RSLs urged to take advantage of cheap refinancing

Housing associations should review their debt portfolios as now is a good time to get cheaper deals, experts said this week.

Sustained low interest rates mean long-term borrowing rates are falling, presenting an ideal opportunity for finance directors to get better deals, according to Derek Joseph, executive director at consultant Hacas Chapman Hendy.

He said: "The majority of housing associations are risk-averse and fix their interest rates on their loans. But more and more are finding that because interest rates are so low, they can have half their finances fixed and half variable."

The reason for the change is a series of decisions by three big central banks during the past year to either hold or cut the basic rate of interest to historic lows.

Last week, the Bank of England's Monetary Policy Committee and the European Central Bank held interest rates at 4% and 3.25% respectively and the USA's Federal Reserve cut its rate to 1.25%. Rates look set to remain low on both sides of the Atlantic in order to stimulate economic growth.

Developing registered social landlords could bring down costs and thus make their schemes more viable by reassessing their exposure to interest rate risk and renegotiating with lenders, Joseph said.

RSL finance directors welcomed his comments as "sensible".

Southern Housing Group finance director George McMullen oversees a £96m facility, of which £30m is variable and £66m is fixed. He said: "Most of our fixed debt is at reasonable rates, but not as good as I'd get today. If I didn't have that already, I'd be looking raise the amount of fixed rate."

Associations tempted to take advantage of the lower rates should bear in mind breakage costs, which would probably have to be included in the value of any new loan, he warned.

Amanda Davies, finance director of Parkside Housing Group, which has drawn £66m of a £100m facility with Nationwide and Barclays, said: "We don't have big tranches of fixed-rate loans.

"The average is about three years and currently 45% of our funding is at fixed rates. We like to take regular decisions on this and so keep our loans small to allow for flexibility."