Housing association loans under threat from law change

A proposal to be included in the draft Housing Bill could threaten borrowing opportunities for housing associations.

Under a Housing Corporation plan, banks would have to wait 56 days, instead of the current 28, to reclaim loans made to registered social landlords that have defaulted on repayments or other loan terms.

During that moratorium period, the corporation could arrange a rescue plan, such as refinancing, moving stock to another association or a merger.

Lenders, though, are concerned that doubling the moratorium period would threaten the security of loans made to troubled associations.

Steve Amos, head of the social housing team at Barclays, said: "There is the potential that the capital market investors, who are further removed from the sector, may have reservations on the length of the moratorium. The moratorium could be a disincentive for banks not in the sector to come in."

He added the change "had no tangible purpose" as the corporation would already have been in rescue talks for months before the moratorium period and should be able to conclude talks within the 28 days.

Under the current system, the corporation can ask lenders for more time to pursue talks as long as they are happy with the way discussions are progressing.

However, Andrew Heywood, senior policy adviser at the Council of Mortgage Lenders, predicted that the corporation would abandon its plans to extend the moratorium in the bill, which will make its way through parliament this year.

He said: "It would undermine confidence in the bond market and lender confidence.

"A low rate of loan finance depends on [the creditors] being able to protect their position. Lenders might be less keen or might want to lend at higher rates of interest," he said.

Heywood added that no housing association in England or Wales has ever gone into default as the corporation intervened before a moratorium was necessary.

A Housing Corporation spokeswoman said changing the moratorium was just one of a range of options, but declined to say what the other possibilities were.

She said the corporation was talking to the bodies that would be affected but would not issue a formal consultation paper.