-2020. EIB funding will be used to finance mainly new-build rented social and affordable housing units.

It says Notting Hill has a track record of delivering large development programmes, currently owning and managing some 32,000 housing units and has a significant investment programme for social and affordable housing developments in London.

‘These sustainable social housing solutions will deliver good value-for-money homes which are cost-effective to manage and maintain throughout the life of the building,’ it adds.

Mr Phillips added: ‘We like the EIB money because it is more flexible than a bond.  In particular we do not have to draw it all at once, and we can choose the interest basis - floating rate or fixed rate for a number of different terms.

‘This is not to say that we will not access the capital markets again,’ he stressed.

He could not be precise about the security package and the exact use of the funds as this could be subject to change.

The bank is also currently assessing a £184m loan to the Northern Powerhouse Investment Fund, which has been set up to support smaller businesses in the North West, Yorkshire and the Humber and the Tees Valley.

The Northern Powerhouse Investment Fund expects to provide over £400m of lending and investment to smaller businesses, aimed at boosting economic growth and productivity in the north of England.

The fund is a collaboration between the British Business Bank and 10 local enterprise partnerships in the regions. It consists of a £432m ‘fund-of-funds’ that aims to support a wide range of firms at different points in their development.

Peabody and Wheatley declined to comment.

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