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Housing associations to borrow £12bn to support 50,000 new homes per year, says S&P

Ratings agency does not anticipate any extra UK government grant funding or renewal of affordable guarantees scheme, despite political expectations around delivery.

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Government demands to accelerate the delivery of new housing will see the sector borrow an £12bn over the next three years, according to S&P Global


In a new report, the credit ratings agency said total debt for social landlords would grow from £77bn in 2016/17 to £89bn by the end of the 2020 financial year, an increase of more than 15 per cent.


S&P also expects the capital markets to remain the primary source of new debt for housing associations.


The report said that rent cuts, low government grants and greater exposure to market-related activity would make it harder for social landlords to fund their own development programmes. It also highlighted uncertainty over the future of funding from the European Investment Bank in the wake of Brexit.


S&P predicts that UK housing associations will build 50,000 new homes per year between 2018-20, up from the 47,000 built in 2017. However, it does not anticipate any extra government funding. Indeed, the agency added that it does not expect the Affordable Housing Guarantees Programme – which has seen the UK government underwrite £3bn of debt for HAs – to be renewed.


However, even with increased borrowing, analysts from S&P said they expect housing associations’ “performance to remain resilient over the next three years”.


Debt for social housing providers in England is expected to grow at a faster rate than in the other countries of the UK, with English landlords to account for 90 per cent of all borrowing.


In England, total sector debt is expected to grow from £69.6bn in 2016/17 to £80.5bn in 2019/20. In contrast, Scottish housing associations’ total debt is expected to stay broadly flat over the same period, while debt in Wales will grow from £2.6bn to £2.7bn and in Northern Ireland from £825m to £1.1bn.


S&P said that English landlords “face tougher operating conditions than providers in other UK regions”, while noting that market-facing activities “are not as prominent” in Wales, Scotland and Northern Ireland.


In terms of the source of funding, the capital markets are expected to increasingly dominate the picture.


S&P found that, in England, associations agreed facilities worth £2.6bn in 2016/17, up from £1.6bn the previous year. Capital markets borrowing represented more than half of all new funding in the sector.


“We expect this trend to continue,” said the report.


At March 2017, 13 housing associations were found to have debt over at least £1bn. L&Q lead the way with £4.5bn of total debt, with Clarion Housing Group, Sanctuary and Places for People all carrying debt in excess of £2bn.

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