Housing Finance Corporation relaxes rules to allow more borrowing

The move is the first step in a phased campaign to update the image of the finance corporation, a not-for-profit organisation that makes loans to registered social landlords. The process is expected to affect more than 100 associations and enable between £50m and £100m of borrowing.

Under the rule change, customers who have excess security on their borrowing will be able to use this to take out other loans and bonds.

The finance corporation says rising house price and increased rental income could mean borrowers have more assets secured on loans than is strictly necessary. It is hoped the move will encourage housing associations to borrow more.

However, borrowers would have to meet higher withdrawal thresholds if they wanted to use the excess security to take out loans elsewhere.

If the change proves popular, the corporation will extend it to lending secured on the profitability of a housing association as well as its assets.

Corporation chief executive Piers Williamson said: "Our objective is to say we are moving on and this ought to be welcome news to a sector moving on in its funding. It was something we wanted to do as a matter of principle to show the bond market can be more flexible than people might think."

The sector is moving on in its funding and we want to show that the bond market can be more flexible than people might think

Piers Williamson, Housing Finance Corporation chief executive

The housing sector gave the move a cool reception, however. Finance directors were concerned that reassessing security would be difficult and that the current bond covenants were inflexible.

David Montague, finance director of RSL the London & Quadrant Group, said: "It's nice to have, but THFC needs to do more than that to secure their stake."

He said housing associations wanted flexible covenants where the amount of rental income tied in the covenant agreement could be renegotiated as rents rose or circumstances changed.

"What we want from the capital markers is what we have in the banking sector," he said. "We want to talk and we want products to grow and change as we do."

Dilip Kavi, deputy chief executive and finance director at Asra Housing Association, welcomed the move, but feared that reassessing security on borrowing could be time-consuming.