Falling margins may force lenders out of HA market

NatWest bank, the biggest lender and arranger of private finance to housing associations said interest rates and loan conditions were so stacked against banks that there could be "some serious discussions about wholesale withdrawal from the sector" if the trend continued.

NatWest head of housing Clive Barnett told Housing Today falling margins were a major problem.

He said: "I could easily paint a picture where I recommend that we withdraw from the sector. We certainly need to increase our returns, not dramatically, but the sector doesn't stand up to pricing at these levels."

However, he emphasised that NatWest was positive about the sector and had no current plans to pull out.

Halifax, the second-biggest lender, backed the warnings. Head of housing Bruce Mew said: "The risk-reward relationship for lending to RSLs is approaching critical levels. With RSLs increasingly focusing on regeneration and diversification the risks are increasing and the rewards are falling."

Barclays bank, the seventh largest lender, warned that problems stemmed from an over-reliance on long-term lending.

Head of the housing association unit Steve Amos said: "I do have some feelings for the sentiments being expressed, but long term debt is not in itself the cleverest game in town.

"When we work with housing associations we provide them with short term treasury instruments, money transmission, insurance as well."

He added he was not worried about current margins as supply and demand would determine price levels.

Rates of interest have fallen consistently and the number of lenders has dwindled over the past few years, with Northern Rock, Alliance & Leicester, Woolwich and Portman building society all pulling out.

Private finance has climbed to £2.5 billion a year, since it was first introduced in 1988, as opposed to £650m through the Housing Corporation's Approved Development Programme.