Banks reluctance to lend is casting doubts over the affordable sector's ability to hit housing targets

The old adage you should be careful what you wish for is ringing especially true for bankers lending to housing associations. For years they complained that the price housing associations paid for their borrowing was too low and eventually it would have to rise. And now it has. But not for the reasons they would wish.


Banks are nervous of lending to one another and this leaves them short of money to pass on to their customers. First-time buyers have already been squeezed by the credit crunch and now it is the turn of housing associations.

Once were seven lenders doing regular deals with housing associations but now it’s down to two or three active lenders – or even just one – depending on who you talk to.

Only one lender – Nationwide, one of the sector’s biggest backers – has announced that it is not bidding for new social housing deals. But several others are either making offers at far higher prices or being very choosy about the deals they bid for. The result is a shrinking number of places where housing associations can hunt for cash.

And the money that’s available comes with a higher price tag. Some consultants estimate that margins are up by 50% on last year while others reckon they have doubled or trebled. Prices from banks now less active in the market are said to have gone up by as much as four or five times on last year’s levels.

All this has led to a slowdown in the number of deals going through with one deal maker saying that they currently have two or three deals on the table where once there would have been eight or nine.

But housing associations are still seen by many as a relatively low-risk lending proposition.

Wobbles in the wider property market, such as concerns over buy-to-let, have made lenders nervous. But housing associations are still seen by many as a relatively low-risk lending proposition. Indeed they are still getting their money more cheaply than many corporates.

Recently there have been questions about whether the Housing Corporation acted fast enough to rescue Ujima Housing Association, which went bust and was picked up by London & Quadrant Group.

But this is the first insolvency in a sector where banks have never lost money. It was unfortunate that it happened as the credit crunch began to bite, but it is not the cause of the current lending stand-off.

None of this will help associations fund their share of 240,000 extra homes to be built each year by 2016. While many of the big players still have enough money to keep building for the time being, the question is how long will it take for the lending permafrost to thaw?

If the prices housing associations pay for their borrowing swing further upwards then maybe more lenders will stop sitting on their hands and rejoin the party. But until banks feel able to lend to each other more freely, it is unlikely that things in the social housing Square Mile will return to normality.