Housing borrowing vehicle shelved as councils stick with PWLB
0
Plans for a collective borrowing vehicle for councils to provide thousands of new homes have been shelved due to low interest rates currently being offered by the Public Works Loan Board.
Room151 revealed plans for the LG Develop project — aimed at reducing the costs of borrowing for housing schemes — more than two years ago.
However, the Local Government Association (LGA), which instigated work on the plans, announced this week that it has dropped the idea.
A spokesperson said: “The LGA agreed this autumn not to pursue the consortium of councils it had been working with. It continues to offer support to individual councils requesting help in delivering new homes outside the HRA, and in particular supports the work of the Housing Finance Institute.”
Last year, Room151 reported that two unnamed counties were among 14 authorities to sign up to LG Develop.
The scheme would have allowed councils to borrow cash to build new homes by borrowing outside of the housing revenue account.
It aimed to secure institutional or corporate finance for the developments by aggregating council building programmes into a consortium, achieving low rates of interest through scale.
It is understood that the consortium was set to offer rates at 0.4% less than the PWLB rate, but that discount was not enough to tempt participating authorities who faced extra due diligence work.
The LGA said: “Although LG Develop was able to offer a borrowing rate that was less than the Public Work Loans Board (PWLB), this proved insufficient to persuade councils to depart from their tried and tested source — PWLB.”
Three institutional investors are believed to have pitched for the lending brief, working alongside the European Investment Bank.
Last year, Brian Reynolds, who was overseeing the project for the LGA, told Room151 that the first portfolio, comprising schemes from around five councils, hoped to borrow £80m from investors to build around 700-800 affordable homes.
A second tranche was set to be launched three to four months later, with overall proposals from the 14 councils requiring around £798m to build more than 6,000 homes.
