Councils could save £9.5 billion and keep their stock, Treasury is told
The Treasury has been analysing more proposals to allow local authorities to borrow against their rental incomes as a way funding property improvements, it emerged this week.

Officials are said to be convinced of the merits of raising finance by selling the income from rents to a separate, council-owned company.

In particular, housing stock securitisation, as it is technically known, would provide massive savings to the public purse because the cost of borrowing would be less than for stock transfer.

Overall, it is estimated that £9.5 billion could be saved in borrowing costs compared with transfer if the scheme was adopted by all authorities.

However, it is understood that the legal form any sale of the rental stream might take is proving a sticking point. Ministers have also yet to formally consider the proposal.

The call for securitisation follows discussions being held at the Department of Environment, Transport and Regions over the forthcoming local government finance Green Paper.

Ministers have been considering including a proposal to let councils borrow against either rents or the major repairs allowance to fund capital expenditure and repairs in this paper, exclusively revealed by Housing Today last month (Housing Today, 8 June).

In the meantime, the Local Government Association is calling for securitisation to be considered as a further tool for stock improvement, alongside transfer, private finance initiative and arms-length management.

As with stock transfer, securitisation removes the stock and tenants from the housing revenue account, but like PFI the council maintains ownership.

Four councils have been modelling the plan as it has been drawn up by consultants Freud Lemos, who pioneered securitisation with housing associations.

It would work by transferring homes to a new company, run by councillors and tenants. This company sells the rental stream to a special purpose vehicle, which raises a bond issue on the capital markets. This up front payment would be used to refurbish stock.

"Securitising the rental income from council housing provides the potential for raising investment finance without increasing public sector debt," the LGA said in a paper sent to ministers this week.

Consultant George Lemos said if DETR ministers could be convinced of the benefits of securitisation then "it could be done with Treasury approval."

Source

Housing Today